EDITORIAL: It’s no surprise that results of the Overseas Investors Chamber of Commerce and Industry’s (OICCI’s) latest Business Confidence Index (BCI) Survey - Wave 26 reflect recent improvements in the real economy, especially “positive economic growth, stable exchange rate, and notable decline in inflation”.
Yet it’s important to note that despite improving “significantly” by nine percent, the overall business confidence for Oct-Nov 2024 still stands at a negative five percent, up from negative 14pc in Mar-Apr 2024.
The services and manufacturing sectors seem to be bottoming out and leading the recovery – the former improving from negative 14 percent to positive 2 percent and the latter from negative 15 percent to positive 3 percent. Conversely, the retail/wholesale sector continued to decline, dropping from negative 15 to negative 18 percent.
However, that much is understandable, since this sector usually lags the economic cycle because it depends heavily on consumer spending, which only substantially rises after broader economic growth takes hold. It would, therefore, be important and instructive to observe this sector very carefully when the next report comes out.
Overall, the survey highlights optimism for the next six months, a very crucial period for the country’s economy as it goes deeper into the IMF bailout programme, with 43pc of respondents expressing positive expectations, up from 34 percent in the previous survey. Key contributors to the positive sentiment include growth in the global market, better government policies (in keeping with the IMF’s structural adjustment doctrine, no doubt), a significant dip in inflation, and a generally improved law and order situation.
Indeed, the OICCI president made a point to mention how compliance with the EFF (Extended Fund Facility) was translating into improved country risk rating by international agencies, and how a boost to the country’s FX reserves helped maintain a stable exchange rate, containing inflationary pressures to levels not seen in more than six years.
Yet, while these factors have come together at just the right time to lift broad sentiment, the OICCI president was wise enough to mention headwinds that are gathering and can potentially derail the recovery.
Challenges ahead include increasing cost of energy that will not only continue to hurt households but also render industry, especially export industry, uncompetitive at a very fragile time for the balance of payments position, consistently high taxes when real wages are not growing, and policy inconsistency that can easily derail the IMF programme. These must, as pointed out, be managed through “deeper engagement of policymakers with the industry”.
It is, therefore, instructive to note that despite the notable improvement in the overall BCI, new investment plans received a rating of negative 23 percent versus negative 12 percent last time, which ought to be an area of concern for the government. Unless this trajectory is corrected, it will have a profound effect on economic growth and employment statistics in the quarters ahead.
Quite clearly, the economy is on the mend. And surveys like OICCI’s do the great service of helping policymakers keep their finger on the pulse of the market. And this one bolsters the argument that the upturn is still in its very early stages and must be protected. The greatest attention must therefore be paid to obstacles mentioned in the path of this recovery.
Copyright Business Recorder, 2024
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