The macro numbers are getting worse as the tightening measures are not reaping results – the impact is likely to come with a lag; and in the process, debt servicing and private credit will worsen before they improve. The key to sustainable recovery is based on structural reforms – that is a different debate, and has been covered adequately in this space. One element that is required to be highlighted is glimpse of import substitution that has started taking place which is good in short to medium term – a desired economic change.
A few anecdotes based on talks to various businesses are presented to support the argument. For example, someone in milk supplying business to big guns like Nestle and Engro was initially unhappy when currency was started depreciating as due to input price hike, buyers were not willing to take on impact. Now with milk powder import becoming unviable due to high prices, relatively smaller milk producers such as Haleeb and Millac are now buying milk from the same supplier, at the right price.
Another example is of a big retailer of tiles –the business was thriving on imported tiles from Europe and China, now the buyers are absent at high prices. The company has invested in making tile factory at home to replace imports. Similarly, one of the leading shoe retailers who used to buy 70 percent of shoes from China is now procuring around 70-80 percent from local shoe makers or producing in-house.
One of the leading non-radial tire maker in Pakistan was struggling a year back due to smuggled tires as the business was becoming unviable where importers used to evade duties while formal manufacturer had to pay duties on raw material import. Now with crackdown on smuggled tires, the company is happy despite higher input prices and suppressed market.
A transporter lately got a good news in the form having limits on excel load a truck can carry on road. The limit is now being implemented based on international standards which is increasing cost of goods moving, but good for transport businesses and good for highways as less amount will needs to be spent on maintenance. There are talks of private equity investors coming in medium size transportation and logistics businesses.
A few farmers are saying that they are now shifting back to cotton production after many years. The substitution of sugarcane for cotton was not good for the economy. These are a few anecdotes which are giving hope that import substitution has started. There are signs of much needed structural shift of the economy. Still a long way to go, and still these micro examples have to translate to macros. Challenges are huge and journey is long, the economic recovery will take time.
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