Growth in SECP-registered companies had peaked in FY17, having seen a multi-year high growth of 10.2 percent. In FY18, that growth eased to 8.6 percent, according to the recently released annual report by the securities’ regulator. Below are some of the key insights gleaned from the SECP firm level data mentioned in its annual report FY18.
Public listed companies are on the way down year after year. FY18 saw listed companies drop to 532, lowest since FY11 when the number stood at 648. The growth instead mainly comes from private companies, and single member companies (SMC). The SECP’s annual report does not shed light on whether this growth is a reflection of growth in economy or whether it reflects the conversion of organisational status from other forms (AoP and Partnerships) to one registered with the SECP.
In absence of data of other forms of corporate organisation, and assuming that there is no major conversion going on, the growth in SMCs and private companies can be read as a sign of growing formality or economic growth or both.
The bulk of new incorporation in FY18 was driven by firms involved in ‘trading’ (15%), ‘services’ (14%), ‘information technology’ (12%), and ‘construction’ (12%). The four sectors combined contributed about 53 percent of total new incorporation which stood at 11370 in FY18 as against 8286 in FY17. Here some data glitches deserve some attention that the SECP would do well to remove in the ensuing reports.
In the case of ‘trading’ sector companies, some 1688 new companies were incorporated in FY18. Despite that, total firms in that sector dropped to 5581 as of June 2018 from 9425 at the end of June 2017. That may be because the number of trading companies that have been de-registered is higher than the number of new firms incorporated in that sector. However, in the case of tourism, the number of newly incorporated companies was 571 in FY18 according to FY18 report, but the total number of tourism companies rose from 7809 (as per last FY17 annual report) to 12699 as per FY18 annual report. This raises questions over the reliability of the data shared in SECP’s report.
Data discrepancy aside, one cannot dispute the fact that the face of Pakistan’s economy is changing. Growth in non-traditional sectors such as – real estate, construction, IT, tourism, corporate farming, and education – has become noticeably higher in the last three years, compared to the growth in firms in traditional (including export-oriented sectors) that has been tapering off.
Meanwhile, the rise of China is also noticeable at firm level data. Ten years ago, the share of Chinese companies in total foreign companies registered with the SECP in Pakistan was just 3 percent. By FY18 that number stood at 14 percent, just shy of the biggest share of 15 percent enjoyed by the US. The presence of 145 Chinese companies in Pakistan shows that CPEC is not just about Chinese state companies venturing into Pakistan, but that Chinese private companies are also increasingly interested in investing in the country.
On that note, it is pertinent to highlight that Balochistan is still not benefitting from the CPEC, if terms of new firm incorporation data is any guide. Gilgit-Baltistan enjoyed a bigger share (3%) of new incorporations in FY18, perhaps because of tourism and trading companies, than Balochistan which had only 1 percent share, despite the development of Gwadar and the so-called progress on CPEC’s western corridor.
The SECP’s annual reports ought to be a repository of its performance, and also offer perspectives on economy since firms and their performance is an important indicator of economy.
How many companies are active in each of the sector; how many companies file their annual returns (Form A etc) to the SECP; how many SECP firms have filed tax returns and notified the SECP as well; what is the capitalisation status of firms across sectors; what is the sector-wise profit/loss status; of the new incorporations how many are conversions from other organisational status; these and many other questions are left unanswered by the SECP’s annual reports.
Hopefully, with new party in Islamabad, the SECP would be directed to become more transparent and share more data relating to SECP’s performance and the sectoral performance of SECP-registered companies.