Pakistan joins Asia's consumer boom

Society Pakistan & World Affairs
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Pakistan joins Asia’s consumer boom

By Afshan Subohi

Some sixteen million urban middle class earners in Pakistan have joined their counterparts in India and China in the making of the ‘consumer boom’ in Asia.

While it has gone virtually unnoticed, Pakistan’s contribution to this boost in consumer market is fairly significant.

Induced by the media exposure, the policies of the government and those of financial institutions they are opting for consumption over savings. To achieve better living standards they are ready to forego the buffer that personal savings provide in the absence of social security net in the country.

The typical middle class in Pakistan include officers (11.30 per cent), managers (2.1 per cent), professionals (4.17 per cent), technicians and associate professionals (4.58 per cent), service workers (15.05 per cent), craft and trade- related workers (15.05 per cent), plant and machine operators and assemblers (3.28 per cent). The total comes to 40 per cent of the total earning population of the country. These figures are taken from the current Pakistan Economic Survey.

On an average, according to an estimate, they earn in-between Rs 10 to 20,000 per month that equals $2,000 to $4,000 per annum. Due to a variety of factors their purchasing power parity is much higher than the figure indicates. This average income in Pakistan is in all probability the take-off point for say television and now mobile phone purchasers.

Inspired by the lifestyle projected on television people are dumping old notions that discourage conspicuous spending. They are not satisfied with functional living they long to live in style.

Debt is not a taboo anymore in a middle class Pakistani family. It is, rather, perceived as a facility available for those who are smart and confident enough to manage it. Majority, in this category of income bracket, probably, still borrows from informal sector, number of people approaching banks and specialized lender, however, is increasing at a rate faster than expected by many.

Statistics in the State Bank Annual Report 2003-4 support this observation. "Net consumer credit grew strongly in FY04, rising by Rs 75.6 billion, compared to Rs 48.6 billion in the preceding year.

Among the consumer sector, although automobiles and personal loans registered major increase in absolute terms, highest growth was observed in financing for consumer durables during FY04", says the report as shown in the Graph.

Aggressive marketing of new products by financial sector must also be a factor in shaping the changing perception of middle class towards debt. Fierce competition for the market share has forced companies to offer a variety of consumer friendly schemes to attract purchasers.

Packages offered by brands such as LG, Dawlance, etc., are cases in point. Taking a cue from corporate giants small time local retailers are coming up with their own set of innovative schemes to lure consumers.

The government policy of interest rate reduction in general and on specialized popular saving schemes, National Saving Schemes (NSS) in particular, further discouraged savers in the middle classes.

Simple logic in an environment of increasing inflation is pushing NSS savers away from national saving centres and to the market to give value to their fast eroding money. Views were divergent among the economists and researchers approached to seek comments. Sakib Sherani, chief economist at ABN Amro Bank considers a jump in consumption something ‘really positive for the economy’.

“I believe that surge in consumer spending is a clear indication that real income of middle class has improved. Higher crop prices have benefited rural Pakistan. Besides, there are signals of improvement in urban job market specially in telecom, IT, automobile and pharmaceutical sectors”. Sakib feels that beside other factors increase in asset value has also contributed towards confidence of middle class buyers.

“The escalation in the value of house that a family is living in gives a sense of prosperity to its residents. And despite static household income the family feels wealthier and tries to behave accordingly,” Sakib explains.

“There is evidence that consumers are becoming over-leveraged (so the scale of consumption spending is good for kickstarting the economy on the whole, but it would be more sustainable if consumption spending is driven by a rise in real incomes rather than just borrowing)”, says the economist.

The comments of the economist suggest that things were actually meant to move in the direction they are moving. May be the government did adopt the strategy to stimulate growth through consumer demand surge.

Doubts, however, are created when one finds government functionaries at a loss when contacted to comment on the growth strategy adopted. There was no option but to work out dynamics of strong consumer demand privately based on whatever little information was accessible.

Dr Asad Saeed, an economist was not as optimistic. To him surge in spending would not be sustainable. “There are no clear signals to indicate positive change in basics of the economy such as significant improvement in real incomes, job creation across the board, noticeable industrial expansion or a major rise in government spending on public development projects”, Asad emphasized. Commenting on easy consumer credit policies of the banks Asad was apprehensive.

“I see trouble for banks a few years from now. Many retail customers will default on their loans pushing financial sector in troubles again. In a situation like that the State Bank will again be called to help. The State Bank help would again translate into increase in public debt and we would in all probability be back at square one”, he said.

The economist, like other in the profession, was not able to identify drivers of the surge in consumer demand with confidence. He thought that Oct-November surge was Eid-related and therefore cyclical. Still his rationalization of the situation offered little to explain the sourse of stimulation for the demand surge.

However, Asad’s identification of the danger of consumption loan default in the near future may ring the alarm bell in the financial institutions. It should worry the government all the more as this time the defaulters will not be filthy rich but those hardly on the brink of decent living standards. Besides lacking capability to return loans, the probability of these defaulters getting pushed back to poverty trap can hardly be ruled out.

Both Asad and Sakib viewed the phenomenon from their own political position and their view matched their respective positioning in the current scheme of things. Unavailability of credible data on the subject compounded their difficulty by robbing their argument of empirical evidence.

Besides difference in perception, Sakib seems to be more focussed on effects of robust consumer demand, Whereas, Asad is keen to look into the causes of increased consumer spending.

The very fact that official economic documents contain little if at all on the subject is a sad commentary in itself on the level of alertness of our policy makers. Besides taking credit for assumed or real prosperity as reflected by increase in consumer spending, it would be good if the government could streamline its fact-gathering departments.

It is amazing how those entrusted with the task of data collection about the economy manage to ignore such obvious and exciting happenings of economic significance.
http://www.dawn.com/2004/11/29/ebr5.htm

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What is the use of few rich when the majority are in abject poverty. Check out Abraham George new book “India Untouched”. For a country to progress entire population has to be uplifted, not a chosen few from Clifton!!

Rich man’s passage to India’s poorest

Abraham George knows too much of the world to be content in any one place in it – and loves it too much to stop trying to change it.

So he is awake nearly all the time, on the phone to India and Europe in the middle of the night, talking and scheming, traveling the world every few weeks, worrying his own life and resources are finite while the problems he wants to solve are so overwhelming as to be practically infinite.

“You’ve got to start somewhere,” says George, 57, a man oddly reminiscent of John or Robert Kennedy, patrician in bearing, well-groomed, restless, and passionate.

“I speak for people who will never know me, who will never read my book.”

His book – “India Untouched” – an indictment of corruption and neglect in India and the global economic forces that make a few, here and there, rich, and condemn far more to a poverty so grinding that it bears little resemblance to life as we know it.

The book is, he says, a bestseller in India, and is about to be released here by the Writers’ Collective. The original foreword was by Ralph Nader but, after Nader’s decision to run for president again, George asked columnist Thomas Friedman of the New York Times to write a new one. Friedman toured George’s facilities and wrote about them.

The book is similar to Michael Harrington’s “The Other America,” the literary inspiration for the 1960s war on poverty. “India Untouched” details how politics and economics deprive most Indians of access to both basics – water, food, schools, health care, shelter, clothing – and less tangible benefits, like art, culture, language and hope.

Life in rural India, writes George, leaves the poor relegated to a social status “below the holy cow, the potent snake, and the spirited monkey.”

The wealth that the revolution in technology and outsourcing of work from this country may have brought a few in India has only widened the gap.

“You might have a tiny wealthy class, and a growing middle class, but that amounts to, perhaps, 100 million people,” says George. “A major market, true, but that leaves more than 1 billion Indians in poverty. Those are the people I write about.”

But George’s book, as important as it is in India, is only a small part of what the Boonton resident has done in the past decade to ameliorate wretched conditions in a country where he was raised in comfort, the son of a legal scholar and a physicist.

George came here after a wartime stint as an Indian army officer, joining his mother in Alabama, where she worked for NASA. He attended the University of Alabama in the '60s – “They didn’t know what to make of me – a black with straight hair and a British accent?” He earned a doctorate at New York University.

Inspired by Gandhi and Nehru, George wed idealism and a business talent. He once asked a company that hired him to a low-level, part-time job as a student to expunge his employment record because he never wanted to be known as having worked for a profit-making firm.

Yet, in the '80s, he built a software company he sold a decade ago to make himself a multimillionaire, owning a staggering mansion in the Morris County woods. A mansion in the woods – and a determination to use his wealth to change India.

So far, he has spent nearly all the money he made to build and operate a high-end boarding school for poor untouchables near Bangalore – a school, a health center, an art gallery, a center for the economic empowerment of women, plantations to grow food for the poor and provide them with work and their own land, a university-level institute to train Indian journalists to fight corruption by reporting on it, a program designed to wipe out lead poisoning in Indian cities, efforts to stop female infanticide.

He says – and his book describes the details – trying to establish and operate these institutions brings him in direct conflict with local and national governments in India. Hands are endlessly out for bribes and local officials who don’t get them from George incite the poor against him, warning the superstitious that medicines he provides will make men sterile, the books will try to make them, like George himself, a Christian.

“It is difficult for the poor to understand why anyone wants to help,” he says.

It also is difficult for the rich, he says, to understand why they should help, but George is determined to try. With his own funds dwindling – he lost a lot to the stock market dive and still spends more than $1 million a year there – he is trying to raise money while making his plantations profitable.

“I’ll do it through fund-raising and bananas,” he says. With Israeli agricultural experts, he has been able to grow bananas in desert-like conditions around Bangalore.

All this demands amounts of time. He works as much now as he did when he ran his company – and spends about half his time in India, supervising the projects he funds.

He wants to expand his schools and health centers, create, perhaps, a thousand throughout the country. In just decades, he says, he could help 100 million rural poor.

“That would be a great start,” says Abraham George.