Multinationals in Pakistan scramble as their profit margins plummet

The going is getting tougher for multinationals operating in Pakistan, fresh investments will slow down. Along with the economic woes, the deteriorating political and security situation will also be a deterrent. Profit margins of the MNCs have taken a massive hit owing to the dwindling foreign exchange reserves. 

Pakistan’s economic situation is unlikely to improve in the near to medium term, especially with general elections approaching.

Many fear that the crisis would force several firms to either shut down or slow down operations leading to further joblessness.

“The situation could even get worse leading to further rise in unemployment. But that is not the only concern. Pay packages may get thinner too or for many, salaries could even get docked,” said an analyst.

Earlier this month, automobile major Honda announced closure due to scarcity of raw materials with a strained supply chain network.

The stringent restrictions imposed by the State Bank of Pakistan – the central bank — limiting outflows of the foreign currency have left MNCs scrambling to remit dividends to shareholders outside the country. The sharp depreciation of the Pakistani rupee has also led to a massive erosion of the value of the dividends. Not just that. The frequent power outages along with scarcity of raw materials due to import restrictions to save dollars has also become a cause for concern.

Now the uncertainty over resumption of the $7 billion aid package from the International Monetary Fund could push many of these companies to rework their Pakistan strategy.

Pakistan Business Council (PBC) CEO Ehsan Malik told the Express Tribune that the delay in remittances sends a “very negative signal to the potential (foreign) investors.”

Between July to February, the total profit repatriation stood at $225 million—a massive drop of 80 per cent compared to the corresponding period of the previous financial year. Of this, Hong Kong-based MNCs repatriated $84.3 million to their headquarters, followed by Chinese firms that sent home $34.4 million, the newspaper said. For US firms the amount was $26.3 million. The amount repatriated by UK-based companies stood at $15.1 million and for UAE-based firms it was $11.5 million.

Also read: Why Pakistan can’t rejoice at falling current account deficit