Pakistan's retail 'revolution'

HERE are a few uncomfortable facts: Pakistan's formal economy has been in the doldrums for the past seven years. Growth rates have been spectacularly low; commodity, energy and balance of payments crises unfalteringly regular; and revenue generation persistently elusive. This coupled with an archaic, largely selfserving bureaucracy, and frequent episodes of political mismanagement results in poor service delivery, and high levels of misappropriation (or misdirection) in development spending.

Here are some more facts: Pakistan's formal economy (and more broadly, its political economy) has remained structurally trapped in low value-added manufacturing for close to three decades. Going by standard political economy comparisons, Pakistan should have moved higher up in the production value chain around 20 years ago. We should have been selling the world something slightly more complicated than grey cloth or towels (or cheap labour for oil-fuelled, vanity construction). The fact that we're still hostage to cotton, remittances, and development assistance, just as we were in the 19whenevers, is indicative of a continuous malignancy.

This piece, however, is neither about the structural trap of almost entirely our own making nor about the political economy of Pakistan's economic stagnation. Economists on these pages and elsewhere have dealt with those issues fairly comprehensively. This piece is more about the public face the economy (and capital investment) has taken, broadly in the past 20 years, but more so in the past 10 years.

Much of the retail development is currently taking place in upscale (or upstart) neighbourhoods.

Friends across the border in India call it the great 'retail revolution' - the rise and rise of the micro and midtier retailer and wholesaler, currently the contributor-inchief to a services sector picking up the slack from a manufacturing slowdown.

Here in Pakistan we've witnessed a retail revolution (or at least a sustained spurt) of some kind as well. Lower duties, better smuggling strategies, and generally freer borders on all sides (except one) means more Pakistanis now have access to more goods than at any point in the past. The size of this retail pie is now close to $50 billion. It has been growing at a real, (inflationadjusted) rate of 5.3pc per annum for the past few years. That alone is fairly exceptional given the sloth-like (non)-performance of everything else - especially manufacturing - in the country.

At the end of every month, the Securities and Exchange Commission of Pakistan publishes numbers of new company registrations, broadly categorised by nature of economic activity. Unsurprisingly, the first six months of this fiscal year show the highest numbers of new businesses were registered either in the 'services' category (280 new firms) or the 'trading' category (250). If we go by two, not wholly unreasonably assumptions - 1) taking this as roughly indicative of where new investment is heading, and 2) taking these numbers as roughly proportional to the numbers of undocumented new enterprises - it's quite clear that this is where the money's going and that there are little signs of it slowing down.

If you're sceptical of this positivity, or cynical about Pakistan in general, here's where the story drops down a fairly dark cliff: our particular retail revolution is not only quite obviously skewed in terms of the demographic it serves, its overall impact on socio-economic development is mixed at best. For starters, the consumption boom is being ridden and enjoyed by the top economic quintile of households in Pakistan - ie the only ones who've experienced an increase in real, disposable income of close to 15pc in the last eight years (compared to 1.5pc for the lower four categories).

This is why when you step out in a city like Lahore or Karachi, most of the retail development is currently taking place in upscale (or upstart) neighbourhoods, and consists of clothing retailers, restaurants, and flashy outlets that stock rows upon rows of consumer goods. Beyond the public brick-and-mortar manifestation, a parallel, internet-based elite economy - consisting of designers, bakers, photographers, and event managers/wedding-planners - has also emerged as a cash-rich, tax-free little island.

The creation and growth of this elite-owned and eliteserving retail economy is one of the most obvious features of Pakistan's economic journey from the past decade. Is this necessarily a bad thing though? Is a new Ralph Lauren store or another Fatburger outlet something to be worried about? After all, both are generating economic activity of some kind, providing some manner of employment (even if most of it is informal), and serving as avenues of investment in a country otherwise besieged with crises of all varieties.