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Fast Moving Consumer Goods (FMCG) Boom in Pakistan's $152 Billion Retail Market

Surging demand for fast moving consumer goods (FMCG) in Pakistan is attracting hundreds of millions of dollars of new investments. Expanding middle class, particularly millennials with rising disposable incomes, is demanding branded and packaged consumer goods ranging from personal and baby care items to food and beverage products.  Rapid growth in sales of consumer products and services is driving other sectors, including retail, e-commerce, paper and packaging, advertising, media, sports and entertainment. Planet Retail estimates Pakistan's current retail market size at $152 billion. It is forecast to expand 8.2% a year through 2016-2021 as average disposable income has doubled since 2010, according to research group Euromonitor International as reported by Bloomberg News.

New FMCG Investments:

Dutch consumer giant Unilever has announced plans to invest $120 million to expand its operations in Pakistan. Turkish multinational Hayat Kimya has said it will invest $150 million to manufacture consumer products in the country. Earlier in 2016, Dutch dairy giant FrieslandCampina acquired 51 % of Karachi-based Engro Foods Limited for $220 million.

Rapid growth in sales of consumer products and services is driving other sectors, including retail, e-commerce, paper and packaging, advertising, media, sports and entertainment.

Retail Sales:

Rising incomes of Pakistanis are reflected in the retail sales growth which is ranked the fastest in the world.  Planet Retail estimates Pakistan's current retail market size at $152 billion. It is forecast to expand 8.2% a year through 2016-2021 as disposable income has doubled since 2010, according to research group Euromonitor International as reported by Bloomberg News. The size of the middle class is expected to surpass that of the U.K. and Italy in the forecast period, it said.

Retail Sales Growth. Source: Bloomberg


E-Commerce:

Online sales are growing much faster than the brick-and-mortar retail sales. Adam Dawood of Yayvo online portal estimates that e-tail sales are doubling every year. He expects them to pass $1 billion in the current fiscal year (2017-18), two years earlier than the previous forecast. This is being enabled by increasing broadband penetration and new online payment options. Ant Financial, an Alibaba subsidiary, has just announced the purchase of 45% stake in Pakistan-based Telenor Microfinance Bank. Bloomberg is reporting that Alibaba is in serious talks to buy Daraz.pk, an online retailer in Pakistan.

Advertising Revenue:

Growing buying power of rapidly expanding middle class in Pakistan drove the nation's media advertising revenue up 14% to a record Rs. 76.2 billion ($727 million), making the country's media market among the world's fastest growing for FY 2015-16, according to Magna Research.  Half of this ad spending (Rs. 38 billion or $362 million) went to television channels while the rest was divided among print, outdoor, radio and digital media. `

Global Advertising Growth 2016. Source: Magna

Digital media spending rose 27% in 2015-16 over prior year, the fastest of all the media platforms. It was followed by 20% increase in radio, 13% in television, 12% in print and 6% in outdoor advertising, according to data published by Aurora media market research

Mass Media Growth:

Advertising revenue has fueled media boom in Pakistan since early 2000s when Pakistan had just one television channel, according to the UK's Prospect Magazine. Today it has over 100. This boom has transformed the nation. The birth of privately owned commercial media has been enabled by the Musharraf-era deregulation, and funded by the tremendous growth in revenue from advertising targeted at the burgeoning urban middle class consumers.

Sports and Entertainment:

Sports and entertainment sectors are major beneficiaries of increasing advertising budgets. Commercial television channels' shows and serials are supported by advertisers. A quick look at Pakistan Super League 2018 matches reveals that all major consumer brand names are either directly sponsoring or buying advertising from broadcasters.  These ads and sponsorship have turned PSL into a major business producing tens of millions of dollars in revenue to support cricket in Pakistan.  Last year, Pakistan Cricket Board's budget was over $40 million and a big chunk of it came from PSL. This year, the PSL chairman Najam Sethi estimates the PSL franchise valuation is approaching half a billion US dollars with potentially significant revenue upside.

Downsides of Consumer Boom:

There are a couple of downsides of the consumer boom. First,  a dramatic increase in solid waste. Second, rising consumption could further depress Pakistan's already low private savings rate.

FMCG products come with a significant amount of plastic and paper packaging that contribute to larger volume of trash. This will necessitate a more modern approach to solid waste disposal and recycling in Pakistani towns and cities. An absence of these systems will make the garbage situation much worse. It will pose increased environmental hazards.

Pakistan's savings rate is already in teens, making it among the lowest in the world. Further decline could hurt investments necessary for faster economic growth.

Summary: 

Pakistan's $152 billion retail market is the fastest growing in the world, according to Euromonitor.  Expanding middle class, particularly millennials with rising disposable incomes, is demanding branded and packaged consumer goods ranging from personal and baby care items to food and beverage products. Strong demand for fast moving consumer goods is drawing large new investments of hundreds of millions of dollars.  Rapid growth in sales of consumer products and services is driving other sectors, including retail, e-commerce, paper and packaging, advertising, media, sports and entertainment. Potential downsides of soaring consumption include increased amount of  solid waste and decline in domestic savings and investment rates.

Related Links:

Haq's Musings

Pakistan Retail Sales Growth

Advertising Revenue in Pakistan

Pakistan FMCG Market

The Other 99% of Pakistan Story

PSL Cricket League Revenue

E-Commerce in Pakistan

Fintech Revolution in Pakistan

Mobile Broadband Speed in Pakistan

Views: 91

Comment by Riaz Haq on May 5, 2018 at 7:31am

THE EXPRESS TRIBUNE > BUSINESS
ADB says ‘no need to panic’ over Pakistan’s economy
By Maidah Haris Published: May 4, 2018

https://tribune.com.pk/story/1701893/2-adb-says-no-need-panic-pakis...

MANILA: Asian Development Bank’s (ADB) former country director Werner Liepach said Pakistan will not need a bailout package as its economy was doing well, adding that there was no need to panic even as the current account deficit widens and foreign exchange reserves continue to fall.

Addressing a media briefing at the 51st Annual Meeting of the ADB Board of Governors in Manila, Liepach said remittances continue to remain strong and would help meet external sector challenges.

“Things are pretty much okay,” said Liepach. Overseas workers’ remittances touched a seven-month high at $1.77 billion in March 2018, which came on back of the second round of rupee devaluation, he added.

In its latest quarterly report, the State Bank of Pakistan also anticipated that the country would attract a maximum of $20.5 billion in remittances in fiscal year 2018.

Liepach, who is the director general ADB for Central and West Asia Regional Department, also maintained a positive outlook of Pakistan’s growth. He acknowledged that the budget deficit has gone up a little but it is “quite normal in election year”.

Currently, the country’s budget deficit is projected to stand at 5.5% of GDP at the end of fiscal year 2018, while SBP-held foreign exchange reserves currently amount to $11.51 billion.

Additionally, Pakistan’s current account deficit has continued to expand and the nine-month gap has increased to $12.03 billion. However, the ADB official remained optimistic.

“What’s happened is that imports have gone up quite a lot due to increased economic activity related to the China-Pakistan Economic Corridor (CPEC), which is not a bad thing.

“What is missing is that export growth hasn’t really gone as expected.”

He highlighted various factors that impact the growth of exports, including the overvalued exchange rate, which has been taken care of. “The latest information that I received is that exports are starting to pick up again,” he informed.

Now, due to the early rise in imports followed by late pick-up of exports, there has to be a reaction in the foreign exchange reserves, which is of concern, but Pakistan has a way of financing its reserves and “there is no need to panic”.

He added that ADB and the World Bank are not the only ones in town as Pakistan has managed to secure a loan from China. “The country is also contemplating tapping the capital markets, because the market has been responsive lately.”

Stressing on ADB’s role, Liepach said the agency always gave policy-based loans to finance structural reforms, which in no way is a bailout.

Comment by Riaz Haq on July 18, 2018 at 8:28pm

#HongKong’s #retail chain Cheong Hing plans to enter #Pakistan. Founded in 1960, the company's line of businesses include retail sale of home-furnishings such as china, glassware, and metal-ware for kitchen and table use.

https://www.thenews.com.pk/print/340032-hong-kong-s-retail-chain-pl...

Hong Kong-based companies including a retail chain store planned to enter Pakistan following a bilateral treaty signed between the two countries last year to avoid double taxation that may boost annual foreign direct investment inflows from approximately $35 million, officials said on Tuesday.


Officials at Trade Development Authority of Pakistan (TDAP) said Cheong Hing Limited intends to set up retail chain stores in Pakistan and currently in talks with different stakeholders. Founded in 1960, the company's line of businesses include retail sale of home-furnishings such as china, glassware, and metal-ware for kitchen and table use.

Pakistan has witnessed arrival of some global retailers in the past few years, but local businesses still dominate the retail sector. Wholesale and retail trade accounts for around 20 percent of the country’s economy of $300 billion, according to the State Bank of Pakistan.

Analysts said liberal FDI policy for retailing along with changing buying habits would continue to provide enough opportunities to global retailers to explore Pakistan’s market for any investment and expansion plan. New chains of grocery and lifestyle stores are likely to enter primarily in urban centres, while chains of retail outlets irrespective of channel are likely to continue expand their network.

Late last year, Pakistan and Hong Kong ratified a treaty to stave off double taxation on incomes of their individuals and companies. TDAP officials said Hong Kong’s Aalpes Global Group, which is in the business of creative planning, intends to set up company in Pakistan to expand business technology.

An official said Pakistan’s mission in Hong Kong is building its connection with the Securities and Exchange Commission of Pakistan. Besides, Sino-German Safety Science and Technology Industrial Park Company intends to study information technology market, and is already in talks with the local stakeholders.

Pakistan is one of the most liberal foreign investment regimes in South Asia with 100 percent foreign equity permitted in the manufacturing and infrastructure development sectors. The country offers a number of tax incentives to FDI projects in several sectors, spanning infrastructure, electronics and information technology and telecommunication services. Hong Kong’s FDI flow to Pakistan was recorded at $34.5 million during the July 2017 to February 2018 period.

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