Page 49 - CMA Journal (May-June 2025)

Focus Section

The construction and cement industries have faced
similar challenges. Cement companies reported a 25%
decrease in domestic sales in 2023 as
government-funded projects and private housing
construction slowed due to unaffordable material prices.
With increased cement prices, demand declined sharply,
putting pressure on manufacturers and downstream
businesses such as hardware and steel suppliers.
Currently, FMCG companies face dual challenges: inflation
and declining consumer spending. Brands like Unilever
and Engro Foods showed reduced sales volumes in 2023
despite implementing price hikes (Business Recorder,
2023). Consumers are reacting by shifting to local brands
or lower-tier products, buying smaller packs, or avoiding
non-essential goods altogether. Even pharmacies have
This erosion of margins leads to a dangerous reported a 15–20% decrease in branded medicine sales as
cycle: Firms cut investment, freeze hiring, reduce patients opt for generics (PBC, 2023).
product innovation, and, in some cases, exit the market.
The most vulnerable are SMEs, which constitute 40% of
Several regional textile exporters in Faisalabad and
GDP and 80% of non-agricultural employment in
Karachi shut down in 2023, citing unbearable overheads.
Pakistan. These businesses often lack pricing power,
Businesses in the retail and logistics sectors reported
access to credit, and buffer capital. A 2023 survey by the
downsizing or limiting operations to weekends only.
Small and Medium Enterprises Development Authority
Thus, inflation has become more than just an economic (SMEDA) found that 58% of SMEs had deferred expansion
indicator; it is now a daily operational threat that distorts or hiring plans, while 22% considered shutting down
cost structures, weakens market demand, and stifles entirely if inflationary conditions persisted (SMEDA, 2023).
long-term growth planning. In a typical business
The uneven impact means inflation is squeezing margins
environment, profit margins serve as a buffer that
and restructuring the business landscape—accelerating
enables companies to grow, reinvest, and innovate.
consolidation and threatening overall business
However, in Pakistan today, those margins are under
sustainability.
significant pressure.
How Are Businesses Adapting?
Sectoral Breakdown: (Who is losing the most?)
(The Struggle for Sustainability)
While inflation impacts every business, its effects are not
uniform. In Pakistan, certain sectors are under intense Despite the economic storm, many businesses are not
strain, especially those with high input dependency, giving up—they're adapting. But these adaptations,
significant energy requirements, or price-sensitive while creative, are often desperate. They reflect both the
consumers. flexibility and the fragility of Pakistan’s private sector
under inflationary pressure.
One of the hardest-hit industries is textile manufacturing,
which constitutes more than 60% of Pakistan's total The typical response involves cost-cutting and improving
exports. Profit margins have been severely eroded due to efficiency. Companies are mechanizing tasks,
fluctuations in global demand and spiking local energy renegotiating supplier contracts, and reducing energy
prices. Production costs increased by 40% between 2022 consumption. For example, textile industries have
and 2024 due to gas shortages and rising industrial tariffs started night-hour production to benefit from off-peak
(All Pakistan Textile Mills Association, 2023). Additionally, electricity rates. Retailers are adopting solar power to
delays in export refunds and rebates have caused cash lower electricity bills, though the upfront investment
flow challenges, resulting in liquidity bottlenecks. The remains a challenge.
combined impact caused widespread disruption: In Some companies are diversifying supply chains by
August 2024, Sitara Textile Mills, one of Faisalabad’s sourcing locally instead of relying on imports. However,
largest and most reputable mills, temporarily halted local suppliers often lack the required volume or quality,
operations, joining over 100 other factories that closed introducing new risks. Others are expanding into digital
due to unsustainable energy and interest costs—leading sales channels to reduce overhead costs. E-commerce in
to thousands of job losses. This event highlights how Pakistan grew by over 28% in 2023, with many businesses
inflation and policy missteps have severely affected even using platforms like Instagram, WhatsApp, and Daraz as
prominent players in the textile sector. makeshift storefronts.

ICMA’s Chartered Management Accountant, May-June 2025 47