Chain of Super Markets in the Country

DISCLAIMER
The purpose and scope of this Pre Feasibility Study is to introduce the Project and
provide a general idea and information on the said Project including its marketing,
technical, locational and financial aspects. All the information included in this PreFeasibility is based on data/information gathered from various secondary and primary
sources and is based on certain assumptions. Although, due care and diligence have been
taken in compiling this document, the contained information may vary due to any change
in the environment.
The Planning & Development Division, Government of Pakistan, Management Advisory
Center who have prepared this Pre-Feasibility or National Management Consultants
(Pvt.) Ltd. do not assume any liability for any financial or other loss resulting from this
Study.
The prospective user of this document is encouraged to carry out his/her own due
diligence and gather any information he/she considers necessary for making an informed
decision
TABLE OF CONTENTS
ACRONYMS ................................................................................................................. iii
EXECUTIVE SUMMARY ............................................................................................iv
CHAPTER 1 - INTRODUCTION ...................................................................................1
1.1
1.2
1.3
1.4
OVERVIEW ................................................................................................................................ 1
OBJECTIVES AND SCOPE OF STUDY................................................................................... 2
METHODOLOGY ...................................................................................................................... 2
STUDY TEAM............................................................................................................................ 2
CHAPTER 2 – MARKET/ NEED ASSESSMENT.......................................................3
2.1
2.2
2.3
2.4
2.5
2.6
2.7
EVALUATION OF RETAILING ............................................................................................... 3
PROFILES OF LEADING CHAIN STORES IN DEVELOPED COUNTRIES ........................ 5
CHAIN STORES IN PAKISTAN ............................................................................................... 7
NEED ASSESSMENT ............................................................................................................. 11
PROSPECTS FOR NEW PROJECTS....................................................................................... 13
SWOT ANALYSIS ................................................................................................................... 14
PROPOSED LOCATION OF NEW STORES.......................................................................... 16
CHAPTER 3 – TECHNICAL EVALUATION ............................................................19
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
LOCATIONAL ANALYSIS .................................................................................................... 19
SERVICE SECTOR .................................................................................................................. 19
PRODUCT RANGE .................................................................................................................. 20
RETAILING TECHNOLOGY .................................................................................................. 20
REORDERING POLICY .......................................................................................................... 22
CENTRALIZED WAREHOUSING ......................................................................................... 22
COMPUTERIZATION ............................................................................................................. 23
FACILITIES/ UTILITIES REQUIRED .................................................................................... 23
PROJECT IMPLEMENTATION SCHEDULE ........................................................................ 24
CHAPTER 4 – GOVERNANCE AND MANAGEMENT STRUCTURE .................25
4.1
4.2
4.3
4.4
4.5
CORPORATE STATUS OF PROJECT.................................................................................... 25
MANAGEMENT STRUCTURE/ ORGANOGRAM ............................................................... 25
MANPOWER REQUIREMENT............................................................................................... 27
SYSTEMS AND PROCEDURES ............................................................................................. 27
TRAINING ................................................................................................................................ 28
CHAPTER 5 – FINANCIAL EVALUATION.............................................................29
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
COST OF PROJECT ................................................................................................................. 29
FINANCIAL PLAN .................................................................................................................. 29
PROFIT AND LOSS ACCOUNT ............................................................................................. 30
RATES OF RETURN................................................................................................................ 31
PAYBACK PERIOD................................................................................................................. 31
CAPITAL: OUTPUT RATIOS ................................................................................................. 32
CASH FLOW ............................................................................................................................ 32
BALANCE SHEET ................................................................................................................... 33
CHAPTER 6 – CONCLUSION ....................................................................................35
LIST OF TABLES
TABLE 1 – USC'S CATEGORY OF STORES ............................................................................................. 8
i
TABLE 2 – USC'S REGIONWISE LOCATION OF STORES ................................................... …………..9
TABLE 3 – PAKISTAN'S GROSS DOMESTIC PRODUCT .................................................... ………….12
TABLE 4 – ESTIMATED VOLUME/ VALUE OF RETAIL BUSINESS IN PAKISTAN....................... .13
TABLE 5 – NUMBER OF STORES PLANNED TO BE SETUP IN MAJOR CITIES.......................... …17
TABLE 6 – POPULATION OF MAJOR CITIES..............................……………………………………...18
TABLE 7 – PROJECT IMPLEMENTATION SCHEDULE........................................................................ 24
TABLE 8 – MANPOWER REQUIREMENTS............................................................................................ 27
TABLE 9 – COST OF PROJECT.......................................................……………………………………...29
TABLE 10 – FINANCIAL PLAN............................................................................................................ …30
TABLE 11 – PROJECTED PROFIT & LOSS ACCOUNTS....................................................................... 30
TABLE 12– PROJECTED RATES OF RETURN .......................... ……………………………………….31
TABLE 13– CAPITAL: OUTPUT RATIOS.........................………………………………………………32
TABLE 14– PROJECTED CASH FLOWS……………………………………………………... ............... 32
TABLE 15– PROJECTED BALANCE SHEETS ..... .……………………………………………………..33
ANNEXURE - 1
PAKISTAN - A PROFILE
ii
ACRONYMS
ASEAN
BOO
BOT
CAA
CNG
ECO
EIZ
FDI
GCC
GDP
GNP
HDIP
HR
IT
km
KPT
NHA
OEM
PIA
PNSC
PTA
PTCL
SAARC
SWOT
UAE
UHT
USC
WTO
Association of South East Asian Nations
Build Operate Own
Build Operate Transfer
Civil Aviation Authority
Compressed Natural Gas
Economic Cooperation Organisation
Eastern Industrial Zone
Foreign Direct Investment
Gulf Cooperation Council
Gross Domestic Product
Gross National Product
Hydrocarbon Development Institute of Pakistan
Human Resource
Information Technology
Kilometre
Karachi Port Trust
National Highway Authority
Original Equipment Manufacturer
Pakistan International Airlines
Pakistan National Shipping Corporation
Pakistan Telecommunication Authority
Pakistan Telecommunication Limited
South Asian Association for Regional Cooperation
Strengths, Weaknesses, Opportunities and Threats
United Arab Emirate
Ultra Heat Treated
Utility Stores Corporation
World Trade Organization
iii
EXECUTIVE SUMMARY
INTRODUCTION
Distribution and retailing of goods and commodities has assumed the stature of a major
economic activity in developed countries with leading companies listed on the stock
markets.
This pre-feasibility study assesses the viability of setting up a chain of supermarkets
(retail stores) in Pakistan. Project appraisal techniques followed by development
financing institutions have been adopted.
MARKET / NEED ASSESSMENT
Retailing has evolved over the decades to become a specialized business/economic
activity. Main types of distribution and retailing organizations consist of traditional retail
stores, chain stores, supermarkets/hypermarkets, discount houses and mail order houses.
Wal-Mart Stores of USA is the world’s largest retailer with sales of US $ 285.2 billion in
2004 and 1.60 million employees. The company has 3,600 stores in USA and more than
1,570 outlets in Mexico, Canada, Puerto Rico, Argentina, Brazil, China, Korea, Germany
and the United Kingdom. More than 138 million customers visit Wal-Mart stores
worldwide every week.
The Home Depot, Inc. of USA is the world’s largest home improvement retailer with
1,911 stores (one store being added/opened every 2 days). The company employs
325,000 persons and had sales of US $ 73.10 billion in 2004.
Other leading companies operating retail stores consist of Sears, Marks and Spencer, J.C.
Penny, Woolworth, etc. Most retailing companies in developed countries are large
organizations in terms of operations, annual sales and employment level and are listed on
the stock exchanges.
iv
The Utility Stores Corporation (USC), a wholly owned venture of the Government of
Pakistan, is the only organization which is running a chain of retail stores in Pakistan. At
it peak in the early nineties, it had 975 retail stores all over the country. However,
financial losses compelled it to reduce the number to 363 stores in July 2005.
USC’s total sales in 2004-2005 was Rs. 6.00 billion (from 363 outlets). These outlets are
supervised by 15 regional/zonal offices which provide supplies from warehouses under
its management.
Some smaller companies are running limited number of stores, usually in one city and do
not qualify to be categorized as chain stores.
Two new ventures have been announced recently (July-August 2005) which plan to set
up chain stores in Pakistan. One is Makro-Habib Limited which intends to set up 30 high
volume outlets (each having 100,000 square feet of area, 200 employees and parking for
300 cars/vehicles). Makro Asia is wholly owned by SHV Holdings of Netherlands.
The second is Metro Group of Germany (the world’s fifth largest retailer) which is also
planning to establish 30 department stores in Pakistan at an investment of US $ 400
million. It operates more than 2,300 retail stores in 28 countries including supermarkets,
hypermarkets, departmental stores, home improvement stores and consumer electronic
stores.
Wholesale and retail trade is scattered all over the country and comprises mostly of small
businesses, outlets. The National Income Accounts estimates value added from this
sector, but combines both activities together under one heading. Wholesale and retail
business together ranks as the largest contributor to the country’s GDP with shares of
18.5 % in 2003-2004 and 19.1% in 2004-2005. Second largest contributor is large scale
manufacturing which had shares of 11.9 % and 12.7 % in the same period.
v
Value of wholesale and retail business was Rs. 856,531 million (constant factor cost) in
2004-2005 (share of retail sector estimated at Rs. 556,745 million). With Utility Stores
Corporation achieving sales of Rs. 6,000 million and other retailers (conducting retail
business in a relatively modern manner) achieving combined sales of about Rs. 100,000
million. This still leaves a very large deficit (about Rs. 450,745 million) of retailing
which needs upgrading and qualitative improvement.
TECHNICAL EVALUATION
This project falls in the services sector which is growing in size and significance both in
the developed and the developing countries. In Paksitan’s GDP of US $ 103 billion in
2004-2005 the service sector had a share of 52.2 % (US $ 53.77 billion) whilst the US
economy valued at US $10,600 billion in 2004 had a 65 % contribution from services
(US $ 6,890 billion).
Retailing covers a very wide range of products, commodities and services with large
companies offering upto 40,000-50,000 items at one store. Important aspects in retailing
business consist of merchandizing, quality control, systems, brand management and
operations. These need to be addressed suitably in order to operate the business
efficiently and profitably.
Organizational policies concerning product reordering, store site selection, centralized
warehousing, computerization, management of sales staff, customer handling and
satisfaction are of crucial importance in managing the company successfully.
The project plans to set up three categories of retail outlets (9 large, 25 medium and 36
small that is a total of 70 stores in 20 cities/towns) of the country. These will be
supervised by five regional offices with warehouses supplying needed goods to the
outlets in its area.
Overall management of the company’s operations will be centred at the head office
where the Managing Director, Directors of Operations, Marketing, Finance and
vi
Administration and HR alongwith requisite staff will oversee countrywide operations.
GOVERNANCE AND MANAGEMENT STRUCTURE
The Project will be managed by a Board of Directors to be headed by the Chairman and
five Directors including Managing Director. The chain of Supermarkets will employ
persons having professional experience in management of large retailing operations. The
manpower strength, initially, will be 1270 personal.
FINANCIAL EVALUATION
The project plans to set up 70 retail outlets, five regional offices/warehouses and head
office at a total investment of Rs. 381.255 million.
Summarised financial operating results for the first five years of operation are given
below and details are given in Chapter 4.
EARNINGS FORECAST
(Rs. in 000)
Description
Sales
Gross Profit
Oper. Profit
Net Profit
Dividends
Percent
Amount
Ret. Earnings
Cum. Ret. Ear.
Year 1
Year 2
Year 3
Year 4
Year 5
1,112,500
124,650
91,700
44,154
1,668,750
311,494
264,069
149,407
2,225,000
498,160
436,760
254,818
2,225,000
492,549
428,299
250,740
2,225,000
485,736
416,636
245,937
20 %
38,126
6,028
6,028
50 %
95,314
54,093
60,121
75 %
142,971
111,847
171,968
100 %
190,628
60,112
232,080
100 %
190,628
55,309
287,389
CONCLUSION
There is a very large deficit in the retailing business which urgently needs upgrading and
improvement along modern lines of retailing.
Prospective investors, both Pakistani and foreign need to be motivated to invest in this
sector.
vii
CHAPTER 1
INTRODUCTION
1.1
OVERVIEW
Distribution and retailing of goods and commodities has assumed the stature of a
major economic activity in developed countries with leading companies listed on
the stock markets. An integral part of the supply chain, it ensures efficient
distribution of goods to consumers keeping their requirements and convenience as
the cornerstone of the distribution, retailing policy.
Wal-Mart, USA (the world’s largest chain of retail stores) had annual sales of US
$ 282.2 billion in 2004 which is almost three times larger than Pakistan’s GDP of
about US $ 103 billion in 2004-2005. The management of such large corporate
organizations requires a high degree of management skills and professionalism.
Pakistan’s sole chain of retail stores, the Utility Stores Corporation (USC)
commenced operations in the seventies and at its peak had 975 retail stores /
outlets all over the country in the 1990s. Owing to management problems and
financial losses, it was compelled to curtail operations reducing countrywide
number of outlets to 363 in July 2005. The organization seems to have weathered
the difficult times and is in the process of consolidating its position. A gradual
increase in the number of outlets is now being witnessed, both in Karachi and
other urban centers which indicates that the organization has achieved a
turnaround and is now a profitable company.
The retail sector in Pakistan is now attracting the attention of both foreign and
Pakistani investors since atleast two foreign and a few local companies are
reported to be actively engaged in setting up chain stores in the country.
1
1.2
OBJECTIVES AND SCOPE OF STUDY
The objective of this pre-feasibility study is to assess the operational, market and
financial viability of setting up a chain of supermarkets (retail stores) in the
country. Retail outlets in selected cities will be established in the first phase,
followed by addition of more stores as necessitated by consumer demand.
1.3
METHODOLOGY
Data collection methodology adopted for this study is described below:
•
Data from secondary sources was collected and analyzed. Government
publications were consulted and relevant data compiled.
•
Primary sources of data were identified and contacted for collection of
unpublished information.
•
Data was collected on costing inputs, selling prices, tariffs, etc. to compute
cost of goods sold and evaluate financial viability of the project.
PROJECT APPRAISAL TECHNIQUES
The consultants have adopted project appraisal techniques followed by the
development financing institutions (DFIs) in the country which will facilitate
procurement of financial assistance.
1.4
STUDY TEAM
The study team consisted of a market analyst, technical expert and financial
analyst who contributed their inputs, coordinated by the team leader. Support staff
consisted of field surveyors, data tabulator and computer operator.
2
CHAPTER 2
MARKET/ NEED ASSESSMENT
2.1
EVOLUTION OF RETAILING
Distribution and retailing is an integral part of the supply chain which makes mass
produced goods and commodities available to the consumer, literally at his
doorstep. Major impetus to this business was provided by the industrial revolution
in developed countries when manufacturers concentrated on improvements in
large scale (mass) production of goods and commodities, but did not have the
time or resources to undertake nationwide distribution and retailing which was
necessary to consume the mass produced goods. This gave rise to specialized
distribution and retailing operations.
Specialization in this field, as in most other commercial and economic activities,
has created various forms of distribution and retail stores. Over the decades
improvements have been witnessed in the retailing business and specialized forms
of distribution and retailing organizations have evolved. Main types of
organizations are described below.
The traditional version of retail stores, generally owner-managed, where the
store owner stocks a selected range of goods for consumers mainly residing in the
immediate neighborhood. These types of stores still exist in small towns and
suburban areas and are affectionately termed as “mom and dad” stores in view of
the fact that such shops are generally owned and managed by the elderly.
However, chain stores have largely replaced the traditional retail shop in urban
centers where small traditional stores find it difficult to compete and where
investment levels have risen astronomically.
The overwhelming share in retailing is held by chain stores which cultivate
consumer allegiance/loyalty by promoting their own brands. Consumers develop
store/brand loyalty to such an extent that often they avoid going to competing
3
stores. Store/brand loyalty in retailing is similar to brand loyalty of smokers who
prefer to stick to one brand of cigarette.
In developed countries the category of stores known as supermarkets and
hypermarkets refers to very large sized units, generally with floor space of
100,000 square feet or more, and offering over 40,000-50,000 items to the
customer. It thrives on very large sales volumes and its clients generally include
both professionals (businesses such as restaurants, cafes, caterers, food
processors, etc) and individuals/families.
Supermarkets and Hypermarkets operate on the principle of “high volume-low
margins” and are becoming increasingly popular with the public. A leading
business house of Pakistan in joint venture with an established company from the
Netherlands is setting up a chain of such stores in Pakistan (expected to become
operational by end-2006).
Discount Houses are normally large warehouses (“no frills” environment) are
usually located on the outskirts of the city where rents are comparatively much
lower and overall organizational overhead expenses are also very low. Their main
advantage is low product prices. Customers are willing to travel considerable
distances to reach these stores which offer very competitive prices.
Mail Order Houses operate through catalogue marketing. The office and
warehouse can be located anywhere in the country (usually where overhead
expenses are very low) and they print very attractive catalogues which are sent to
prospective customers’ addresses. Each product is illustrated, coded and described
in terms of operational performance features. Price of each product is given
alongwith additional expense for sending by mail / postage. Terms of payment are
also specified (usually payable on delivery, by credit cards, etc.). These stores
have introduced on-line order placement for customers’ convenience. In this type
4
of retail business the customer does not visit the business place, nor meets any of
the organization’s staff.
2.2
PROFILES OF LEADING CHAIN STORES IN DEVELOPED
COUNTRIES
Chain stores/supermarkets to be established in Pakistan would follow the model
of similar organizations now operating in USA, UK and other developed
countries. In order to provide a perspective of the leading companies engaged in
this activity, profiles of selected chain stores are given below.
‰ Wal-Mart Stores, Inc. is the world’s largest retailer with sales of US $ 285.2
billion for the fiscal year ended 31st January 2005. The company has 3,600 stores
in USA, and more than 1,570 outlets in Mexico, Canada, Puerto Rico, Argentina,
Brazil, China, Korea, Germany and the United Kingdom. More than 138 million
customers per week visit Wal-Mart stores worldwide. The company has four retail
divisions:- Wal-Mart Supercenters, Discount Stores, Neighbourhood Markets, and
SAM’s Club warehouses
The Company’s first store opened in 1962 at Rogers, Arkansas and since then in a
period of 42 years it has experienced phenomenal growth. Its shares were listed
on the New York Stock Exchange in 1970 and sales crossed the US $ 1.00 billion
mark for the first time in 1979.
As part of the Company’s management policy to train and promote from within
the existing employees, 76 percent of store management positions are held by
persons who started their career at Wal-Mart in jobs which were paid by the hour
(i.e. the lowest rung of employment level). The Company employs 1.60 million
people worldwide, out of which 1.20 million are employed in USA. The
Company’s first international store opened in 1991, and now i.e. in 14 years it has
1,570 stores operating in nine countries employing about 330,000 persons.
5
Wal-Mart’s sourcing of goods and services exceeded US $ 150.00 billion from
more than 61,000 suppliers in 2004 from within USA. In addition over US $
18.00 billion worth of goods and services were procured from China.
‰ Founded in 1978 in Atlanta, Georgia, Home Depot Inc. USA, is the world’s
largest home improvement retailer currently operating 1,911 stores in USA,
Canada, Mexico and Puerto Rico (with one store opening every 48 hours i.e.
every 2 days). The Company employs 325,000 persons and had sales of US $
73.10 billion in 2004. It is the second largest retailer in USA, and is ranked as the
third largest retailer globally.
‰ Sears Roebuck and Company, popularly known as Sears, is a leading broadline
retailer providing merchandise and related services. With sales of US $ 36.1
billion in 2004, Sears offers a wide range of home merchandise, apparel and
automotive products and services through more than 2,400 Sears-branded and
affiliated stores in the US and Canada. Sears is the largest provider of product
repair services in the US, and perhaps also in the world, with more than 14
million calls made annually by prospective clients.
‰ One of Britain’s leading retailers is Marks and Spencer with the internationally
renowned brand of “St. Michael’s”. The Company operates over 400 stores in UK
and 150 stores in 30 foreign countries including over 130 franchise businesses. Its
sales topped US $ 14 billion in 2004 and it employs more than 60,000 people
worldwide.
‰ J.C. Penny Company, Inc. USA, is one of America’s largest departmental
stores, catalogue and e-commerce retailers employing about 150,000 persons.
Sales in 2004 were US $ 17.04 billion coming from 1,017 department stores
throughout USA and Puerto Rico and 62 Renner department stores in Brazil.
‰ Woolworth Ltd. Australia, its first store opened in 1924 in Sydney which has,
over a period of 80 years, increased to more than 1,600 stores in Australia, plus an
6
additional 33 Dick Smith Electronics stores in New Zealand. The company
employs about 145,000 persons and had sales of US $ 20.3 billion in 2004.
2.3
CHAIN STORES IN PAKISTAN
This service sector is in its nascent stage in Pakistan, with only one organisation
which can justifiably claim to be operating a chain of retail stores in the country
the Utility Stores Corporation (USC). Some smaller retail groups are also
operating limited number of retail stores, but these are generally confined to
single city operations.
A number of new ventures have recently been announced which, when
implemented, will mark the commencement of modern day retailing business in
Pakistan. Reviews of USC’s business and of the new ventures is given hereunder.
‰ The Utility Stores Corporation (USC) is a wholly owned venture of the
Government of Pakistan which was set up in the seventies to serve the masses
especially by ensuring the availability of those essential items which were prone
to shortages, and therefore to price fluctuations i.e. abnormal price rises. The
organization was also mandated to provide a socio-economic service to the people
and was not primarily a profit making, growth oriented venture.
USC experienced sustained expansion till the early nineties when at its peak the
Company had 975 retail stores all over the country. Thereafter management
problems resulted in heavy financial losses forcing the Government to sharply
reduce the number of outlets bringing it down to 363 stores in July 2005.
USC has developed three categories of stores based on market experience. These
categories of stores have been developed to cater to diverse segments of the
country’s population.
7
TABLE - 1
USC’s CATEGORY OF STORES
Store Category
Convenience Stores
Mini-markets
Supermarkets
Store Area
500 - 800 sq. ft.
800 – 1200 sq. ft.
1,200 - 5,000 sq. ft.
Annual Sales
(Rs. million)
Below 12
Between 12 to 15
Over 25.00
The stores timings are from 10 am to 10 pm except for specially located stores
such as the one located in the State Life Insurance Office, Karachi which closes at
5.00 pm (alongwith the closure of the State Life Office).
Karachi Region of USC city has 35 full time stores (15 convenience stores, 15
mini-markets and 5 supermarkets) which accounted for combined sales of Rs. 127
million in 2002-2003 and Rs. 249 million in 2004-2005 (96 % increase in two
years). Prior to 1998 Karachi had 100 retail stores but (as stated earlier) due to
financial losses the number was reduced to 25 in 2001-2002. Total number of
outlets are once again increasing (35 at present and 10 more to be added soon)
indicating growth based on profitable operations.
As stated earlier the USC is operating 363 retail stores in 15 regions which gave
countrywide sales of Rs. 6.00 billion in 2004-2005. The regions and number of
stores in each are summarized below.
8
TABLE – 2
USC’s REGIONWISE LOCATION OF STORES
S. No.
Region
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Abbottabad
Chakwal
Dera Ismail Khan
Faisalabad
Gujrat
Hyderabad
Islamabad
Karachi
Lahore
Multan
Peshawar
Quetta
Rawalpindi
Sargodha
Sukkur
TOTAL
Source: Utility Stores Corporation, Islamabad
Number of Stores
Urban
Rural
Total
22
15
37
1
12
13
9
2
11
16
9
25
10
5
15
15
1
16
23
17
40
33
0
33
27
0
27
17
4
21
28
9
37
17
2
19
29
9
38
13
11
24
5
2
7
265
98
363
‰ Rajani’s is running 9-10 retail outlets in Karachi city which has reduced from
about 15 stores at one time, due perhaps to management problems and losses. It is
privately owned and seems to be on the decline, as evidenced by the reduction in
number of outlets and also from the “less than pristine” looks it once had. During
its better times Rajani’s stores were preferred by a large number of customers for
their ambience, good variety and selection of items it carried.
‰ Makro-Habib Pakistan Ltd. has recently announced (in July 2005) the
formation of a joint venture between Makro Asia (a wholly owned subsidiary of
SHV Holdings of Netherlands) and House of Habib, a leading business and
industrial group of Pakistan. The joint venture intends to set up a chain of high
volume stores in the country (more than 30 outlets) with the first scheduled to
open its doors at the end of 2006.
9
SHV Holdings – through Makro Asia is doing business in 5 Asian countries with
a total of 69 stores in Thailand (29 stores), Indonesia (15 stores), Malaysia (8
stores), Philippines (12 stores) and China (5 stores). The Company is a modern
cash and carry wholesaler targeting a specific customer group – small retailers,
hotels, restaurants, caterers and professionals.
In Pakistan the Makro-Habib joint venture plans to establish 30 outlets (in the
first phase), each store having approximately 100,000 square feet of space with
parking facilities for 300 cars. Each outlet will have about 200 employees and will
sell fresh produce (fruits, vegetables, meat and packaged food items) alongwith
other products such as electronics, pharmaceutical products, household consumer
goods, etc.
The Company’s avowed concept is to sell large volumes at low margins to
customers. This would put it into the category of supermarkets / hypermarkets as
discussed in the foregoing section on retailing in developed countries.
‰ The Economic Advisor to the Ministry of Finance, Government of Pakistan
announced in August 2005 that the Metro Group of Germany, the world’s fifth
largest retailing company will set up 30 department stores in major cities of
Pakistan by investing US $ 400 million. There was no mention of any local
partner (Pakistani investor).
Metro operates more than 2,300 retail stores in 28 countries including
supermarkets, hypermarkets, department stores, home improvement stores and
consumer electronics stores under the Cash & Carry, Real, Extra, Media Market,
Praktiker and Galleria Kauthof banners. The company will bring in substantial
investment alongwith technical expertise in modern retailing business into
Pakistan.
10
2.4
NEED ASSESSMENT
Assessing current levels of demand for retailing business, or ascertaining past
trends would be difficult inasmuch as this activity is service oriented and spread
over the entire country. Small retail shops, outlets make up a large number of
contributors to this value added activity and evaluating their turnover will be
extremely difficult.
The wholesale and retail sector is one of the headings in National Income
Accounts as reported by the Federal Bureau of Statistics, Government of Pakistan.
The share of this sector i.e. both wholesale and retail activities is stated under one
heading. It is the largest single contributor to the country’s Gross Domestic
Product with shares of 18.5% in 2003-2004 and 19.1% in 2004-2005. This was
followed by large scale manufacturing which had shares of 11.9 % and 12.7 % in
the two corresponding years.
The National Income Accounts of 2001-2002 defines wholesale and retail trade to
include the following activities:•
Wholesale and retail trade of domestically purchased and imported goods
•
Purchase and sales agents and brokers
•
Auctioneering
The only nationwide statistics on wholesale and retail trade sector comes from the
National Income Accounts in the form of GDP data which has been analyzed
below.
11
TABLE - 3
PAKISTAN’S GROSS DOMESTIC PRODUCT
(At Constant Factor Cost)
Wholesale and Retail Trade Sector
Year
Value
Sector’s Share
(Rs. million)
in GDP (%)
2001-2002
667,615
18.0
2002-2003
707,665
18.2
2003-2004
764,688
18.5
2004-2005
856,531
19.1
Source: Federal Bureau of Statistics Government of Pakistan
Annual
Growth (%)
2.3
5.9
8.1
12.0
Assuming that the same quantity/value of goods sold by wholesalers to retailers is
further sold in retail to consumers, the subsequent sale would be at a higher price
i.e. with more value added to it. Furthermore, retailers oftentimes acquire supplies
by by-passing the wholesaler. Considering these factors it is estimated that the
retail sector alone accounts for about 65 percent of the combined GDP share
shown above (for both wholesale and retail sector). On this basis the retail trade’s
share is estimated below.
Average annual growth rate of both sectors during the last three years was 8.67 %
which has been applied to project volume/value of retail business for the coming
five years.
12
TABLE - 4
ESTIMATED VOLUME / VALUE OF RETAIL
BUSINESS IN PAKISTAN
(Rs. million)
Volume / Value of
Retail Business
Year
PAST TREND
2001-2002
2002-2003
2003-2004
2004-2005
PROJECTED VALUE
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
433,950
459,982
497,047
556,745
605,015
657,470
714,472
776,417
843,732
Source: (1) Federal Bureau of Statistics, Government of Pakistan for the years from
2001-2002 upto 2004-2005.
(2) Survey Estimates for years from 2005-2006 upto 2009-2010
2.5
PROSPECTS FOR NEW PROJECTS
In view of annual sales of Rs. 6.00 billion by Utility Stores Corporation and an
approximate estimate of about Rs. 100.00 billion by other retailers in different
fields, such as garments, fabrics, food items, electronics, etc. who are doing retail
business in a relatively better and more modern manner, this still leaves about Rs.
736 billion of wholesaling and retailing business is still be met. This could be
better performed by chain stores, supermarkets / hypermarkets, etc.
The project of Chain of Supermarkets in the country is not meant to create only
new demand in the Retailing Trade, it is also meant to gradually replace
traditional stores with chain stores, supermarkets and hypermarkets in the country,
as has been achieved in the developed countries.
13
After some time the total number and combined market share of traditional stores
will reduce and those of chain stores will increase. Traditional stores will not be
totally eliminated, but their number and market share will eventually become
comparatively very small.
Presently a very large share of wholesale, retail trade is being carried by small
stores estimated at Rs. 736 billion as stated earlier. This needs to be filled in by
chain stores, supermarkets, hypermarkets, etc. The gap of Rs. 736 billion
currently being catered to by small outlets, traditional stores, etc. is the overall
target for fulfilling by chain stores, supermarkets, hypermarkets, etc.
Total annual sales of this project (operating 70 retail outlets in 20 cities is Rs.
1.113 billion in the first year, increasing to Rs. 2.225 billion in the third year at
100% capacity operations). Compared to the overall countrywide deficit of Rs.
736 billion, it amounts to 0.15% of the deficit (in first year, rising to 0.30% in the
third year).
Projected sales of M/S Makro-Habib and M/S Metro Group are not known,
however, combined with the estimated sales of this project the total sales of all
three projects would not be more than Rs. 10-12 billion i.e. about 1.36% to 1.63%
of the total countrywide deficit of Rs. 736 billion. This still leaves a very large
gap/deficit which needs to be filled by more projects setting up chain stores,
supermarkets, hypermarkets, etc.
Assuming that one store outlet has annual sales of Rs. 30 million per annum,
some 24,530 retail outlets are needed all over the country to completely eliminate
this deficit.
2.6
SWOT ANALYSES
An analyses of the project’s strengths, weaknesses, opportunities and threats
(SWOT) is given hereunder.
14
STRENGTHS
•
Allows purchases of goods and products at very competitive prices and terms
(in large bulk)
•
Chain stores get preferential treatment from manufacturers/ suppliers of
goods, products in terms of prices, credit, quick deliveries, replacement of
defective goods, etc.
•
Fosters, builds consumer “brand” loyalty
•
Allows chain stores to develop their own brands (manufactured under
contract)
•
Consumers identify, rely on quality based on image/goodwill of chain stores
•
Permits company to sell standardized products and goods at all outlets
countrywide
•
Company allows customers to replace products, goods bought at one outlet at
any other outlet (in different city, town) on presentation of valid receipt
•
Complaints concerning product quality, defects, etc. are expeditiously handled
WEAKNESSES
•
Pilferage of goods by public, or staff is a major problem which eats into the
company’s profits
•
Strong, effective marketing is needed to build and retain customer loyalty and
successfully meet competitor’s challenges
•
Innovative HR policies are needed to reduce staff turnover, provide required
motivation to employees to perform at high levels of efficiency
•
High staff turnover increases cost of new recruitment and also training of
newly hired staff
OPPORTUNITIES
•
Large financial resources and countrywide chain of stores opens up
possibilities for deeper market penetration
15
•
Allows induction of modern retailing technology into this traditionally
managed
service
sector,
combining
IT,
HR,
logistics,
inventory
management/control, etc.
•
Opens up prospects for imparting institutionalized training in Wholesale,
Retail Trade and its sub-disciplines. Certificate and Degree course at
universities, specialized institutions, etc. in this specialized field needs to be
offered.
•
Scale of operations, in terms of countrywide presence of retail outlets and
large volume sales, allows the company to offer various types of staff
incentives e.g. rapid promotions based on performance/efficiency, bonuses,
stock options, etc. This introduces an element of “employee’s stake” in the
company and ensures rapid growth both in terms of total sales and profits.
THREATS
•
Large turnover companies tend to rely on their size of operations, sales, etc.
thereby losing out on innovations and specialized products, services, etc. An
example is the comparison of food quality at a fast food chain outlet compared
to the quality of food and service at a “specialty restaurant”.
•
Company management needs to keep a very strict watch on all critical aspects
of operations, lest delayed corrective action may be too late. An efficient
system of reporting could guard against this problem.
2.7
PROPOSED LOCATION OF NEW STORES
The project plans to establish a chain of 70 new retail stores all over the country
as shown below in Table 5, supported by five regional offices / warehouses at:
Karachi, Lahore, Islamabad, Rahim Yar Khan and Multan.
16
TABLE – 5
NUMBER OF STORES PLANNED TO BE SET UP IN MAJOR CITIES
S.
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Number of Stores (By Category)
A
B
C
Total
5
5
4
10
3
3
4
9
2
2
2
5
1
1
2
4
1
1
2
4
1
2
3
1
2
3
1
2
3
1
2
3
1
1
2
4
1
2
3
1
2
3
1
1
2
1
1
2
1
1
2
1
1
2
1
1
2
1
1
2
1
1
2
1
1
2
9
25
36
70
City
Karachi
Lahore
Faisalabad
Rawalpindi
Multan
Hyderabad
Gujranwala
Peshawar
Quetta
Islamabad
Sargodha
Sialkot
Bahawalpur
Sukkur
Jhang
Larkana
Gujrat
Mardan
Rahim Yar Khan
Sahiwal
TOTAL
The above 20 cities/ town are the 20 largest urban centers in the Country. Their
population is given in Table 6.
17
TABLE - 6
POPULATION OF MAJOR CITIES
(Population in 000)
Population
1998
2005
1.
Karachi
9,269
13,943
2.
Lahore
5,143
7,236
3.
Faisalabad
2,009
2,653
4.
Rawalpindi
1,410
1,862
5.
Multan
1,197
1,484
6.
Hyderabad
1,167
1,456
7.
Gujranwala
1,133
1,405
8.
Peshawar
988
1,304
9.
Quetta
566
668
10.
Islamabad
529
645
11.
Sargodha
455
560
12.
Sialkot
422
498
13.
Bahawalpur
408
493
14.
Sukkur
336
407
15.
Jhang
293
352
16.
Larkana
270
325
17.
Gujrat
252
300
18.
Mardan
245
302
19.
Rahim Yar Khan
234
279
20.
Sahiwal
207
248
Source: National Census 1998 for 1998 data estimated for year 2005
S.No.
City
18
CHAPTER 3
TECHNICAL EVALUATION
3.1
LOCATIONAL ANALYSIS
Considerable investment goes into the setting up of one retail outlet and the
selection of a suitable site is extremely important in its successful and profitable
operation. Decision on a site needs to be based on a proper survey of the target
area involving the following aspects:•
Consumer segmentation (based on income levels)
•
Competition from other stores
•
Traffic flow
•
Parking space availability
•
Rental rates of commercial space
Site selection decisions should be reviewed by at least 2-3 levels of management
in order to minimize the probability of taking a wrong decision. Which would not
only cause financial losses, but also reflect poorly on the company’s image.
3.2
SERVICE SECTOR
The project of supermarkets and chain of retail stores falls in the service sector
and does not lend itself to project evaluation techniques, methodology
traditionally developed for, and applied to industrial projects involving
manufacturing and processing operations.
In keeping with the growing significance and importance of the services sector in
the national economies of developed countries, and also of developing countries,
both government and private sector entrepreneurs are channelizing more
investment and efforts into this sector.
19
The US economy, valued at US $ 10.60 trillion (US $ 10,600 billion) in 2004 has
a hefty 65 percent contribution from the services sectors (US $ 6,890 billion). In
Pakistan’s Gross Domestic Product of US $ 103 billion in 2004-2005 the services
sector has a share of 52.2 % (equivalent to about US $ 53.77 billion). Out of this
the wholesale and retail trade sector has a share of 18.4 % (estimated at US $
18.95 billion equivalent to Rs. 1,137.12 billion).
3.3
PRODUCT RANGE
Retailing covers a very wide range of products, commodities and services and it
would be very difficult indeed to list all of them. For the purpose of this study it
may be safely stated that the proposed chain of retail stores will generally carry all
grocery and related items which are carried by supermarkets worldwide.
3.4
RETAILING TECHNOLOGY
The establishment and successful management of large retailing companies which
have hundreds of retail stores spread all over the country, each outlet stocking
thousands of items, requires a high level of management expertise in a number of
disciplines. The relatively more important areas of technological expertise needed
to manage such projects are analyzed below:
MERCHANDIZING POLICY: This basically involves formulation of the
procurement policy of the company and requires entering into commercial
contracts with literally thousands of suppliers located all over the country, and
sometimes even with overseas suppliers. The guiding principle is to have “the
right product in the right place at the right time at the lowest price”.
Selection of items depends upon the company’s policy of deciding which
consumer segment it wishes to target (high income, medium income or low
income).
20
QUALITY
CONTROL: Checking products for quality and related aspects
ensures customer satisfaction. All stores offer unconditional replacement of
defective,
sub-standard
products
and
also
pass
on
manufacturers
guarantee/warranty, however, in today’s busy and fast-paced modern life, people
find it irritating and irksome to go back to the store for replacement. An adequate
and effective system of quality control helps to reduce/minimize customer
complaints and the number/level of product replacements.
SYSTEMS:
The most advanced automated systems need to be deployed to
manage every aspect of the fast moving retail business. Foremost is the need to
have an efficient inventory/materials management system. Human resource
development is another critical area. Well trained and satisfied employees are
essential for courteous service. A customer irritated by the mis-behaviour of store
employees is unlikely to return anytime soon to the store. High employee turnover
is another problem for retailing companies since it increases the cost of
recruitment and training newly hired staff.
BRAND MANAGEMENT: A useful tool in developing consumer loyalty,
proper brand management allows the company to ensure maximum impact and to
gain maximum value through customer goodwill. Without developing its own
brand, the chain store will forever be marketing some other company’s brand and
fail to create a goodwill for its own brand/company name.
OPERATIONS: This involves all organizational operations at the store level
which combine to run the store/outlet smoothly (inventory management, human
resource, finance, marketing, customer relations, etc.). The store management is
incharge of all operational matters for that unit and they need to be suitably
trained.
21
3.5
REORDERING POLICY
For a chain of retail stores which operates centralized warehousing to feed retail
outlets within its specified zone/area and which carries thousands of diverse
items, an efficient reordering policy needs to be formulated. Individual items may
have different suppliers, and different delivery periods even in the case of one
supplier.
A system of maintaining daily inventory levels at the retail stores, sending
requisitions to the area regional office/warehouse, and maintaining inventory
levels at the area warehouse is a professionally demanding task. It needs to be
managed well, otherwise two likely problems may occur — non-availability of
products at the stores causing consumer dis-satisfaction, or over stocking at
stores/warehouses, thereby blocking funds un-necessarily in the form of higher
working capital financing. A computerized system of materials/inventory
management is essential for this nature of business operation.
3.6
CENTRALIZED WAREHOUSING
The company will need to maintain centralized warehouses for each area/zone to
supply the retail outlets within its specified area. In planning for the location of
these warehouses attention needs to be given to the distance from warehouse to
the outlets (in particular the furthest store) and also the probable location of new
outlets which may be opened in future, and which would be supplied from that
particular warehouse.
There are no fixed parameters regarding the number of stores which may be
served by one warehouse, however, it has been observed that 15-20 stores should
at least be supplied by one warehouse in order to make its functioning
economical. Expenses of the warehouse must be defrayed/amortized over all the
outlets it serves (proportionate to the level of sales of each outlet).
22
3.7
COMPUTERIZATION
The head office, zonal offices/warehouses and all outlets need to be connected
through an appropriate computer network system. The company also has to invest
in procuring suitable software to manage operations, maintain inventory, list
suppliers, payroll and accounting records, etc.
3.8
FACILITIES / UTILITIES REQUIRED
This project is different from conventional manufacturing and processing
industries since it is a service business and its retail stores will be located at
considerable distance from one another. Furthermore there is no need for
machinery and equipment which forms the bulk of investment in manufacturing
industries. Facilities and utilities needed for retail outlets, regional offices,
warehouses and head office are briefly described below:
The project will acquire commercial space for its retail outlets, regional offices,
warehouses and the head office on rent, hence there is no need to purchase land.
The project will operate three categories of stores in 20 cities/towns (70 outlets in
the initial phase). Additional stores may be set up as dictated by market demand.
The covered area for each type of store is estimated as follows:-
Category A:
6,000 sq. ft.
Category B:
4,000 sq. ft.
Category C:
2,000 sq. ft.
Commercial power connection from the electricity distribution company in each
city/town is proposed to be obtained (220 volts, 3 phase).
Water is needed for human consumption and cleaning purposes only.
23
3.9
PROJECT IMPLEMENTATION SCHEDULE
The project requires a core management team which will initiate store site
selection activities and undertake related commencement tasks. Setting up of 70
retail outlets simultaneously is not possible and will have to be phased. The last
store could be established in 36 months time from date of opening of the first
outlet. Complete project is expected to be implemented in 48 months as estimated
below by main activities.
TABLE – 7
PROJECT IMPLEMENTATION SCHEDULE
Activity / Stage
Time Required
(months)
Preparatory activities (preparation of feasibility study,
application for financial assistance, etc.)
2.0
Sanctioning of financial assistance
3.0
Fulfillment of post-sanction formalities, allocation of
funds, legal documentation, etc.
3.0
Opening of first retail outlet
Opening of the 70th retail store
12.0
36.0
The other major investments in fixed assets will be related to furniture, fixtures,
shelving, trollies, pallet trucks, forklifts, delivery vans, vehicles (cars for
executives and staff), signage, computer hardware and specialized software, etc.
24
CHAPTER 4
GOVERNANCE AND MANAGEMENT STRUCTURE
4.1
CORPORATE STATUS OF PROJECT
The sponsors of the project have two options to own and operate the business,
either through a public limited company or a private limited company (to be
incorporated in Pakistan under the Companies Ordinance 1984). The sponsors
have the option to contribute to the extent of 50 % or more of paid-up capital (in
the case of a public limited company) with the remaining percentage to be offered
to the general public through public flotation of shares subsequent to procurement
of the consent of the Securities and Exchange Commission of Pakistan.
4.2
MANAGEMENT STRUCTURE / ORGANOGRAM
The project involves large investment in setting up a network of retail stores
supported by regional offices, centralized warehouses and a corporate head office.
Professional management in all spheres and at all levels is essential to ensure high
efficiency and profitability. The proposed management structure is described
below and subsequently depicted in the form of an organogram.
BOARD OF DIRECTORS: This is the highest level of policy making and
supervisory body, presided over by the Chairman of the Board of Directors. It is
elected by the shareholders at the Annual General Meeting, and performs various
functions as laid down in the Companies Act 1984 in conjunction with the
Memorandum of Association and Articles of Association of the Company.
The Managing Director performs his functions in accordance with the MA / AA
of the company and as per policy guidelines laid down by the board, to which he
is accountable.
The Managing Director must be a qualified, experienced
professional in the field of distribution and retailing.
25
Directors for Operations, Marketing, Finance and Administration are all
senior level executive positions which need to be filled by professionally
competent persons. Director Marketing will perform a crucial role in the
successful marketing of the store’s products, whilst the Director Finance and
Administration will be responsible for financial control and administrative
matters. Director Operations will be responsible for all merchandizing, inventory
management and retail store operations.
CHART - 1
PROPOSED GOVERNANCE STRUCTURE
Board of Directors
Managing
Director
Director
Operations
Category A
Stores
Director
Marketing
Director Finance
& Admin
Chief
Accountant
Category C
Stores
Accounts
Officers
Category B
Stores
5 Regional Offices
and Warehouses
A Retail
Outlets
C Retail
Outlets
Marketing
Executives
B Retail
Outlets
26
Purchase
Officers
GM HR /
Training
4.3
MANPOWER REQUIREMENT
The chain of supermarkets project will need to employ persons with expertise and
professional experience in management of large retailing operations. In addition
skilled and unskilled workers will also be employed.
TABLE – 8
MANPOWER REQUIREMENTS
No. of
Stores
9
25
36
70
5
1
Store
Module – 1
Module – 2
Module – 3
Sub-Total
Regional Offices/Warehouses
Head Office Staff
TOTAL
4.4
Staff at
each Store
30
20
10
17
40
Total No.
of Staff
270
500
360
1,130
100
40
1,270
SYSTEMS AND PROCEDURES
An organization’s performance is largely dependant upon the formulation of
appropriate systems and procedures to cover all organizational aspects e.g.
•
Marketing (Brand Management)
•
Materials Procurement
•
Human Resource Management
•
Finance and Accounts
•
Inventory Management
•
Quality Control
Due importance needs to be given to this management aspect by the board of
directors and senior executives in order to ensure organizational efficiency.
27
4.5
TRAINING
Newly hired staff especially those stationed at retail stores will need to be trained
regarding company’s policies, dealing with customers, handling of operational
problems, etc. Initial induction, briefing and training could be conducted by
Manager HR/Training with special training programs arranged for groups of
employees on different aspects which may be given by organizations/
professionals engaged for such activities.
28
CHAPTER 5
FINANCIAL EVALUATION
Financial appraisal of the supermarket project’s various aspects, e.g. cost of
project, earnings forecast, rates of return, payback period, cash flow, balance
sheet, etc. is discussed in this section.
5.1
COST OF PROJECT
Total project cost is estimated at Rs. 381.255 million as shown below in
summarized form.
TABLE – 9
COST OF PROJECT
(Rs. in 000)
Head of Expenditure
Investment in Retail Outlets
Investment in Regional Offices
Investment in Warehouses
Investment in Head Office
Vehicles
Preliminary and Pre-operating Expenses
Contingencies
Fixed Cost
Working Capital
TOTAL PROJECT COST
5.2
Amount
294,370
7,300
15,250
5,860
13,975
7,500
17,000
361,255
20,000
381,255
FINANCIAL PLAN
The project is proposed to be financed through a combination of equity and Ijara/
Lease financing in the ratio of 50:50 respectively. The financial assistance (Ijara/
Lease) will carry a profit markup rate of 9 percent per annum payable over a
period of ten years.
29
TABLE - 10
FINANCIAL PLAN
(Rs. in 000)
Source of Finance
a) Financial Assistance
Ijara / Lease Financing
Sub-Total (a)
b) Equity
Sponsors
Public
Sub-Total (b)
TOTAL (a) + (b)
5.3
Share
Total
50 %
50 %
190,628
190,628
25 %
25 %
50 %
100 %
95,314
95,314
190,628
381,255
PROFIT AND LOSS ACCOUNT
A summarized version of the projected profit and loss account is given below:
TABLE – 11
PROJECTED PROFIT & LOSS ACCOUNTS
(Rs. in 000)
Description
Sales
Cost of Goods Sold
Gross Profit
Total Operating
Expenses
Operating Profit
Total Markup &
Amort.
Total Deductions
Profit before Tax
Provision for Tax
Net Profit
Dividends:
Percent
Amount
Retained Earnings
Cum. Ret. Earnings
Year 1
1,112,500
987,850
124,650
Year 2
1,668,750
1,357,256
311,494
Year 3
2,225,000
1,726,840
498,160
Year 4
2,225,000
1,732,451
492,549
Year 5
2,225,000
1,739,264
485,736
32,950
91,700
47,425
264,069
61,400
436,760
64,250
428,299
67,100
418,636
18,657
73,043
5,113
67,930
23,776
44,154
16,941
247,158
17,301
229,857
80,450
149,407
15,225
421,535
29,508
392,027
137,209
254,818
13,509
414,790
29,036
385,754
135,014
250,740
11,793
406,843
28,479
378,364
132,427
245,937
20 %
38,126
6,028
6,028
50 %
95,314
54,093
60,121
75 %
142,971
111,847
171,968
100 %
190,628
60,112
232,080
100 %
190,628
55,309
287,389
30
5.4
RATES OF RETURN
On the basis of the earnings forecast and related projections, rates of return for the
project are calculated below:
TABLE - 12
PROJECTED RATES OF RETURN
(Figures in Percentages)
Description
Gross Profit to Sales
Oper. Profit to Sales
Net Profit to Sales
Net Profit to Equity
5.5
Year 1
11.20
8.24
3.97
23.16
Year 2
18.67
15.82
8.95
78.39
Year 3
22.39
19.63
11.45
133.67
Year 4
22.14
19.25
11.27
131.53
Year 5
21.83
18.82
11.05
129.01
PAYBACK PERIOD
Payback period for the project, both in terms of owner’s equity and total
investment, is calculated below.
Total Investment
=
Rs. 381.255 million
Equity (50 %)
=
Rs. 190.628 million
(Rs. 000)
Year
1
2
3
4
5
Net Profit
44,154
149,407
254,818
250,740
245,937
Payback period for Equity
=
2.00 years
Payback period for total investment
=
2.75 years
31
5.6
CAPITAL: OUTPUT RATIOS
Capital: output ratios, representing the annual sales turnover potential of the
project in relation to the investment involved in its establishment, are calculated
below:
TABLE - 13
CAPITAL: OUTPUT RATIOS
(Rs. in 000)
Description
Total Investment
Sales (Output)
Capital: Output
Ratio
5.7
Year 1
1,112,500
Year 2
1,668,750
Year 3
381,255,000
2,225,000
Year 4
2,225,000
Year 5
2,225,000
1:2.92
1:4.38
1:5.84
1:5.84
1:5.84
CASH FLOW
Projected cash flow of the project for five years is shown hereunder.
TABLE - 14
PROJECTED CASH FLOWS
(Rs. in 000)
Description
SOURCES
Net Profit
Add back:
Depreciation
Amortizations
Funds from
Operations
Paid-up Capital
Public Subs.
Lease Financing
Increase in Current
Liabilities
TOTAL INFLOW
USES
Fixed Assets
End of
Constr.
Year 1
Year 2
Year 3
Year 4
Year 5
-
44,154
149,407
254,818
250,740
245,937
-
12,316
1,500
12,316
1,500
12,316
1,500
12,316
1,500
12,316
1,500
95,314
95,314
190,628
57,970
-
163,223
-
268,634
-
264,556
-
259,753
-
381,255
15,000
62,970
15,000
168,223
5,000
273,634
5,000
269,556
5,000
264,753
-
-
-
-
353,755
-
32
TABLE - 14 (Continued)
PROJECTED CASH FLOWS
(Rs. in 000)
Description
Capitalised
Expenses
Repayment of
Lease Instalment
Dividends
Increase in Current
Assets
TOTAL
OUTFLOW
Surplus / (Deficit)
Cash Opening
Balance
5.8
End of
Constr.
7,5000
Year 1
Year 2
Year 3
Year 4
Year 5
-
-
-
-
-
-
19,063
-
19,063
38,126
19,063
95,314
19,063
142,971
19,063
190,628
-
43,255
22,287
21,514
500
500
62,318
10,652
20,000
30,652
79,476
88,747
30,652
119,399
135,891
137,743
119,399
257,142
162,534
107,022
257,142
364,164
210,191
54,562
364,164
418,726
361,255
20,000
20,000
BALANCE SHEET
Balance sheets for the first five years of operation are shown below:
TABLE - 15
PROJECTED BALANCE SHEETS
(Rs. in 000)
Description
ASSETS
Current Assets:Cash/Bank Balance
Accounts
Receivable
Investment of
Goods
Stores and Supplies
Total Current Assets
Cap. Expenses
Fixed Assets
(at cost)
Less: Accum. Dep.
End of
Constr.
Year 2
Year 3
Year 4
Year 5
30,652
119,399
257,142
364,164
418,726
11,125
16,688
22,250
22,250
22,250
7,500
30,130
2,000
73,907
6,000
46,354
2,500
184,941
4,500
61,806
3,000
344,198
3,000
61,806
3,500
451,720
1,500
61,806
4,000
506,782
-
353,755
-
353,755
12,316
353,755
24,632
353,755
36,948
353,755
49,264
353,755
61,580
20,000
-
Year 1
33
TABLE - 15 (Continued)
PROJECTED BALANCE SHEETS
(Rs. in 000)
Description
Fixed Assets (net)
TOTAL ASSETS
LIABILITIES
AND EQUITY
Current Liabilities
Dividend Payable
Accounts Payable
Total Current
Liabilities
Financial
Assistance
Equity
Paid-up Capital
Ret. Earnings
Total Equity
TOTAL
LIABILITIES
AND EQUITY
End of
Constr.
353,755
Year 1
Year 2
Year 3
Year 4
Year 5
341,439
329,123
316,807
304,491
292,175
381,255
421,346
518,565
664,006
757,712
798,957
-
38,126
15,000
95,314
20,000
142,971
25,000
190,628
30,000
190,628
35,000
-
53,126
115,314
167,971
220,628
225,628
190,628
171,656
152,502
133,439
114,376
95,313
190,628
190,628
190,628
6,028
196,565
190,628
60,121
250,749
190,628
171,968
362,596
190,628
232,080
422,708
190,628
287,389
478,017
381,255
421,346
518,565
664,006
757,712
798,957
34
CHAPTER 6
CONCLUSION
This service sector business has evolved over the last several decades to develop
specialized companies in distribution and retailing. The world’s largest retailer
M/s Wal-Mart operates over 5,170 retail stores in USA and 10 other countries,
employs 1.60 million persons with sales of US $ 282.2 billion in 2004.
Most large retailing companies in developed countries are listed on the country’s
stock exchange i.e. shares are held by the public. The financial performance of
retailing companies (sales and profits) is considered as an indicator of the
country’s economy since it reflects on public spending for goods and services.
The Utility Stores Corporation is the only organization which is running a chain
of stores in the country (363 outlets at present). At one time it had 975 stores,
however, due to management and financial problems it was compelled to reduce
the total number of outlets.
Two new ventures in this field have recently been announced and are under
implementation. M/s Makro-Habib Pakistan Limited plans to set up a chain of 30
high volume stores in the country, each outlet to have about 100,000 sqaure feet
of space, parking facilities for 300 cars and 200 employees.
Metro Group of Germany (the world’s fifth largest retailing company) plans to
set up 30 department stores in Pakistan at an investment of US $ 400 million.
Total wholesale and retail business volume/value is estimated at Rs. 856.531
billion in 2004-2005 as per Gross Domestic Product data. The share of retailing
business alone is estimated at Rs. 756.745 billion
35
There is large potential for establishment of various types of chain stores in the
country. This prospect seems to have been recognized by investors of two groups
which are implementing chain of stores (supermarkets/hypermarkets and
department stores).
There would still be a very large void in the retailing sector and local/foreign
investors need to be motivated to invest in the upgrading of this business activity.
36
ANNEXURE 1
PAKISTAN - A PROFILE
INTRODUCTION
Pakistan is located in South Asia. It borders Iran to the southwest, Afghanistan to the
northwest, China to the northeast and India to the east. The Arabian Sea marks Pakistan’s
southern boundary.
i
The total area of Pakistan is 796,095 square kilometers and the country is divided
administratively into four provinces – Balochistan, North-West Frontier Province, Punjab
and Sindh – and numerous federally administrated areas. The disputed territory of Azad
Jammu & Kashmir lies to the north of Punjab.
ii
Pakistan has a diverse array of landscapes spread among nine major ecological zones
from north to south. It is home to some of the world’s highest peaks including K-2 which
at 8,611 meters above sea level is the world’s second highest peak. Intermountain valleys
make up much of the North-West Frontier Province, while the province of Balochistan in
the west is covered mostly by rugged plateaus. In the east, irrigated plains along the Indus
River cover much of Punjab and Sindh. In addition, both Punjab and Sindh have deserts,
Thal, Cholistan and Thar deserts respectively.
Most of Pakistan has a generally dry climate and receives less than 250 mm of rain per
year. The average annual temperature is around 27oC, but temperatures vary with
elevation from -30oC to -10oC during cold months in the mountainous and northern areas
of Pakistan to 50oC in the warmest months in parts of Punjab, Sindh and the Balochistan
Plateau. Mid-November to February is dry and cool; March and April bring sunny spring,
May to July is hot, with 25 to 50% relative humidity; Monsoons start in July and continue
till September; October- November is the dry and colourful autumn season.
Pakistan had an estimated population in 2005 of 160 million, 40% of this population was
less than 15 years of age. The major cities of Pakistan and their estimated populations
are; Karachi (16.0 million), Lahore (8.0 million), Faisalabad (6.0 million), Rawalpindi
(5.0 million), Multan (4.5 million), Hyderabad (3.0 million), Gujranwalla (1.8 million)
Peshawar (1.6) and Quetta (0.85). Islamabad, the Capital of the country, has a population
of around 750,000.
According to the 1973 Constitution, Pakistan is governed under a federal parliamentary
system with the President as head of state and a Prime Minister as head of government.
The legislature, or parliament, consists of the Lower House (National Assembly) and the
Upper House or Senate. Members of the National Assembly are directly elected for fiveyear terms.
Executive power lies with the President and the Prime Minister. The Prime Minister is an
elected member of the National Assembly and is the leader of the majority party in the
iii
National Assembly. An electoral college consisting of members of the national and
provincial legislatures elects the president for a five-year term.
After the events of 9/11, Pakistan has become a key US ally in the war against terror.
This alignment is totally in-line with the views of the majority of Pakistanis who practice
and preach a moderate version of Islam. The Government of Pakistan fully realizes the
need for promoting Islam as a modern progressive religion. The Government has chosen
the difficult option of fighting the war against terror by clamping down on Taliban and
Al-Qaeda remnants along the border with Afghanistan. The people of Pakistan fully
support the Government in its efforts to promote the true face of Islam.
The US Government fully backs and supports Pakistan in this war against terror. US Aid
which was stopped after the 1998 Nuclear Test has been restored and Pakistan will
receive US$ 3.0 billion over the next 5 years, divided equally between economic and
military aid.
Pakistan follows a very active policy of regional alliances for trade and economic
development. It is an active member of the South Asian Association for Regional
Cooperation (SAARC) which groups Pakistan, India, Bangladesh, Sri Lanka, Nepal,
Bhutan and the Maldives. It is also an active member of the Economic Cooperation
Organization (ECO) comprising of Turkey, Iran, Pakistan, Afghanistan, and the six
Central Asian Republics. Pakistan has an observer status at the Gulf Cooperation Council
(GCC) as well as ASEAN and Shanghai Cooperation Organization. Being a member of
WTO it conforms to most of the international trade regimes.
ECONOMY
Pakistan’s economy has made significant progress in the last six years. This has been
possible because of the Government’s policy of initiating growth through domestic and
foreign direct investment. The GDP growth rate has increased from 1.8% per annum in
2001 to 8.4% per annum in 2005. Despite the devastating earthquake in October 2005,
the economy is expected to grow at over 6.6% in 2006. Pakistan’s GDP in 2005 was
iv
estimated at US$ 385.2 billion and its per capita GDP was US$ 2,400. The Country’s
credit rating has been upgraded by Moody’s from Caa1 in 2002 to Ba3 i.e. “stable” in
2006.
Pakistan has over 3.5 million laborers working in various countries of the Middle East. In
addition, Pakistani technical and professional manpower is engaged in lucrative pursuits
in USA, UK, Canada, Malaysia, etc. These non-resident Pakistanis annually send over
US$ 4.0 billion in foreign remittances.
The Government of Pakistan’s policy of encouraging Foreign Direct Investment (FDI)
has seen it grow from a mere US$ 376.0 million in 1999 to more than US$ 1.5 billion in
2005 which is expected to grow to over US$ 3.0 billion in 2006.
In addition to Foreign Direct Investment, low domestic interest rates have meant that
there has been an upsurge in domestic investment; the weighted average rate of lending
has fallen from 16% in 1999 to approximately 8% in 2005.
The Government’s economic policy has seen foreign currency deposits rise from US$ 1.7
Billion in 1999 to now US$ 13.0 billion in 2006; this has led to both low rates of inflation
and to a stable exchange rate.
With the Government of Pakistan targeting annual growth in the economy at 7.5% per
annum in the next 5 years, Pakistan is the country of choice for foreign and domestic
investors.
INFRASTRUCTURE
The National Highway Authority (NHA) has the responsibility for 17 of Pakistan’s major
inter provincial links called the National Highway including the Motorways, which are
access controlled and tolled highways. Total length of roads, under NHA, currently
stands at 8845 Kms.
v
These roads account for only 3.5% of Pakistan’s entire road network but cater for 80% of
the commercial road traffic in the country. Improvement and extension of the existing
network is, therefore, essential to develop remote areas and provide better connection
between the economic centers of Pakistan. In addition a first class road network is
essential if Pakistan is going to connect its all-weather Arabian Seaports with the
landlocked Central Asian Republics and Western China. The Government has initiated
work on the North-South Trade Corridor with planned investment of over US$ 60 billion.
In order to further speed up the development of the road network, the Government is
actively seeking the participation of the private sector to implement road projects on a
Build-Operate-Transfer (BOT) basis. A number of projects are currently being
implemented under the BOT concept and others are in the identification stage. These
BOT projects cover the construction of new roads as well as the upgrading of existing
roads.
Pakistan has about 1062 km of coastline on the Arabian Sea running from the Indian
border to the Persian Gulf. The Karachi Port is the premier port of Pakistan and is
managed by the Karachi Port Trust (KPT). Karachi port handles about 75% of the entire
national cargo. It is a deep natural port with a 11 km long approach channel to provide
safe navigation up to 75,000 DWT tankers, modern container vessels, bulk carriers and
general cargo ships. The Karachi Port has 30 dry cargo berths including two Container
Terminals and 3 liquid cargo-handling berths. KPT intends to cater for 12-meter draught
ships, which are the most widely used container vessels. In order to facilitate
accommodate and fast turnaround time of mother vessels, the KPT is offering to the
private sector the opportunity to develop a terminal on BOT basis. In addition KPT has
plans to develop a Cargo Village on 100 acres. This Cargo Village shall serve as a
satellite to the port, integrating container, bulk and general cargo handling as well as
providing processing plants for perishable exports. With direct connection to the National
Highway Network, as well as National Railways Network the cargo village shall also
alleviate the problem of upcountry trade with cost effective storage/handling services in
the vicinity of the port. A master plan is under preparation and all the units within the
vi
village shall be allocated to the private sector on BOT and Build-Operate-Own (BOO)
basis within the next year.
Pakistan’s second Sea Port, Port Qasim is located 50 kilometers to the South East of
Karachi. It is the Country’s first industrial and multi-purpose deep-sea-port. Currently it
is handling 23% of Pakistan’s sea trade. Port Qasim has attractions and advantages for
investment both in port facilities and port-based industrial development. Port Qasim
Authority from the very beginning has actively sought the help of the private sector in the
development of its port structure. Some of the projects which have been completed with
private sector involvement include; dedicated oil terminal developed in private sector on
BOO basis at a cost of US$ 87 million to cater for oil imports with a handling capacity of
9 million tons per annum, a container terminal developed by P&G Group, Australia, at a
cost of US$ 35 million on BOO basis, for chemicals imports a facility in collaboration
with Vopak of Netherlands on BOT basis at a cost of US$ 67 million. Some of the
projects which the Port plans to develop with the private sector on the basis of BOT
include; establishment of a second oil jetty, establishment of a dedicated coal and
clinker/cement terminal and the establishment of a marine workshop and dry dock
facilities.
To encourage industrial development the Port Qasim Authority has reserved 300 acres of
land on a prime location in the Eastern Industrial Zone (EIZ) for allotment of plots to
Overseas Pakistanis to induce and encourage foreign investment and provide them an
opportunity to establish small size industries in Pakistan. Each plot is measuring 100
square yards at a very low cost on attractive terms and conditions. This is in addition to
existing 1,200 acres of industrial zone which houses a number of auto assemblers such as
Toyota, Suzuki, Chevrolet and the Textile City spread over 1,250 acres.
The Pakistan Merchant Marine Policy 2001, has deregulated the shipping sector and aims
to attract investment; both local and foreign, public and private, by offering a range of
incentives. The new policy in addition to offering duty-free import of ships, offers many
new incentives to local and foreign investors including Income Tax exemption till 2020.
vii
Pakistan's annual seaborne trade is about 45 million tons, just 5 per cent of which is
carried by the national carrier Pakistan National Shipping Corporation (PNSC), the
country's annual freight bill surpasses staggering $ 1.5 billion which is causing a colossal
drain on foreign exchange resources, the marine policy aims to reverse this situation to
some extent.
The Shipping Policy aims to revive and augment national ship-building/capacity to meet
20 per cent ship construction requirements of the country merchant marine and entire
requirements of support and ancillary crafts. The policy also aims to rejuvenate and
expand the ship repair potential to undertake the entire range of repairs and maintenance
of 50 per cent of Pakistani Flag ocean-going vessels and all ancillary sectors. The new
Shipping Policy offers many financial incentives for potential investors. It offers tax
exemptions and concessional tax measures backed by assurances. It also aims at
simplifying the rules by deregulating the sector.
To begin with, ships and floating crafts — tugs, dredgers, survey vessels, and specialized
crafts — purchased or bareboat chartered by a Pakistani entity flying the Pakistani flag
will be exempt from all import duties and surcharges till 2020. The policy accords shopbuilding and ship-repair the status of an industry under the investment policy which is
entitled to all incentives contained therein.
To attract foreign investment, all port and harbor authorities in Pakistan will allow all
ships and floating crafts 10 per cent reduced berthing rates when the same are berthed for
purposes of repair and maintenance. Under the Policy, ships and all floating crafts are
considered bonafide collateral against which financing can be obtained from Banks and
Financial Institutions subject to policy of the financial institution.
There are 42 airports in the country managed by the Civil Aviation Authority (CAA). Out
of these, five airports; Lahore, Karachi, Islamabad, Peshawar and Quetta are international
airports. The CAA is planning to develop a new international airport at Islamabad for
viii
which land has been acquired and it is planed to fund the US$ 250-300 million on BOT
basis.
The Pakistan International Airlines (PIA) is the national flag carrier flying to 46
international and 36 local destinations. Other Pakistani airlines in the private sector
include, Aero Asia, Air Blue, Shaheen Air International and Pearl Air. In addition to
direct flights from most parts of the world, Pakistan can also be accessed through the
regional hubs of most international airlines, which operate through airports in the Gulf
countries.
The Pakistan Railways provides an important nation-wide mode of transportation in the
public sector. It contributes to the country’s economic development by catering to the
needs of large-scale movement of freight as well as passenger traffic. Pakistan railway
provides transport facility to over 70 million people and handles freight above 6 million
tons annually.
The Pakistan Railways Network was based on a total of 11,515 track kilometers
(including track on double line, yard & sidings) at the end of 2001-2002. This network
consists of 10,960 kilometers of broad-gauge and 555 kilometers of meter gauge.
Pakistan Railways has launched modernization activity with rehabilitation and
improvement plan both for its infrastructure and rolling stock including prime mover.
The ongoing schemes worth over US$ 500 million are progressing satisfactorily and have
brought a radical improvement in service. The railways is gearing up to the challenge of
providing improved connectivity to Iran, India, and link the upcoming Gwadar Port to
Afghanistan and onward to Turkmenistan.
Pakistan Telecommunication Limited (PTCL) dominated Pakistan’s telecommunications
market for the fixed-line services. Today the Pakistan Telecommunication Authority
(PTA) has the role of a regulatory body and is responsible for implementing the telecom
deregulation policy. For a long time, Pakistan lagged behind in the region as far as
ix
telecom access is concerned. With cellular mobile revolution taking place, Pakistan's
tele-density currently stands at 10.37%, with gross subscribers base of fixed (5.05
million) as well as mobile subscribers (10.54 million) touching 15.59 million for a
population of 160.0 million.
The Telecomm Sector has attracted the largest FDI in Pakistan with approximately
US$ 1.5 billion having been invested in 2005.
At the moment there are six companies providing mobile phone services in Pakistan, with
the largest of them, Mobilink (owned by Orascom Telecom) with nearly 50% of the
market share, other foreign players include MCE, Telenor and Warid.
In addition Wateen Telecom, a subsidiary of UAE-based Al Warid Telecom, has
launched a US$ 75.0 million project to lay an optic fiber optic backbone across the
Country. The first segment of the project of 800 kms would stretch from Karachi to
Rahimyar Khan and would be further linked with the rest of the country up to Peshawar
through 63 cities. When completed the backbone would be 5,000 kilometers, long
spanning the length and the breadth of Pakistan and would facilitate both the corporate
and residential segments, providing voice and high-speed data services on a converged
wireless network.
Pakistan in 2005 had 70 operational providers of internet services across 1,900 cities and
towns of the Country catering to about 2 million subscribers. In addition the Government
has reduced bandwidth rates for high speed board band internet connections and the
number of subscribers in this category is expected to grow to 200,000 by end of 2006.
AGRICULTURE
Agriculture accounts for nearly 23 percent of Pakistan’s national income and employs 42
percent of its workforce. Nearly 68 percent of the population lives in rural areas and is
directly or indirectly dependent on agriculture for their livelihood. Livestock is the single
largest contributor 47 percent share in the national income. The major crops; cotton,
x
wheat, sugarcane and rice contribute 37 percent to agriculture while the minor crops like
oilseed, spices, onion and pulses contribute another 12 percent.
Pakistan is the fifth largest producer of milk in the world. The per capita availability of
milk at present is 185 liters, which is the highest among the South Asian countries. Milk
production in Pakistan has seen a constant increase during the last two decades. The
production has increased from 8.92 million metric tons in 1981 to 28 million metric tons
in 2005. There is a large and untapped potential in the dairy industry. With a population
of 160 million, a significant demand for dairy products exists in Pakistan. There is a need
for establishing modern milk processing and packaging facilities based on advanced
technology to convert abundantly available raw milk into high value added dairy
products. In addition, with improved conditions for milk pasteurization, availability of
chilled distribution facilities and consumer preference for the low cost pasteurized milk,
the sector provides unique opportunity for investment in establishing pasteurized milk
production plants.
There is also great scope for establishing related industries in the form of an efficient
milk collection system and refrigeration & transportation facilities. The sector offers
opportunity to foreign investors for establishing a joint venture for the production of
dairy products, particularly dried milk and infant formula milk for which great demand
exists in the neighboring countries like Afghanistan, Iran, UAE and Saudi Arabia.
Out of the 28 million tons of milk produced per annum in Pakistan, only 2.5 to 3 per cent
reaches the dairy plants for processing into variety of dairy products. Pakistan’s dairy
industry produces Ultra Heat Treated (UHT) Milk, Pasteurized Milk, Dry Milk Powder,
and Condensed milk. Other major milk products produced by the dairy industry include
butter, yogurt, ice cream, cheese, cream and some butter oil. Approximately half of the
0.3 million tons of milk available to the industry is processed into UHT milk, 40 percent
into powdered milk, and the remaining 10 percent into pasteurized milk, yogurt, cheese
and butter etc. Major players in the sector include Nestle, Haleeb and Engro Foods.
xi
Pakistan produced 1.1 million tons of beef, 740,000 kgs of mutton and 410,000 kgs of
chicken meat in 2005; in addition it also produced approximately 5 billion eggs in 2005.
Processed meat is exported to Saudi Arabia, UAE, Oman, Bahrain, Qatar and Kuwait in
the Middle East and Malaysia in the Far East. Pakistan exports around 40,000 live
animals and 2.83 million kg of meat to the Gulf.
Cotton is an important non-food crop and a significant source of foreign exchange
earning. It accounted for 10.5 percent of the value added in agriculture and about 2.4
percent of the GDP in 2005. Pakistan in 2005 produced about 14.5 million bales of
cotton.
Rice is a high value added cash crop and is also a major export item, it accounts for 5.7
percent of the total value added in agriculture and 1.3 percent of the GDP. Production of
rice in 2005 was about 5 million tones. In 2005 rice became the second largest export
from Pakistan when the country exported rice worth US$ 934 million. In addition to high
value Basmati rice, Pakistan also exports IRRI 6 parboiled rice and IRRI rice to Africa.
Sugarcane is an intensive cash crop and serves as the major raw material for production
of white sugar and gur. Its share in the value added in agriculture is 3.6 percent and 0.8
percent in the GDP. The total sugarcane crop in 2005 was estimated at 45 million tones.
Wheat is the leading food grain of Pakistan, and being the staple diet of the people, it
occupies a central position in agricultural policy. It contributes 13.8 percent to the value
added in agriculture and 3.2 percent of the GDP. The size of the wheat crop in 2005 was
estimated at 21.0 million tons.
In addition to the above, Pakistan also produces bajra, jowar, tobacco, barley, oilseed,
pulses, potato, onion, chillies etc.
xii
The Government of Pakistan has launched a plan to promote Corporate Agriculture
Farming and has offered a number of incentives to develop the sector including the
provision of land and other facilities.
MANUFACTURING
In the post quota regime, total exports of textile increased from $ 6.5 billion in 2004 to
$ 7.4 billion in 2005. Pakistan textiles are poised to achieve $ 10 billion exports by June
2006. This growth is largely driven by the continuity of government policies, positive
macroeconomic indicators, tariff rationalization, removal of sales tax on textile
chain, deregulation, lower interest rates, increased market access, public-private
partnership programs and the creation of a hassle free environment by the government.
The Government of Pakistan continues to take steps to further develop the textile sector
focusing on bridging the skills gap promoting research and development activities,
facilitating an increase in the number of women employees, outsourcing of specialized
work and simplification of procedures. To facilitate value addition in the textile
sector, world class departments in various disciplines related to textile industry are being
set up in three universities. These departments will have linkages with corresponding
foreign departments of high repute.
In the past 5 years, approximately US$ 5.5 billion have been invested in the textile sector
with the major investments being in spinning ($ 2.6 billion), weaving ($ 1.5 billion), and
textile processing ($ 600 million). A Rs.10 billion, Pakistan Textile City facility located
on 1,250 acres of land near Karachi is in the process of being set-up. This will have its
own desalination plant, effluent treatment plant, a self-power generation plant and all the
other modern facilities required for industrial production. It is expected that the Textile
City will lead to an increase in exports of US$ 400 million and provide jobs to 60,000
workers
Pakistan’s leather exports in 2005 were US$ 883 million which is the second largest
export sector after textiles. It is expected that exports will cross the US$ 1 billion mark in
xiii
2006. Major exports include finished leather; both for garments and footwear, finished
leather garments, leather work gloves, and other leather products. The major centers for
the manufacture of leather and leather products are; Karachi, Lahore, Sialkot and Kasur,
it is estimated that there are more than 700 tanneries operating in Pakistan employing
more than 100,000 persons, in addition another 150,000 workers are employed in the
value addition sectors. In order to promote the industry, the Government has zero-rated
the sales tax on the leather sector and is working to ensure that the industry conforms to
international waste management standards.
Pakistan’s light engineering sector consists of twenty-eight sub-sectors including
consumer durables and other industrial products. The surgical instrument manufacturing
sector which forms part of light engineering sector is clustered around Sialkot and
exports 95% of its production. There are about 2,500 large, medium and small sized units
with the industry employing about 50,000 skilled and semi-skilled workers. The surgical
goods sector produces both disposable and reusable instruments. The product range
consists of more than 10,000 different items.
The cutlery industry which in 2005 exported goods worth approximately US$ 31 million
is mainly concentrated in the locality of Wazirababd, Nazimabad and Allahbad in
Gujranwalla district. There are approximately 300 units and 25,000 people are directly or
indirectly employed by the industry. The industry has great export potential and requires
better marketing strategies.
The auto parts sector consists of more than 1,200 vendors who are supplying to about 84
Original Equipment Manufactures (OEM) massive capacity increase in Pakistan. The
total investment in the vendor industry exceeds Rs.10 billion and employs more than
40,000 skilled and semi-skilled workers and also brings in more than US$ 160 million in
the form of export earnings.
With the local auto assemblers planning to increase production to 500,000 units by 2008
from the 2006 production figure of 170,000 units, the vendor industry is gearing up for.
xiv
Although the industry has made considerable progress on its own, the need is for joint
collaboration with foreign companies which will not only bring production techniques
but also help in marketing the production of the local vendor industry.
There are a total of 42 assemblers of motorcycles in Pakistan who between them
manufacture 600,000 motorcycles a year, it is expected that the production will increase
to 1 million units a year in the next two years. The main manufacturers of motorcycles in
Pakistan are; Honda, Yamaha and Suzuki who between them command more than 80%
of the domestic market
There are 11 Fertilizer units operating in Pakistan with an installed capacity of 6 million
tones out of which nitrogenous fertilizer has a capacity of 4.9 million tons and phosphatic
fertilizer has a capacity of 1 million tons. Wheat being the most important crop 45% of
the total fertilizer consumption is in this Sector. Cotton consumes 21%, rice 10%,
sugarcane 8% while the remaining 16% is consumed by other crops.
Out of a total of 24 cement plants, currently 22 units are operative, 17 companies being
listed on the Karachi Stock Exchange. The country, at present, has an installed capacity
of producing 17.55 million tons of cement per annum, mainly Portland cement. It is
envisaged to increase installed capacity (also by expansion) to 28.21 million tons per
annum by 2008. New projects as well as capacity increases in existing units should boost
production capacity to about 7 million by 2007.
The demand for cement is expected to be robust, as the Government of Pakistan has
initiated a massive reconstruction drive in the earthquake hit regions of Northern Pakistan
and Azad Kashmir. In addition large quantities of cement will be required for the mega
construction projects initiated by the Government of Pakistan including the construction
of large dams and road projects. Also the industry has good prospects for exporting
cement to Afghanistan where reconstruction work is on-going on in that Country.
xv
Pakistan is the twelfth largest producer of sugar in the World; it ranks fourth in sugarcane
production and holds seventh position in yield, which is about 50 tons per hectare.
The sugar industry has 76 units installed mostly in Punjab and Sindh. The total capacity
of the industry is estimated at 5 million tones per annum. In order to provide incentives to
the growers, the Government determines a support price keeping in mind the production
costs and profits of other crops. The Government and the Industry are trying to increase
cane yield to ensure an increase in the total production of sugar.
The demand for Steel has undergone a dramatic increase in 2005; the total consumption
of steel in 2005 is estimated at 5 million tons as against a domestic production of only 3.2
million tones. The biggest producer of domestic steel is the Pakistan Steel Mills with a
capacity of 1.1 million tones per annum. In addition to the Pakistan Steel Mills there are
approximately 350 steel re-rolling mills in the country, which mainly cater to the needs of
the construction industry.
The demand for steel is expected to further surpass production because of increased
demand due to economic activity and construction of large dams and infrastructure
projects in the Country. The Government is encouraging the private sector to come
forward and invest in mini steel mills and in the mining sector. The Government in an
effort to increase production, is in the process of privatizing major light and heavy
engineering concerns.
OIL, GAS & ENERGY SECTOR
The Pakistani economy is expected to grow at a rate of 7 to 8 percent over the next five
years. In order to sustain the growth momentum a rise in levels of income and increased
availability of goods and services, the country is following a policy to increase the supply
of and the conservation of energy.
In 2005 the consumption of petroleum products in household and agriculture exhibited
sharp decline to the tune of 16.8 and 16.2 percent, respectively. The decline in the use of
xvi
petroleum products was mainly on account of the availability of alternative and relatively
cheaper fuels in the form of natural gas and LPG
Historically, the country is dependent on oil imports. The crude oil import for 2005 was
about 8.3 million tons, equivalent of US$ 2,606 million. The import of petroleum
products import was 5.7 million tons, an equivalent of US$ 1,998 million. The total
annual import bill for the year 2005 was US$ 4,604 million. Due to increase in
international prices of crude oil, the import bill in 2006 is expected to be US$ 5,500
million. Pakistan has five refineries, namely, National Refinery, Pakistan Refinery,
Bosicor, Pak Arab Refinery and Attock Refinery; annual oil refining capacity is 12.82
million tons. In the downstream oil marketing business, the main players are; Pakistan
State Oil (100% owned by the Government of Pakistan), Caltex, Shell and Total.
Pakistan has an interesting Geo-dynamic history of large and prospective basin (onshore
and offshore) with sedimentary area of 827,268 sq. km. So far about 844 million barrels
crude oil reserves have been discovered of which 535 million barrels have already been
produced. A Prognostic potential of total endowment of hydrocarbons has been estimated
as 27 billion barrels of oil. To date various national and international exploration and
production companies, resulting in over 177 oil and gas discoveries, have drilled more
than 620 exploratory wells. Indigenous production of crude oil during the year 2005 was
66,079 barrels per day. The main companies in the upstream chain include; BHP
Petroleum, Lasmo Oil, Shell, OMV Pakistan etc.
Pakistan is among the most gas dependent economies of the world. Natural gas was first
discovered in 1952 at Sui in Balochistan province that proved a most significant and the
largest gas reservoir. After successful exploration and extraction, it was brought to
service in 1955. This major discovery at Sui followed a number of medium and small size
gas fields in other parts of the country.
So far about 52 TCF of gas reserves have been discovered of which 19 TCF have already
been produced. Natural gas production during 2005 was about 3.7 billion cubic feet per
xvii
day. Pakistan has well developed and integrated infrastructure of transporting,
distributing and utilizing natural gas with 9,063 km transmission and 67,942 km of
distribution and service lines network, developed progressively over the last 50 years.
Natural gas sectoral consumption during 2005 was: power (43.7%), fertilizer (16.4%),
cement industry (1.2%), general industry (19.5%), domestic (14.8%), commercial (2.3%)
and Transport (CNG; 2.1%).
Gas importation projects envisage about 1500 to 2000 km long pipelines connecting
regional gas supply sources such as Turkmenistan, Iran and Qatar to the domestic
pipeline network bringing in more than 1.5 billion cubic feet gas per day. With further
extension, the imported gas can also reach the Indian market.
Pakistan started using Compressed Natural Gas (CNG) as transport fuel through
establishment of research and demonstration CNG refueling stations by the Hydrocarbon
Development Institute of Pakistan (HDIP) at Karachi in 1982 and at Islamabad 1989.
CNG is now fast emerging as an acceptable vehicular fuel in place of oil. Pakistan is third
largest user of CNG in the world after Argentina and Brazil. As many as 835 CNG
stations have been set up in the country by December 2006 and 200 stations were under
construction. With 850,000 CNG vehicles on the road, the CNG sector has attracted
Rs.20 billion investment while another Rs.2 billion is in the pipeline, providing 16,000
jobs.
Large diesel vehicles (buses and trucks) being the major consumer of HSD are now the
next target for substitution by CNG for economic and environmental reasons. Meanwhile
a private company has imported some CNG diesel dual-fuel buses for Karachi and plans
are also underway for local manufacturing of these buses.
The total power generation capacity of Pakistan is 19,540-mw. In order to sustain a
higher GDP growth rate of 7–8 percent, the Government is planning to increase its power
generation capacity by 143,000-mw in the next 25 years, to 162,590-mw.
xviii
The 25-year Energy Security Plan (ESP 2005-2030) approved recently by the
Government envisages increase in nuclear power generation by 8,400-mw to 8,800-mw
by the year 2030 from current nuclear power of 400-mw. The ESP envisages the share of
nuclear power to increase to 4.2 per cent of country's total energy mix from the current
rate of 0.8 per cent. The current energy mix has (highest) 50 percent share of gas, 30
percent oil, 12.7 per cent hydel, 5.5 per cent coal, 0.8 per cent nuclear and zero percent
renewable energy.
The additional 143,053-mw would include 8,400-mw of nuclear power, 26,200-mw
hydel-power, 19,753-mw coal based energy, 9,520 mw renewable energy, 1,360-mw oil
based and 77,820-mw gas based power production.
By the year 2010, the country would have an additional power of 7,880-mw and hence
total capacity would reach 27,420-mw. This additional power would not include any new
plant in the nuclear sector, but hydel generation would increase by 1,260-mw, coal based
increase of 900-mw and renewable energy increase of 700-mw. A minor increase of 160mw would take place in the oil-based generation while gas based power production
would increase by 4,860 mw.
xix
IMPORTANT CONTACTS
Secretary,
Ministry of Commerce,
Govt. of Pakistan,
Block A, Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9208692,
www.commerce.gov.pk
Deputy Chairman,
Planning and Development Division,
Ministry of Planning & Development,
Govt. of Pakistan,
Block P, Pakistan Secretariat,
Islamabad.
Office Tel: 92 (51) 9211147, 9202783
www.mopd.gov.pk
Secretary,
Ministry of Health,
Govt. of Pakistan,
Block C , Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9211622
Fax No: 92(51) 9205481
Secretary,
Planning and Development Division,
Ministry of Planning & Development,
Govt. of Pakistan,
Block P, Pakistan Secretariat,
Islamabad.
Office Tel:92 (51) 9211147, 9202783
www.mopd.gov.pk
Secretary,
Ministry of Food, Agriculture and
Livestock,
Govt. of Pakistan,
Block B, Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9203307,9210351
Fax No: 92(51) 9210616
Secretary,
Ministry of Finance,
Govt. of Pakistan,
Block Q, Pak. Secretariat,
Islamabad.
Office Tel: 92 (51) 9201962
Fax No: 92(51) 9213705
www.finance.gov.pk
Secretary,
Ministry of Ports & Shipping,
Govt. of Pakistan,
Block D , Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9215354
Fax No: 92(51) 9215349
Secretary,
Ministry of Industries, Production &
Special Initiatives,
Govt. of Pakistan,
Block A, Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9210192, 9211709
E-mail:secretary@moip.gov.pk
http://www.moip.gov.pk
Secretary,
Ministry of Tourism,
Govt. of Pakistan,
Block D , Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9213642
Fax No: 92(51) 9215912
Email:secretary@tourism.gov.pk
Secretary,
Ministry of Communication,
Govt. of Pakistan,
Block D, Pak. Secretariat,
Islamabad.
Office Tel: 92 (51) 9201252
xx
Chairman,
Securities and Exchange Commission
of Pakistan,
National Insurance Corporation
Building,
Jinnah Avenue,
Islamabad-44000,
Telephone: 92-51-9207091 (3 lines)
Fax: 92-51-9204915
Email: enquiries@secp.gov.pk
www.secp.gov.pk
Governor,
State Bank of Pakistan,
I.I. Chundrigar Road,
Karachi. Pakistan.
Phone: 111-727-111 Fax: (+92-21)
9212433-9212436
www.sbp.org.pk
Chairman,
Board of Investment,
Govt. of Pakistan,
Attaturk Avenue,
Sector G-5/1,
Islamabad.
Tel: 92(51) 9207531, 9206161
www.pakboi.gov.pk
Chairman,
Export Promotion Bureau,
Govt. of Pakistan,
5th Floor, Block A
Finance & Trade Centre,
Shahrah-e-Faisal.
Karachi.
Tel: 92-21-9206462-70
Fax: 92-21-9206461
www.epb.gov.pk
Chairman,
Pakistan Telecommunication
Authority,
Head Quarter Sector F-5/1,
Islamabad.
Tel: 92-51-2878143,9225326,
Fax: 92-51-2878155
E-mail: chairman@pta.gov.pk
www.pta.gov.pk
Chairman,
Engineering Development Board,
Govt. of Pakistan,
5-A, Constitution Avenue, SEDC
Building (STP), Sector F-5/1,
Islamabad,
Tel: 92-51-9205595-98
Fax:92-51-9205595-98
Email: edb@edb.gov.pk
www.engineeringpakistan.com
Chairman,
Oil & Gas Regulatory Authority,
Tariq Chambers, Civic Center,
Melody Market, Sector G-6,
Islamabad.
Tel: 92-51-9221705
Fax: 92-51-9221714
Email: chairman@ogra.org.pk
www.ogra.org.pk
Chairman,
Alternative Energy Development
Board,
Govt. of Pakistan,
344-B,Prime Minister's Secretariat,
Constitution Avenue,
Islamabad.
Phone No: 92-51-9223427, 9008504
Fax No: 92-51-9205790
E-mail: support@aedb.org
www.aedb.org
Chairman,
Chairman,
Pakistan Electronic Media Regulatory
Authority,
Green Trust Tower,
6th Floor, Jinnah Avenue, Blue Area,
Islamabad
Phone#:0092-051-9222320/26/32/40/42
E-Mail: ctv@pemra.gov.pk
www.pemra.gov.pk
xxi
Small & Medium Enterprise
Development Authority,
6th Floor, LDA Plaza, Egerton Road,
Lahore.
Tel: 92-42-111-111-456
Fax: 92-42-6304926
E-mail helpdesk@smeda.org.pk
www.smeda.org.pk
Karachi Cotton Association,
The Cotton Exchange,
I.I Chundrigar Road,
Karachi, Pakisan.
Tel : 92-21-242-5007, 241-2570,
Fax : 92-21-2413035
Email: contact@kcapak.org
www.kcapk.org
Managing Director,
Private Power and Infrastructure
Board,
50 Nazimuddin Road, F7/4,
Islamabad, Pakistan.
Tel: 92-51 9205421,9205422
Fax: 92-51 9215723,9217735
Email: ppib@ppib.gov.pk
www.ppib.gov.pk
President,
Federation of Pakistan Chambers of
Commerce and Industry,
Federation House,
Sharea Firdousi, Main Clifton,
Karachi.
Tel: 92-21-5873691,93-94
Fax : 92-21-5874332
Email : fpcci@cyber.net.pk
info@fpcci.com.pk
www.fpcci.com.pk
CEO,
Competitiveness Support Fund,
House No. 53,
Street 1, F-6/3,
Islamabad.
Cell: 92-300 856 5277
Email: arthur.bayhan@telefonica.net
www.competitiveness.org.pk
President,
Karachi Chamber of Commerce
Industry,
Aiwan-e-Tijarat Road,
Off Shahrah-e-Liaquat,
Karachi.
Tel: 92-21- 241 6091-94
Fax : 92-21- 241 0587
Email: info@ karachichamber.com
www.karachichamber.com
Chairman,
Pakistan Software Export Board,
2nd Floor Evacuee Trust Complex
F-5, Aga Khan Road
Islamabad - 44000
Tel: 92-51-9204074
Fax: 92-51-9204075
www.pseb.org.pk
President,
Lahore Chamber of Commerce
Industry,
11, Shahrah Aiwan i Tijarat,
Lahore. Pakistan.
Tel: 92-42 -111-222-499
Fax : 92-42 -636-8854
www.lcci.com.pk
Managing Director,
Karachi Stock Exchange (Guarantee)
Limited,
Stock Exchange Building, Karachi.
Tel: 92-21-111-001122
Fax : 92-21-241 0825
Email: info@kse.com.pk
www.kse.com.pk
Chairman,
xxii
Secretary,
Overseas Chamber of Commerce and
Industries,
Chamber of Commerce Building,
Talpur Road, P.O. BOX 4833,
Karachi.
Tel: 92-21-2410814-15
Fax: 92-21-2427315
E-mail: info@oicci.org
President,
Rawalpindi Chamber of Commerce
and Industries,
Chamber House, 39 - Mayo Road
(Civil Lines),
Rawalpindi.
Tel: 92-51-5111051-54
Fax: 92-51-5111055
E-mail : rcci@isd.wol.net.pk
www.rcci.com.pk
xxiii
Study Commissioned by:
EMPLOYMENT & RESEARCH SECTION,
PLANNING & DEVELOPMENT DIVISION, GOVERNMENT OF PAKISTAN,
PAKISTAN SECRETARIAT, P- BLOCK, ISLAMABAD
Tel: (92-51) 921 2831, Fax: (92-51) 920 6444