CORPORATE WINDOW: Taking a long position on Pakistan

Chairman and CEO Unilever Amir Paracha

“Expecting the stability of a developed market and growth rates of a developing market is unreasonable; it is a high risk, high return scenario,” says Unilever’s Chairman and CEO Amir Paracha in an interview with Dawn.
Companies that withdraw during challenging periods often miss out on substantial opportunities, Mr Paracha argues, citing examples of international banks and foreign pharmaceutical companies.
As these firms retreated, local companies thrived, filling the gaps left behind. While this shift may have benefited the local economy, it has also led international companies to forgo potential long-term gains.
“In 2014, the attrition rate among Unilever salespeople was so high that the entire sales force was turning over every 2.5 years,” recalls Mr Paracha. They were paid the minimum wage of Rs14,000 at that time, which meant that a pay bump as trivial as Rs500 incentivised them to shift jobs.
To retain experienced sales staff, Unilever promised to double their salaries within three years, a commitment they fulfilled. The attrition rate came down to four per cent and sales doubled as productivity shot up. When Mr Paracha came to the helm of Unilever, a mere month before the pandemic, he carried the story with him.
Going beyond the legal minimum, often not paid to workers, fair living wage aims to provide a decent standard of living. Making a commercial case for it, Mr Paracha pointed out the productivity gains a financially secured workforce yields.
Pakistan is ranked around 108 in terms of labour productivity, he says. The highest labour productivity in the world is in Luxemburg at around $148 per labour hour, whereas Pakistan’s is at $7 per labour hour.
The disparity isn’t solely due to technological differences or sophisticated infrastructure. If an employee is worrying about his parent’s medical bills or paying his child’s school fees, he will be unable to be productive at work. A financially secure workforce is a motivated workforce, capable of driving sales and growth.

In 2020-21, fair living wage was around Rs46,000 for Karachi, Lahore, Islamabad and Rs39,000 for other cities. Currently, it is about Rs60,000.
But what happens when times are lean? “It has to be a win-win situation; pay bumps cannot come at the cost of a business,” the CEO says.
The difficult measures to avert default have come at a high cost of micro stability. In 2021, an average consumer had 33pc discretionary income — income left after paying for essentials like housing and food, Mr Paracha estimates. Today, that figure has dropped to just 8-10pc.
Consumers are downgrading to lower-quality products, decreasing the frequency of consumption and reducing the grammage of purchases to stay within means. This led to a contractionary effect on the economy, which is by design — the age-old austerity formula of the International Monetary Fund.
While the measures were necessary to avert default, the government has made no roadmap to bring about micro stability, which is the engine of the economy, the CEO laments, foreseeing no respite for the common over the next 12 months at least.
However, the contractionary measures have not come about being some benefits to the local economy. Owing to import constraints, a lot of companies have to look towards local alternatives.
For instance, the tomato puree for Knorr sauces, previously imported from China, is now sourced domestically. Similarly, sachet machines that were once imported are now purchased from local engineering firms. While Unilever still imports about 40pc of its inputs, it aims to reduce this to 25pc.
“You can’t drive an 800cc car like it is a 1,800cc car,” Mr Paracha remarks, referring to the government’s overly ambitious budget with its unrealistically high revenue and tax targets. “You can floor the pedal, but it won’t accelerate.”
He argues that the Federal Board of Revenue (FBR) lacks the capacity and resources to meet these targets, calling for substantial structural reforms. He praises the State Bank, which he says is led by global leaders and professionals and suggests that the FBR should take a page from its playbook.
“We have a strong body on the monetary side; we need an equally strong body on the fiscal side. Fix the FBR, and you fix a significant portion of the country’s problems,” he asserts.
In the current scenario, the informal sector is incentivised to stay in the shadows and avoid formalisation. The government and the Special Investment Facilitation Council need to work hand in glove with the private sector. Token representation of the private sector in committees will not improve the ease of business and bring in investment, he adds.
Published in Dawn, The Business and Finance Weekly, August 26th, 2024