Declining industrial
Output, Pakistan (JR85)
Introduction
Pakistan is ranked
among the countries of the world in nominal GDP, 26th in
GDP with purchasing power parity and number 55 in the world in
factory output Pakistan's industrial sector accounts for about
24% of GDP. Cotton textile production and apparel manufacturing are Pakistan's
largest industries, accounting for about 66% of the merchandise exports and
almost 40% of the employed labor force. Cotton and cotton-based products
account for 61% of export earnings of Pakistan.
Economic growth in Pakistan has
historically remained volatile, lacking a steady growth path and adding to the
economic uncertainty about the country’s economic conditions. Historical data
suggests that the economy reached a high of above 10 percent growth level in
1954, but the following year it declined to 2 percent and went up again to
above 9 percent in 1969 and 1970. Then it dipped again to 1.2 percent in the
following year. Likewise, it reached 7.5 percent in 2004-05 but slowed down to
5.6 percent next year and further dropped to 5.5 percent in 2006- 07. From
2007-08 to 2012-13 the economy grew by 3.2 percent on an average
Major sectors in industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, food processing and
medical instruments, primarily surgical.
Pakistan is one of the largest manufacturers and exporters of surgical
instruments
It is ironic that Pakistan, which was among
the first of the “East Asians” emulated by Korea in the early 1960s, has now to
relearn not only from the East Asians who have left it far behind, but also
lesser, albeit significant, successes elsewhere.
Pakistan was at the forefront of export
promotion, while retaining very high levels of protection and what has been
labeled an “import substitution industrialization” strategy. In 1965, its
manufactured exports at US$ 190 million (current $) were almost double those of
Korea (US$ 104 million); some 42 percent and 15 percent higher than Brazil and
Mexico, respectively; and exceeded the combined total of such exports from
Indonesia, the Philippines, Thailand, Turkey, and Malaysia. By 1985, exports of
manufactures from Pakistan, at US$ 1,731 million, were well below all these
countries’ exports (manufactures), ranging from 80 percent of the level in
Indonesia to 6 percent of that in Korea.
Historical Background
At the time of independence the total large
scales industrial contribution was only 1.8% to GDP. The small-scale industries
however, contributed 4.6% to GDP. Pakistan at the time of partition in 1947 had
a negligible industrial base. It got only 34 industries out of 955, while
remaining were held by India. Such a small number of industries were not enough
for a newly born country to face the industrialized world. With the passage of
time Pakistan utilized it’s all available resources domestic as well as
external for rapid development of manufacturing sector.
GROWTH OF MANUFACTURING SECTOR FROM 1947- 1950
In 1947 Out of 955 industrial units
operating in the British India, Pakistan got only 34 industries i.e. 4% of the
total industries established in the Subcontinent. The rest were located in
India. The industries which came to the share of Pakistan were of a
comparatively small size and were based on raw material. These industries
included small sugar mills, cotton ginning factories, flour mills, rice husking
mills and canning factories etc. In 1947 it was suggested in the Industrial
conference of Pakistan to establish industries, which use locally produced raw
material like jute, cotton, hide and skins. The Government also set up an
Industrial Finance Corporation, Industrial Investment and Credit Corporation in
1948. In the period from 1947 to 1950, the private entrepreneurs invested in
those industries which showed the highest profit. The contribution of
manufacturing sector was 6.9% to GDP in 1950.
GROWTH OF MANUFACTURING SECTOR IN
1950'S
In 1952 the Government took the initiative
and established Pakistan Industrial Development Corporation (PIDC) to invest in
those industries which require heavy initial investment. PIDC major investment
was in paper and paper board, cement, fertilizer, jute mills and the Sui
Karachi gas pipeline. PIDC by June, 1971 had completed 59 industrial units and
created a base for self sustained growth in the industrial sector. A large
number of new industries were established. The production capacity of the
already existing units like fertilizers, jute and paper was considerably
expanded. The reduction of export duties and the introduction of Export Bonus
Scheme in 1958 increased export of the manufactured goods. The share of industrial
sector to GDP rose from 9.7% in 1954-55 to 11.9% in 1959-60.
GROWTH OF MANUFACTURING SECTOR IN
1960'S
In 1960’s there was a shift in the
establishment of consumer goods industries to heavy industries such as machine
tools, petro-chemical, electrical complex, iron and steel. The industrial
performance in terms of growth, export and productivity increased during the
Second Five Year Plan period. The share of industrial sector to GNP went up to
11.8% from 1960 to 1965. The manufacturing sector could achieve a growth rate
of 7.8% against the Plan target of 10%.
PERFORMANCE OF MANUFACTURING SECTOR
IN 1970'S
The industrial performance in terms of
growth, exports and production was disappointing from 1971 to 1977. There were
various reasons for the poor performance of the manufacturing sector. One wing
of the country (East Pakistan) was forcibly separated. The Country had to fight
a war with India in 1970. The suspension of foreign aid, loss of indigenous
market (East Pakistan), fall in exports, unfavorable investment climate, and
floods, recession in world trade and reduction in investment incentives caused
a fall in the output of large scale industries. The annual growth rate fell to
2.8% in the manufacturing sector in this period. From July, 1977 to 1980, the
Government initiated a large number of measures to revise the economy. Cotton
ginning, rice husking and flour milling were denationalized. The private sector
was encouraged to invest in large scale industries.
MANUFACTURING
SECTOR GROWTH IN THE 90’s
Since 1990, Pakistan has fallen far out of
the top rankings of the GDP growth league, with a rate of around 4.4 percent a
year over 1990– 2010.
MANUFACTURING SECTOR GROWTH in
Period 2002-2011
The share of industrial sector was 5.8% in
GDP growth rate in 2003-04. However it increased to 13.1% in the year 2004-05
mainly due to factors presented as
follows; Monetary Policy v Financial
Discipline; Consistency and Continuity
of Development Policies ; Strengthening of Domestic Demand ; Continuously Improving
Macroeconomic Environment ; A Stable Rate v Global Expansion of Markets Due To
Liberalization Of Trade In 2005 Years 2003-2004 2004-2005 2005-2006 2006-2007
2007-2008 2008-2009 2009-2010 2010-2011 Share in GDP (Rate) 5.8% 13.1% 9.9%
4.1% 8.8% 1.4% -1.9% 4.9%
In 2005 the contribution of industrial
sector in GDP growth rate was 9.9% which was decline to 4.1% in 2006 REASONS the
decline in manufacturing sector was due to multiple reasons like the reduced
production of cotton crops, sugar shortage, steel and iron problems and global
oil price. From 2006 to 2007 there was
an increase in the industrial sector contribution towards the GDP growth rate. REASONS:
Major reasons for the growth in 2007 were production of sugar which was
estimated at 61.5 Million Metric Ton (MMT), an increase of 12% over previous
year due to increase in area under cultivation and yield. In 2007, the
industrial sector grew by 14% and accounted for 27% of the gross domestic
product (GDP) based on purchasing power parity. v Oil and gas
exploration increased by 34% and 74%, respectively, in 2007 compared with that
of 2006. Textile exports in 1999 were $5.2 billion and rose to become $10.5
billion by 2007.
In 2008 and 2009 there was a drastic
decline in the industrial sector contribution towards the GDP growth rate.
REASONS the industrial sector has recorded its weakest growth in a decade
during fiscal year 2008-09 due to;. impact
of severe energy shortages; Decline in domestic law and order situation; The
economic development has been slowed down in 2008 because of the large price
increase of some commodities such as oil and food, global financial Crisis, and
national political issues that affect the manufacturing growth. During 2010-11, the domestic industrial sector
recovered from the longest ever decline (seen in the previous year) to record a
decent growth of 4.9 percent. REASONS: The recovery came mainly due to
supportive macroeconomic policies, relatively lower inflation, improved
prospects of global economy, and relatively better credit availability. The growth in 2010-11 was the fourth highest
growth rate in the decade, but was still below the 10-year average of 5.7 percent.
The industrial growth during 2010-11 is mainly from a rebound in manufacturing
and construction sectors as government reversed some taxes imposed last year.
MANUFACTURING GROWTH 2011-2018
The large-scale manufacturing output is
primarily based on Quantum Index Manufacturing (QIM) data, which show an
increase by 5.06 percent from July 2016 to March 2017. Major contributors to
this growth are sugar (29.33 percent), cement (7.19 percent), tractors (72.9
percent), trucks (39.31 percent) and buses (19.71 percent). High growth of
sugar is based on production of 73.9
Million Tons of Sugarcane as compared to
65.5 million tons last year, which represents an increase by 12.4 percent.
Large Scale Manufacturing growth has picked up momentum and posted a strong
10.5 percent growth in the month of March 2017 compared to 7.6 percent in March
2016. The YoY growth augurs well for further improvement in growth during the
period under review. On average, the LSM growth stood at 5.06 percent during
July-March FY 2017 compared to 4.6 percent in the same period last year. The
sectors recording positive growth during Jul-Mar FY 2017 are textile 0.78
percent, food and beverages 9.65 percent, pharmaceuticals 8.74 percent,
non-metallic minerals 7.11 percent, cement 7.19 percent, automobiles 11.31
percent, iron & steel 16.58 percent, fertilizer 1.32 percent, electronics
15.24 percent, paper & board 5.08 percent, engineering products 2.37
percent, and rubber products 0.04 percent. Pakistan is bestowed with all kinds
of resources
During July-March FY 2017, the Large Scale
Manufacturing (LSM) registered an impressive growth of 5.1 percent as compared
to 4.6 percent in the same period last year. On Year on Year (YoY), LSM
recorded exorbitant growth of 10.5 percent in March 2017 compared to 7.6
percent of the corresponding month last year.
The industry specific data shows that Iron
& Steel products recorded highest growth of 16.58 percent, Electronics
15.24 percent, Automobiles 11.31 percent, Food, Beverages & Tobacco 9.65
percent, Pharmaceuticals 8.74 percent, Non Metallic mineral products 7.11
percent, Paper and Board 5.08 percent, Engineering Products 2.37 percent,
Fertilizers 1.32 percent, Textile 0.78 percent and Rubber Products 0.04
percent. The other sectors that showed decline included Wood Product -95.04
percent, Leather products -17.97 percent, Chemicals -2.20 percent and Coke
& Petroleum Products -0.32. In automobile sector, there has been surge in
productions of all its sub sectors Remarkable growth has been witnessed in Farm
Tractors which is recorded at 72.9 percent, Trucks 39.3 percent, Jeeps &
Cars 4.68 percent, motor cycles 21.4 percent, Buses 19.7 percent during
July-March FY 2017 as compared to corresponding period last year, whereas LCVs
production declined by 36.9 percent. Automobile sector is among the top growth
sector in the large scale manufacturing in Pakistan. The negative growth in
case of Light Commercial Vehicles (LCVs) resulted from the discontinuation of
Apna Rozgar Scheme but was compensated by increased production of other models
and growth in tractors and trucks. The trucks production has risen due to
economic activity in the country to meet CPEC related material and freight
transport needs.
Pakistan's Industrial production fell 3.3 % YoY in Aug 2018, following
an increase of 1.1 % YoY in the previous month. Pakistan's Industrial
production index growth rate YoY grew from
Apr 2008 to Aug 2018, with an average rate of 2.6 %. The data reached an
all-time high of 14.4 % in Jul 2017 and a record low of -19.6 % in Mar 2009.
Growth Rates
(%)
List
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
2014
|
2015
|
2016
|
2017
|
2018
|
Industrial sector
|
17.37%
|
||||||||||||||
Manufacturing
sector
|
16.38%
|
||||||||||||||
Large Scale Manufacturing
|
18.83%
|
||||||||||||||
Small Scale Manufacturing
|
7.51%
|
Pakistan's industrial sector accounts for about 20.9% of
GDP. In 2018 it recorded a growth of 5.80% as compared to the growth of 5.43%
last year. Manufacturing is the most vibrant sub sector of the industrial
sector having 64.8% contribution in the industrial sector and in GDP it
accounts for 13.6%. Manufacturing sub-sector is further divided in three
components including large-scale manufacturing (LSM) with the share of 79.6%
percent in manufacturing sector, small scale manufacturing share is 13.8
percent in manufacturing sector, while slaughtering contributes 6.5 percent in
the manufacturing. The government is privatizing large-scale industrial units,
and the public sector accounts for a shrinking proportion of industrial output,
while growth in overall industrial output (including the private sector) has
accelerated. Government policies aim to diversify the country's industrial base
and bolster export industries. .
In Pakistan SMEs have a significant contribution in the total GDP of Pakistan,
according to SMEDA and Economic survey reports, the share in the annual GDP is
40% likewise SMEs generating significant employment opportunities for skilled
workers and entrepreneurs. Small and medium scale firms represent nearly 90% of
all the enterprises in Pakistan and employ 80% of the non-agricultural labor
force. These figures indicate the potential and further growth in this sector.[ Pakistan's largest corporation are
mostly involved in utilities like oil, gas and telecommunication:
MANUFACTURING
INDUSTRIES IN PAKISTAN
Pakistan ranks forty-first in the world in
factory output. Pakistan’s manufacturing sector accounts for about 25% of GDP.
Following are the main industries of the country: ØTextile Industry ØSports Industry ØSugar Industry ØCement Industry ØFertilizer Industry.
Other Major Industries Include: Ø Automobile Ø Leather products Ø Paper & board Ø Pharmaceuticals Ø Chemical Ø Engineering items Ø Electronic Ø Non-metallic
minerals Ø Petroleum products
Ø Food, beverages
& tobacco Ø
Mining and Quarrying Ø
Services Sector Ø
Agriculture Ø Live Stock Ø Steel Ø Electricity and
Gas
CAUSES OF
INDUSTRIAL BACKWARDNESS IN PAKISTAN:
Political Instability ; Lack Of Capital ;
Limited Market ; People preferring
foreign goods; Communication & Transportation inadequacies ; Energy Crisis, shortages and prices higher
than other competing countries ; Economic
and bureaucratic Restrictions ; Gap between targets and achievements ; Inefficiency
; Lack of Modern Technology ; New Competitors ; Low Foreign Investment ; High Interest Rates ; Lack of Technical
Knowledge ; Corruption in related government agencies and govt. agencies intervention ; inimical trade agreements and premature
opening and liberalization of markets ; and Lack of trained manpower
It has found that the price of energy, price of machinery and
transport and wages have grown faster than the general price level. Moreover,
both the composite factor input price index and composite non-factor input
price index have grown at a rate higher than that of export price index. This
raises the cancers that profits in the manufacturing sector are eroding over
the sample period. And if it continues then it is likely that with the passage
of time it becomes very hard for exporters to stay in business – especially in
the new liberalized market. The analysis further suggests that even though the
growth in productivity is offsetting the negative impact of the growth in input
factor prices, over the sample period as a whole, the growth in productivity
itself depicts a declining trend, TFP growth has failed even to offset the
extent to which input price increases have outpaced increase in the export
price index.
Education is
a key component for economic progress. Unfortunately, our current literacy is
60 percent, least in South Asian countries. About 25 million children in are
out of school. More importantly, on grass root level, thousands of schools are
lacking very basic facilities such of sanitation, water, electricity, boundary
walls etc.
Pakistan is de-industrializing – the contribution of
manufacturing at 12.1% in 2018 is down from a high of 17.5% in 2005. This
decline in share of manufacturing has seen Pakistan’s share of global exports
staying flat while those of competitor countries have seen large increases.
A lack of focus on industry is seeing Pakistan lag other South
Asian countries in growth in manufacturing and composition of manufactured
goods in exports.
Without significant intervention to reverse this trend of
deindustrialization, Pakistan will continue to be plagued by high unemployment
and a low export base as the country continues to focus on commodities, intermediate
goods or low value added finished products. The current account deficit will
grow if we continue to import sophisticated consumer products for which a
manufacturing base no longer exists in the country, nor there appears to be a
plan to create, to leverage on a large domestic market of 200 million +
consumers.
SELECTION OF AREAS OF INTEREST FOR
INDUSTRIAL REVIVAL
On choice of industry, recent proposals
include Amjad’s (2006) call for targeting IT, Rahim’s (2012) suggestion to
subcontract in international value chains, Haque’s (2014) idea of focusing on
export competitiveness, and Burki’s (2008) proposal to pick “winners” focused
on small and medium enterprises, notably agro-processing, small-scale
engineering, leather products, and IT in the Punjab. Burki also calls for
analytical work to pick “winners” by carefully assessing the opportunities in
both domestic and foreign markets.
In identifying the targets of LIT policies,
one promising approach is that proposed by Lin (2014), who argues that, “for an
industrial policy to be successful, it should target sectors that conform to
the economy’s latent comparative advantage. The latent comparative advantage
refers to an industry in which the economy has low factor costs of production
but the transaction costs are too high to be competitive in domestic and
international markets.” In answering the question, “How are governments able to
pick the sectors that are in line with the economy’s latent comparative
advantages?” Lin says that a “short answer is to target industries in
dynamically growing countries with a similar endowment structure and somewhat
higher income.” Elsewhere, he has spoken of “somewhat higher income” as being
not much higher than roughly two or three times the per capita income of the economy
at hand.
A cluster approach, i.e., an agglomeration
of key industries, supporting sectors, infrastructures, and institutions that
are inter-linked, and inter-dependent because of some shared technological or
skill base, can be quite helpful in the development of vendors. The clusters
funds provided by government can be used to carry contract research which would
enhance the technological landscape. As a result, entrepreneurs would be able
to use the imported technology in a better way, also be able to implement
ancillary system such as quality control, material handling and distribution
system.
Review of past interventions suggests that
efforts failed when institutions were allowed tp grow too big and centralized.
These need o operate at a local level and should cater to the needs of a
carefully identified target group either within a region or a sector. Past
efforts have faltered due to overlap between institutions involving duplication
and waste. SMEs benefit if grouped within a sector to a area or an industrial
estate The spontaneous growth of clusters would be ideal Clustering fosters
productivity through inter firm relations.Upgrading technology is vital for
development of the SMEs , whilst upgrading skills of the managers and workers
is important without a technological upgrade the sector will not perform to
expectations
RECOMMENDATIONS:
Here are some suggestions to stabilize the
manufacturing sector:
- Government must unveil a solid industrial policy
keeping in view the global requirements.
- In order to increase the share of the industrial
sector in the GDP there is dire need to establish new industrial estate in the
country.
- To enhance the contribution of existing industrial
estates in the economy they should be facilitated by the government policies.
- Industrialists be given loans on easy installments,
so as they could run industries smoothly.
- New markets for the local products are explored and
the quality of local products be improved to increase the demand abroad.
- New technical universities and institutions be
established for the guidance of the labor and equip them with the modern
techniques being used in the industry.
-Means of
communication and basic infrastructure required for industry like roads,
transportation etc. should improved and enhanced to make the access easy.
- New and emerging entrepreneurs must be encouraged to
lead the industrial sector and make investments.
- The crisis of energy must be resolved on priority
basis and interrupted supply of energy to industry be ensured. Prices of energy
provided should be competitive with those available to competing counties
industries
-Law and order situation be improved to allure the
investors to invest their money and time.
- More
attentions should be given to increase export.
- Import substitution products are produced to
encourage people to use local products.
- Realistic and
up-to-date statistics is provided to this sector.
- Small &
Medium Enterprises (SMEs) need special attention and encouragement as these
provide more employment per unit of capital invested than larger industrial
units.
In this regard steps should be taken to
curtail the growths in input prices, particularly the price of energy and raw
material. For instance, growth in energy prices can be addressed through proper
government policies. It can be said that increase in petroleum price, to an
extent, comes from outside (as linked to international price) but increase in
electricity price is a burden created as a result of domestic policies, which
creates a burden on manufacturing sector.
Pakistan needs a new Industrial
policy. The new industrial policy
should revolve around a “Made-in-Pakistan”
theme and be driven by three key success metrics: a) creation of incremental
jobs, b) an increase in value-added exports, and c) import substitution. The
key policy enablers required to ensure that a new industrial policy achieves
its targeted goals include:
Fiscal Policy Reforms: The
tax burden needs to be evenly spread out with all sectors paying their due
share. Manufacturing with a 12.1% share of the GDP cannot contribute 58% to the
tax collection. Fiscal policy making should be separated from tax
administration. Taxes should be on profits as opposed to any other proxies of
profit, further the number of taxes need to be reduced and multiplicity of tax
authorities be rationalized through the creation of a National Tax Authority.
Tax rates need to be regionally competitive and brought down significantly to
ensure that there is a level playing field between the formal and informal
sectors.
Tariff Reforms & Strengthening of the NTC: A
cascading tariff structure for imports where tariffs are highest on finished
products domestically produced while being lowest on raw materials and
intermediate products not available locally. This cascading tariff structure is
essential if Pakistan is to become part of global value chains. Similarly, the
National Tariff Commission has to take a more aggressive approach when it comes
to protecting domestic industry; it needs to take inspiration from similar
institutions in India, Indonesia and Turkey.
A Pragmatic Approach to Trade Agreements: A
moratorium on the signing of new trade agreements. All existing trade
agreements need to be renegotiated with the aim of ensuring that trade agreements,
current and future lead to preferential access for value-added items as opposed
to commodities or intermediate inputs. In addition, the impact on tax revenues
and jobs also needs to be assessed.
Foreign Direct Investments: Policy
should focus on import substitution, exports, technology, capital and
risk-intensive sectors rather than on short payback, domestic consumption
oriented industries that reap the demographic dividend of Pakistan’s large and
growing middle class.
Corporatization & Consolidation: The
formation of corporate needs to be promoted as it improves the governance
standards and accountability. Companies should not be taxed at rates higher
than those applicable on individuals and associations of persons. Also
companies should be encouraged to grow in scale through consolidation using
tools such as Holding Companies and Group Relief. Anomalies in the Companies
Act 2017 need to be addressed.
A Trained and Productive Workforce: Skills
need to be developed through public-private partnerships. Businesses must be
allowed to retain and invest the WWF & WPPF balance (after distribution to
labor) to focus on upgrading skills. A common national labor policy that
benchmarks competitor countries needs to be formulated.
The Small and Medium Enterprises: The
Small and Medium Enterprises (SMEs) is the engine of growth for employment,
whereas larger businesses are more capital intensive. The transaction costs
involved in embedding SMEs in the value chains of larger businesses especially
those in the export sectors needs to be addressed. The banking sector needs to
be less risk-averse to lending to the SMEs and ways need to be found to make
credit available to SMEs who supply large exporters.
UPDATE
A
coherent, overarching industrial policy will serve to expand the manufacturing
base. It may also loosen the grip of brokers and trade agents on the economy
who were instrumental in stunting the country`s natural pace of growth,`
commented a retired bureaucrat who served in both the ministries of industries
and commerce. This oversight does not appear to be an accident. The economy is
beset by rent seeking resulting in rampant inefficiencies.
It is evident that the country`s expanding market has served overseas manufacturers better. Imported consumer items are not just stacked on supermarket shelves, roadside shacks and roaming sellers depend on cheap supplies dumped in wholesale markets across the country. Trade partners particularly China, Japan, India, Malaysia, Indonesia and even Bangladesh have capitalized on easy access to Pakistani markets both legally and through parallel channels.
Flawed policies corrupted the business class of the country that became risk averse, demanding guaranteed profits. This class adhered religiously to the notion of privatizing gains and socializing losses,` commented an economist, the nascent industry (toy, plastic, ceramic, engineering, textiles, tyre and tubes, footwear, etc.) is barely surviving in a hostile environment.
The depression in the manufacturing sector changed the composition of exports. Instead of switching to value added goods the country ended up exporting more unprocessed goods. It fetched a low price for high volumes and enabled competitors in the region to beat us down in the value added category on the strength of importing cheap raw material from us. The performance of Bangladesh in textiles is a case in point. The promotion of a labor intensive industry (textile, agriculture, engineering, petrochemical, IT, pharmaceuticals, oil and gas, ceramic, footwear, furniture and mining) will assist to absorb the unemployed youth. •
It is evident that the country`s expanding market has served overseas manufacturers better. Imported consumer items are not just stacked on supermarket shelves, roadside shacks and roaming sellers depend on cheap supplies dumped in wholesale markets across the country. Trade partners particularly China, Japan, India, Malaysia, Indonesia and even Bangladesh have capitalized on easy access to Pakistani markets both legally and through parallel channels.
Flawed policies corrupted the business class of the country that became risk averse, demanding guaranteed profits. This class adhered religiously to the notion of privatizing gains and socializing losses,` commented an economist, the nascent industry (toy, plastic, ceramic, engineering, textiles, tyre and tubes, footwear, etc.) is barely surviving in a hostile environment.
The depression in the manufacturing sector changed the composition of exports. Instead of switching to value added goods the country ended up exporting more unprocessed goods. It fetched a low price for high volumes and enabled competitors in the region to beat us down in the value added category on the strength of importing cheap raw material from us. The performance of Bangladesh in textiles is a case in point. The promotion of a labor intensive industry (textile, agriculture, engineering, petrochemical, IT, pharmaceuticals, oil and gas, ceramic, footwear, furniture and mining) will assist to absorb the unemployed youth. •
With a population of more
than 200 million people, Pakistan may be a growing market for foreign
electronic goods and mobile phones. But a host of issues relating to the
business environment, taxation and low purchasing power of consumers continue
to keep them from investing in the manufacturing industry here.
`Pakistan is a strategic market for us... but it still remains a very small market for electronic goods because of the low purchasing power of consumers,` TCL Pakistan General Manager Sunny Yang said in response to a question whether her company planned to invest in TV parts manufacturing in Pakistan. She went on to list problems that foreign companies have to take into account when the time for making such a decision comes up.
`A small market size or the low purchasing power of consumers isn`t the only issue... a company has to consider the country situation as well, added the executive of the world`s third largest LED TV manufacturer from China, which entered the Pakistan market back in 2013. Before that, it marketed LED TVs in Pakistan as a vendor of the Nobel brand 2006 onwards.
`The ever-changing customs tariffs, exchange rate volatility leading to economic instability and a growing grey market of illegal and under-invoiced goods hurt a manufacturer`s pricing structure and its ability to plan for future,` she argued. `On top of these, there is this issue of inconsistency in policies. Every (foreign) investor wants to have a reliable policy environment and tax and other incentives for the next 20 or 25 years to plan for the long term.
`Just consider the example of the customs duty for TV assemblers in Pakistan. When we came here five years back, it was five per cent. Today it is 30pc, including 10pc regulatory duty (RD).
Similarly, the dollar was priced at Rs99. Today it has fallen to Rs140. Can we pass on the full impact of higher tariffs and exchange rate depreciation to consumers? No, we cannot. The presence of illegal, grey market makes it even more difficult for a company like ours to recover the cost. These things don`t affect us alone. Every business in Pakistan is facing these problems, she says Board of Investment (Bol) Chairman Haroon Sharif agrees with Ms Sunny`s assessment of the factors impeding fresh (foreign) investment in Pakistan. `We are aware of these issues... foreign investors need protection and we`re making decisions that are required to improve the business environment to attract FDI flows,` he told this correspondent recently. Ms Sunny said the demand for high-end electronic goods was growing in the country as Pakistani consumers became more aware of global brands and technology. `For the last few years, the market has been shifting towards bigger-sized panels and smart and 4K TVs. This is a positive development for our company because we already have a strong presence in this market. TV sales by different foreign and local brands, for instance, are believed to be around 1.2m a year. Their demand is growing at an annual rate of 10-12pc. She was hopeful about a spike in the demand of electronic goods in Pakistan once economic growth picked up pace and the China-Pakistan Economic Corridor completed. `Going forward, we are hopeful that the problems (facing foreign investors) will be taken care of and an environment conducive for doing business created. ` •
`Pakistan is a strategic market for us... but it still remains a very small market for electronic goods because of the low purchasing power of consumers,` TCL Pakistan General Manager Sunny Yang said in response to a question whether her company planned to invest in TV parts manufacturing in Pakistan. She went on to list problems that foreign companies have to take into account when the time for making such a decision comes up.
`A small market size or the low purchasing power of consumers isn`t the only issue... a company has to consider the country situation as well, added the executive of the world`s third largest LED TV manufacturer from China, which entered the Pakistan market back in 2013. Before that, it marketed LED TVs in Pakistan as a vendor of the Nobel brand 2006 onwards.
`The ever-changing customs tariffs, exchange rate volatility leading to economic instability and a growing grey market of illegal and under-invoiced goods hurt a manufacturer`s pricing structure and its ability to plan for future,` she argued. `On top of these, there is this issue of inconsistency in policies. Every (foreign) investor wants to have a reliable policy environment and tax and other incentives for the next 20 or 25 years to plan for the long term.
`Just consider the example of the customs duty for TV assemblers in Pakistan. When we came here five years back, it was five per cent. Today it is 30pc, including 10pc regulatory duty (RD).
Similarly, the dollar was priced at Rs99. Today it has fallen to Rs140. Can we pass on the full impact of higher tariffs and exchange rate depreciation to consumers? No, we cannot. The presence of illegal, grey market makes it even more difficult for a company like ours to recover the cost. These things don`t affect us alone. Every business in Pakistan is facing these problems, she says Board of Investment (Bol) Chairman Haroon Sharif agrees with Ms Sunny`s assessment of the factors impeding fresh (foreign) investment in Pakistan. `We are aware of these issues... foreign investors need protection and we`re making decisions that are required to improve the business environment to attract FDI flows,` he told this correspondent recently. Ms Sunny said the demand for high-end electronic goods was growing in the country as Pakistani consumers became more aware of global brands and technology. `For the last few years, the market has been shifting towards bigger-sized panels and smart and 4K TVs. This is a positive development for our company because we already have a strong presence in this market. TV sales by different foreign and local brands, for instance, are believed to be around 1.2m a year. Their demand is growing at an annual rate of 10-12pc. She was hopeful about a spike in the demand of electronic goods in Pakistan once economic growth picked up pace and the China-Pakistan Economic Corridor completed. `Going forward, we are hopeful that the problems (facing foreign investors) will be taken care of and an environment conducive for doing business created. ` •
iSpecific Focus Industries to Promote Jobs, Value-added Exports & Import Substitution
·
Textiles
·
Marble and precious stones
industry
·
Agriculture
·
Engineering – Iron & Steel
·
Integrated Petro-Chemicals Complex
·
IT & Business Process Outsourcing (BPO)
·
Pharmaceuticals
·
Oil & Gas Sector
·
Other Sectors including ceramics, footwear, tires, mining &
furniture
·
Leather industry
·
Cut flower
·
Automotive industry
Dec., 25,
2018
Adviser to Prime Minister
on Commerce, Textile, Industry Production and Investment Abdul Razak Dawood
said industrialization through import substitution coupled with export growth
through diversification was imperative to put the country on road to progress
and prosperity. , many industrial units had been closed down due to which
Pakistan`s export dwindled from $25-20 billion, we are planning to give a
comprehensive industrialization policy, wherein, focus will be on engineering,
chemical, IT and agriculture sectors instead of the textile sector alone. That
signing Free Trade Agreements (FTAs) with multiple countries has proved
counterproductive for the Pakistan`s industrial sector and the government is
currently renegotiating China-Pakistan agreement. FTAs with Indonesia,
Malaysia, Turkey and even China. Mr
Dawood said that Indonesia currently provides duty-free access to 20 items
including denim and urged exporters to take advantage of this opportunity.
Regarding the FTA with Malaysia, he said that Federal Secretary Commerce Younus
Dagha would visit Kuala Lumpur to renegotiate the agreement.
Dec., 27, 2018:
The government on Wednesday reiterated its plan to revise the existing free trade agreements (FTAs) with China, on the plea that these had proved counterproductive for the country`s industrial sector. As part of revising the existing FTAs, Mr Dawood said the PTI government would sign the revised free trade agreement with China He said the government would soon announce broad contour of the proposed industrial policy. The focus of the policy will be on promoting investment in the export sectors. The adviser said that new sectors like engineering, chemicals, information technology and agriculture would be encouraged through incentives to enhance the country`s export proceeds. Under the proposed tariff policy, he said, duty on raw materials would be reduced.May, 13,2019
THE manufacturing sector`s share in the annual national output or gross
domestic product has been on the decline since 2008 onwards. It dropped from a
high of 14.8 per cent in 2008 to 12.1pc in 2018, implying a reduction in the
relative significance of this sector in the economy.
The share of large-scale manufacturing during the same period has dropped from 12.8pc to 9.7pc. The `premature` decline in manufacturing has had a direct impact on new investments in the industrial sector and on the country`s external account as its exports are stagnating and imports rising.
The growth in the manufacturing sector has slowed down since 2015 to an annualised average of 4.9pc compared with 10.5pc in Bangladesh and 8.1pc in India. Little wonder then that our share in global exports has come down to 0.12pc from 0.16pc in 2003.On the other hand, Bangladesh has increased its exports to 0.2pc from less than 0.1pc and Vietnam to 1.2pc from 0.17pc. Investment as a percentage of GDP has also stagnated at around 14pc compared with 31pc in rival India and Bangladesh, and 37pc in Vietnam.
There are several factors that have contributed to the decline in the manufacturing industry over the last decade. The major factors are said to be the cost and tax frameworks for the industry, which are not competitive regionally with countries having a similar economic and industrial structure. The cost of energy for industry in Pakistan remains one of the highest globally. The manufacturing sector that forms 12.1pc of the economy pays 58pc of the total tax revenues collected.
However, many agree that one of the most crucial reason behind premature de-industrialisation has been the implementation of extremely liberal import policies and free trade agreements (FTAs), especially with China that have led to the influx of cheaper finished goods. Furthermore, the failure to secure the country`s borders with Iran and Afghanistan has led to smuggling.
These factors indicate that Pakistan has become a net importer and a financier of jobs for other countries. The local tyre industry, for example, meets only a fifth of the total domestic demand with the remaining market dominated by imported (45pc of the markets) and smuggled (35pc of the market) tyres. The demand is increasing by 7-9pc a year, showing a huge potential for new investment and jobs in this industry alone. Nevertheless, no foreign or local investor is ready to venture into this segment because of the uneven playing field that gives a massive advantage to smuggled and cheaper imported tyres.
`Many industries have shut down or moved out. The remaining struggle forsurvival in the face of cheap imports and unchecked smuggling General Tyre Rubber Company Chief Executive Officer Hussain Kuli Khan told this correspondent.
`No one is ready to make new investments in the manufacturing sector under the current circumstances. The liberal imports and influx of under-invoiced and smuggled goods means that demand for the domestically produced merchandise has shrunk. Unless demand for the locally manufactured goods is enhanced through a cascading tariff structure that discourages imported finished goods, and borders are secured, we do not see new investments being made.
On the other hand, India has protected its domestic manufacturing industry and some of its tyre manufacturers have already expanded across the country. Many international brands have set up their manufacturing plants in India, creating thousands of jobs. Liberal imports and unchecked smuggling not only damages the ability of the local industry to grow, develop and compete internationally, but also causes massive dents to government revenue and leads to an outflow of hard earned foreign exchange. A similar story is told by ceramic tile manufacturers. `The government has failed to protect this industry against the onslaught of smuggled tiles from Iran and dumping by China . China continues to dump tiles into Pakistan despite imposition of antidumping duties in October 2017 as the importers got a stay order from the Lahore High Court. The Ministry of Commerce hasn`t even pursued the case at the expense of local manufacturers and foreign exchange reserves.
The government should support the industries, which can help with the revival of the economy through job creation, increased tax contribution and exports. This can be done only by enhancing the demand for locally produced goods, and curbing imports and smuggling that are damaging the country like termite.`
The share of large-scale manufacturing during the same period has dropped from 12.8pc to 9.7pc. The `premature` decline in manufacturing has had a direct impact on new investments in the industrial sector and on the country`s external account as its exports are stagnating and imports rising.
The growth in the manufacturing sector has slowed down since 2015 to an annualised average of 4.9pc compared with 10.5pc in Bangladesh and 8.1pc in India. Little wonder then that our share in global exports has come down to 0.12pc from 0.16pc in 2003.On the other hand, Bangladesh has increased its exports to 0.2pc from less than 0.1pc and Vietnam to 1.2pc from 0.17pc. Investment as a percentage of GDP has also stagnated at around 14pc compared with 31pc in rival India and Bangladesh, and 37pc in Vietnam.
There are several factors that have contributed to the decline in the manufacturing industry over the last decade. The major factors are said to be the cost and tax frameworks for the industry, which are not competitive regionally with countries having a similar economic and industrial structure. The cost of energy for industry in Pakistan remains one of the highest globally. The manufacturing sector that forms 12.1pc of the economy pays 58pc of the total tax revenues collected.
However, many agree that one of the most crucial reason behind premature de-industrialisation has been the implementation of extremely liberal import policies and free trade agreements (FTAs), especially with China that have led to the influx of cheaper finished goods. Furthermore, the failure to secure the country`s borders with Iran and Afghanistan has led to smuggling.
These factors indicate that Pakistan has become a net importer and a financier of jobs for other countries. The local tyre industry, for example, meets only a fifth of the total domestic demand with the remaining market dominated by imported (45pc of the markets) and smuggled (35pc of the market) tyres. The demand is increasing by 7-9pc a year, showing a huge potential for new investment and jobs in this industry alone. Nevertheless, no foreign or local investor is ready to venture into this segment because of the uneven playing field that gives a massive advantage to smuggled and cheaper imported tyres.
`Many industries have shut down or moved out. The remaining struggle forsurvival in the face of cheap imports and unchecked smuggling General Tyre Rubber Company Chief Executive Officer Hussain Kuli Khan told this correspondent.
`No one is ready to make new investments in the manufacturing sector under the current circumstances. The liberal imports and influx of under-invoiced and smuggled goods means that demand for the domestically produced merchandise has shrunk. Unless demand for the locally manufactured goods is enhanced through a cascading tariff structure that discourages imported finished goods, and borders are secured, we do not see new investments being made.
On the other hand, India has protected its domestic manufacturing industry and some of its tyre manufacturers have already expanded across the country. Many international brands have set up their manufacturing plants in India, creating thousands of jobs. Liberal imports and unchecked smuggling not only damages the ability of the local industry to grow, develop and compete internationally, but also causes massive dents to government revenue and leads to an outflow of hard earned foreign exchange. A similar story is told by ceramic tile manufacturers. `The government has failed to protect this industry against the onslaught of smuggled tiles from Iran and dumping by China . China continues to dump tiles into Pakistan despite imposition of antidumping duties in October 2017 as the importers got a stay order from the Lahore High Court. The Ministry of Commerce hasn`t even pursued the case at the expense of local manufacturers and foreign exchange reserves.
The government should support the industries, which can help with the revival of the economy through job creation, increased tax contribution and exports. This can be done only by enhancing the demand for locally produced goods, and curbing imports and smuggling that are damaging the country like termite.`
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