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| January 21, 2002 | Monday | Ziqa’ad 6, 1422 |
Engine that is too weak to pull
By Afshan Subohi
Over the years, large scale manufacturing sector in the country has continued to totter and tumble. The growth and expansion in the sector that is sometimes referred to as “an engine of growth” for the economy has been so slow as barely able to sustain an economy, supporting a population of 140 million people.
Though the government seems to take pride in the performance of large scale manufacturing sector, independent economists consider its condition pitiable. The last Annual Report of the State Bank of Pakistan qualified 8.4 per cent growth in large scale manufacturing to have provided the ‘saving grace’. However, the provisional GDP growth figure of 2.6 per cent reflects its limited weightage in the overall economy. And the fear is that the manufacturing base that is considered too mean vis-a-vis the size of the country’s economy, may lose its relative share further if the trend is allowed to continue.
The significance attached to this sector stems from the fact that it creates the economic base rooted in the soil of the country with a multiplier effect. It offers both forward and backward linkages by creating demand for raw materials, human labour and skills and host of other activities on the one end and ensuring supply of certain products that in turn initiate a whole cycle of downstream economic activities before the final disposal. The capital invested in this sector by its very nature cannot easily be withdrawn. This inevitably leads to the creation of vested interest tied to the wellbeing of the country.
By contrast, investments made in services or trading is foot-loose. At the first negative signal or signs of trouble, such investment tends to shift both trades and places.
The belief that economic environment in the country is generally not conducive for the promotion of manufacturing sector is confirmed by Dr. Asad, an economist currently associated with Social Policy Development Centre (SPDC). Interest rates are high, cost of utilities are soaring, condition of infrastructure is poor, incentives structure is unfavourable. And that dismal situation is compounded by political uncertainties that scare away prospective investors. “The private sector has adjusted to the ground realities and invest in activities (trading) that ensure better and quicker returns”, Asad says.
In the given situation the cost of production tends to become so high that the product, in the final analysis proves uncompetitive both in the local as well as world markets. “There are two options for the industry in this situation: either to switch to some other trade or make the process more competitive. In most cases people prefer to opt out”, Asad says. “Only when the sunk cost of a venture is prohabitatively high, the industrialists’ are inclined to try and improve their efficiency, as in the case of textiles” , he says.
Enough data is not available to substantiate this observation, but sources in industry agree with the view. Some known activists of trade bodies when contacted cited a number of examples reflecting the insensitivity of the government towards the sector. Mr Rahim Janoo, a member of the managing committee of the Karachi Chamber of Commerce and Industry, blamed smuggling and dumping of a wide variety of items, which he says, renders local units uncompetitive. “There are number of products that have been replaced in the local market by imported ones”, he says. Many units producing such items as batteries, ball bearings and other engineering items are already closing down. Some of such names he mentioned were Kohinoor Mercantile industry, Pakistan Batteries, Green Ball Bearing, RCD Ball Bearing. “These were at one time successful units that were forced into closure because of the nfavourable local conditions, over the years”, he pointed out.
Electronic gadgets, bulb and tubelight manufactures, footwear producers, tin plate makers, surgical goods producers, toys and sport goods manufacturers, chemicals and dyes producers, etc., are all said to be under great deal of stress these days. Compared to this class of manufacturers, traders seems to be in bliss.
An observer commented that industrial activity in Pakistan in case of so many varied goods, has been reduced to packaging. “All we do here is to put imported finished or semi-finished items in packets—sometimes after some minor processing— and just put some brand’s label to Pakistanise them”, he commented. Cigarettes, razor blades, shoes, consumer items producers and even pharmaceutical firms are increasingly turning to such activity, as being more ‘cost-effective’.
And the seriousness of successive governments in promoting large scale manufacturing over services sector is itself a matter of doubt. A high ranking government official in an informal gathering with journalist candidly admitted that he personally thought Mac Donald joint venture was more useful for the country as it employed several scores of people in its many sections with limited investment, when compared with an automated gigantic manufacturing plant that was capital intensive.
Now, no one can doubt that relative importance of services sector has increased but the moot point is: How far can that really go to support a country like Pakistan where increasing poverty imposes limits on markets? Where majority of people don’t have enough to put two square meals before their family can they really afford hiring services? “Disposable real income of the masses has definitely not been increasing, which has translated into squeezed demand both in consumer and producer market. Higher cost makes most locally produced items uncompetitive even if one assumes access to world market”, says a frustrated manufacturer. “What incentive do I have to undergo the labour and pain of setting up a manufacturing project?”, he asks.
There are fears that unless there is a rebound in this key area of economic activity hopes will remain just that: Hopes. Only a vibrant, dynamic, flexible, efficient, diversified and progressive industrial sector can ensure sustainable economic development in the country. In days of minimum government intervention in market it will have to be the private sector to undertake the responsibility of expansion of the industrial base of the country. The responsibility of creation of an environment which allows the private sector to flourish productively rests with the government. Alms, handouts, and concessions at best can provide a temporary relief. But the long term solution for economic woes of the country will depend on how best we can channelize the indigenous economic potentials.
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