Pakistan requires an industrial strategy that is comprehensive to meet its varied needs and is realistic. The general perception is that we do not have a credible policy for the post-textile quota era and WTO's trade liberalization agenda.
The industrial strategy must be tailored to suit the needs of the times.
International trade will now be highly competitive in every sector. We have to produce quality goods at competitive prices and adopt business practices which enable the country to be on the ball constantly.
Only a dynamic industrial strategy will enable us to compete with cheaper goods from China, India and other developing countries vying to get an increasing share of the global export market and best results from high productivity.
Pakistan's industrial policy has been wavering since the nationalization of the 10 basic industries by the first PPP government in 1972 onwards. And the banks have been exceedingly cautious with their long-term loans because of their large debt default or non-performing loans which at their peak touched Rs250 billion. But by now, the credit obtained by the private sector has touched Rs285 billion and the interest rates are very low. Yet the banks are too cautious about lending large sums for long- term investment and prefer to profit by the high interest rates on consumer credit and credit-card lending.
In such a context, and under compulsion on the government to take effective measures to increase the employment opportunities, a task force set up by the ministry of industries under Dr Ijaz Nabi of the World Bank has come up with a draft industrial strategy to accelerate industrialisation and explore new industrial avenues.
The draft is before the country for comments and suggestions so that there is a national consensus on it before its implementation begins. The lead for the formulation of such a strategy was taken by Jehangir Tareen, minister for industries and production, who has a business background.
The task force had a number of businessmen as its members. The fact is the industrial community has received the task force report quietly shows it has no strong objection to any of its recommendations.
When a new industrial policy or strategy is announced, the businessmen and industrialists look first at what is favourable to them or what do they get free or at concessional rates through it.
They have in the new strategy plenty of concessions to count. The first is a reduction in the corporate tax to 30 per cent which they had been clamouring for long. The Karachi Stock Exchange has asked for a five per cent difference in the tax between listed and non- listed companies.
They are not getting that through this task force unless the government decides otherwise. The task force has suggested supply of cheap and steady power for industries.
It has suggested a far better transport system, including trucks ,ship and train services. It has called for a new National Highway Policy which provide better highways with fewer deaths on the road.
It recommendations include reduced port charges in line with the port charges prevailing in the region. It has also suggested a credit guarantee scheme on the pattern of those that have been successful in the developing countries.
It wants the labour policy to reflect the market realities and the 29 laws governing labour regulation to be consolidated into six. It has suggested more liberal loans for small and medium enterprises and at low rates of interest.
The task force has looked at the larger picture too and said that issues like political instability, extremism and macro- economic risks affected industrial investment. It says that bank sector difficulties and the high cost of doing business should also be addressed to attract industrial investment.
A strong back-up for the strategy in operation has also been proposed. For this, an inter-ministerial committee comprising the ministries of finance industries, commerce, CBR, exporters and the private sector has recommended to monitor the pace of reforms in terms of well defined outcomes.
The committee should report regularly to the ministry of finances and the chairman, CBR, besides the cabinet first. Poor industrial investment after an excellent start in the 1960s is the main reason for the weak industrial development of the country.
The report which is in 15 chapters says Pakistan needs nine per cent increase in investment for 20 years 11.5 per cent in ten years or 16 per cent in five years to catch up with other regional states.
The task force holds the view that narrow concentration in textiles, low technology intensity, slow productivity growth weak positioning in the international market, insufficient export orientation, and domination of low productivity firms, were the weakness of industrial structure.
As a result, the industry has failed to become an engine of growth or to generate enough well-paying jobs. The report says Pakistan's aggregate investment fell significantly behind its competitors over the last decade. The country's investment grew at par with India in the 1980s but fell below that trend in the 1990s.
In 58 years, the industry's share in the GDP was still 19 per cent and the share in employment equally unimpressive. Over a period of 33 years (1968-2001) industrial addition has increased by a multiple of 7 per cent as compared to 40 per cent in South Korea, 27 per cent in Malaysia and 17 per cent in Thailand.
Such poor investment and the aging factor of the machinery resulted in 4,000 sick industrial units in the country along with their loan default of over Rs150 billion. Precious national assets were allowed to go down the drain.
In some cases the machinery acquired originally was simple junk and the money obtained as bank loans was pocketed by the fraudulent investors. The task force has recommended importing natural gas from neighbouring countries through pipelines and promotion of hydel-power production on a priory basis.
Dr Ijaz Nabi says that Pakistan's exports at 17 per cent of the GDP was well below the East Asian average and its share in world exports declined between 1990-2002. He said that Pakistan's share of the global manufactured exports was a stagnant 0.18 per cent.
The issue now is making enough investment on a continual basis for the next 20 years to make up for the neglect or malpractice of the past. The government's monitoring of the investment should now be regular and accurate.
Even if Pakistan increases its production all round its ratio of exports to production cannot be as large as those of the small East Asian countries as Pakistan's population is at 151 millions is large.
The exportable surplus will be smaller than those of the East Asian countries with small populations and their Confucian austerity or frugality. We have to opt for a saving and conservation campaign to have a large exportable surplus while trying to keep the population growth low.
Political instability and tension with the neighbours will affect our exportable surplus. We have to take into account the inter-dependence of the various sectors and their eventual impact on the economy.
Whether it is to increase production and exports or to increase the number of jobs to solve the unemployment problem investment has to rise steadily as suggested by the task force. The government has to ensure that and try to remove all blockages whatever they may be. Nothing less can bring an industrial revolution.
