March 18, 2006	Saturday	Safar 17, 1427

ISLAMABAD, March 17: The manufacturing and industrial sector is facing various “structural problems” resulting in slow growth of exports and low level of investment in the country, says the Planning Commission.

In its latest document, obtained by Dawn, the commission also believes that high concentration of manufacturing industries, technical inefficiencies, poor quality of products and low level of R&D activities are the main cause of slow growth rate of productivity, making Pakistani products uncompetitive in the world market.

Traditional industries such as food and textiles still account for an overwhelming share of the manufacturing output; food industries account for 13.8 per cent and textile industries 24 per cent of the total manufacturing value added.

On the other hand, industries based on the modern technologies such as machinery, both electrical and non-electrical, and automobile industries account for just 4.4 per cent and 4.7 per cent, respectively, of value added.

The share of medium and high technology in overall manufacturing value added is approximately 35 per cent for Pakistan as compared to around 58 per cent for India and China, 61 per cent for Korea and 65 per cent for Malaysia. Share of high technology goods in manufactured exports remains low at one per cent compared to five percent for India, 23 per cent for China, 32 per cent for Korea and 58 per cent for Malaysia.

“Pakistan has to make important strategic choices to ensure sustainable growth in the manufacturing sector in a rapidly changing and international competitive environment,” the commission said. This required, it added, massive structural changes rather than a marginal change, a shift in the production paradigm to technology and knowledge industrialization with a focus on the quantitative and qualitative growth for an integrated and competitive industry in the private sector.

“The inefficiencies of import substitution must give way to an export-led strategy, and to diversification away from traditional industries and services.”

Empirical evidence, the Planning Commission maintained, suggested that diversification was unlikely to take place without directed government action and policies to embed private initiative with a framework of public action that encourages restructuring diversification and technological upgrade beyond what can be generated by market forces alone.

The commission called for devising an export-led industrial growth strategy and studying threats to domestic businesses and industry from the point of identifying appropriate restructuring and business improvement required.

It said that various incentives and policies needed to be examined for pioneering industries to know that whether they are ‘new’ products, processes or technologies so that the range of activities are expanded. This should be clearly distinguished from incentives for small and medium enterprises which relate to size, rather than growth of specialization.

The Planning Commission also called for creating industrial zones, estates, and corridors where skills and physical and administrative infrastructure could be clustered and matched for greater efficiency, standards, specification and testing facilities to enable product ratings and approvals based on international quality benchmarks and accreditations.

“The government needs to examine incentives and infrastructure required for foreign companies to set up their operational or regional headquarters, regional distribution centres, and international, regional procurement centres rather than simply country wide representative offices,” the commission advised.