April 23, 2006	Sunday	Rabi-ul-Awwal 24, 1427

Mr X, an industrialist, surprised his friends when for over a week he was noticed smoking away the cigar in abundant luxury at an elitist club. It was unlike the man, who reputed as a confirmed workaholic, would sit in his office till late in the night sorting out the problems of labour, raw material, sales, stocks, cash flows and greasing outstretched palms of one or the other industrial and taxation “regulators”.

Lured by the promise of high returns, incentives and tax benefits, he had laboriously set up a liquid sweetener plant. Even after the gestation period, the industry continued to return negative returns. But last year sales were good and his balance sheet returned to the black, producing a return on equity of 7.2 per cent.

What did the man do? He brought the wheels of his factory to a grinding halt, pulled shutters on his office, sold off the land and machinery and divided the proceeds that he received for investments in real estate, stocks, commodities and gold. At the end of the year the average return on his investment from all sources — not including the incalculably high profit from property business — worked up to 60 per cent.

It is hardly surprising to see the industrial base in Sindh eroding. There are too many hassles and too small returns. Investing in stocks and perhaps land is risky, but so is industry; but in the former case, the returns, at least match the risks involved.

The government does not tire of talking about Sindh (read Karachi) housing the “largest and most dynamic industrial complexes in the country”, such as SITE, KITE and NKITE, where industries producing variety of goods — from textiles to chemicals and steel and machinery are rolling out gold. But really, are they?

Industrial investment began in the 1950s, largely in textiles and consumer goods. After an army coup in 1958 and until 1969, the period saw acceleration in industrial growth, almost all of it in Karachi, because of it being the only port city. Bhutto’s avowed agenda of breaking business monopolies and nationalisation drove away the private sector from industrial investment for the next two decades. The country’s economy was surely opened up for local and foreign investment in the early 1990s, but again high profits to those who ventured into industrial activity came at a high cost: bureaucratic mend lings, increasing taxes, ad hocism, religious intolerance, ethnic divide, inconsistency of policies and a weak law and order.

Even today, the state of affairs, particularly in Karachi, is about the same. Businesses remained closed for almost a week early this month on a bomb blast incident. Some industrialists figured out loss of over Rs1 billion per day in terms of lost revenue.

Never mind the unending expos exhibiting eye-catching local products, investment in planned industrial activity, if at all, is low. Multinational firms, particularly in the pharmaceutical business are doing well, arguably due to unexplainable high prices. But most manufacturing firms, in order to counter unbridled cheaper imports, find it easier to trade in products instead of going the whole way round to plan, produce and sell.

Many big brand names are known to have outsourced production to smaller cottage industries in the Punjab. But there is excess liquidity and it has to go somewhere. Banks are offering pittance in the form of returns and so are the government’s saving schemes. What remains is speculative trade in real estate, gold and stocks. The bubbles in those booms and busts and the economy stays where it was.

All that is about urban town and cities, concentrating on Karachi. As for rural Sindh, there is no problem. The poor peasants have no money for two square meals and therefore can sleep easy without the worry of where to put the ‘extra’ cash.