February 18, 2007	Sunday	Muharram 29, 1428

ISLAMABAD, Feb 17: The government is considering a set of proposals to accelerate slow pace of growth in engineering sector.

Official sources told Dawn on Saturday that President Gen Pervez Musharraf has directed the ministry of industries, production and special initiatives to incorporate the joint recommendations of the Higher Education Commission (HEC) and the Pakistan Institute of Development Economics (PIDE) in the new engineering vision for accelerating the sluggish growth of the engineering sector.

According to them, one of the many reasons for slow growth of engineering sector is lacking long- term vision for development. There is hardly any integrated and consistent approach towards the engineering sector.

“The productive sectors have been marred with irrational tariff structure", said an expert who was part of formulating recommendations to the government to promote the engineering sector.

However, he regretted that joint recommendations of the HEC and the PIDE are still to be approved by the government and placed before the president for a final approval, as originally planned.

The progress of Pakistan's engineering sector has been described as "less than satisfactory."

The contribution of engineering industry to the GDP is currently only $2 billion and it provides employment to a mere 600,000 people.

Pakistan saves $3.75 billion per annum through import substitution.

The rising trade deficit has been attributed by both HEC and PIDE mainly to engineering sector imports which are worth more than $2 billion (Rs132 billion).

The present share of the engineering industry in meeting the total demand is merely 25 per cent while the remaining demand is met through imports which have almost doubled over the last eight years. Its share in total imports has varied from 33 per cent to 42 per cent. The share of engineering goods in Pakistan's exports is only three per cent.

Pakistan exports $0.27 billion worth of engineering goods which is negligible in the world trade.

Major areas of imports include equipment for textile industry, energy sector, cement plants, agricultural machine, electrical machinery and automobiles etc.

According to the joint report of the HEC and PIDE, the potential to increase production of the engineering industry is large, and over the last one year engineering industry has done well, mainly due to rising domestic demand, emanating from consumer credit at lower interest rates.

But they said the regulatory mechanism was missing. The large-scale smuggling of electrical goods, such as air-conditioners, motors, fans, and household appliances, automotive parts and steel products etc., has also hit the engineering industry.

The local consumption of steel, which is one of the major indicators of industrial development, did not rise due to high prices of steel.

Moreover, for most of the engineering industries, effective protection was non-existent.

The main reason for the negative protection was high duties on inputs whereas outputs were generally imported duty-free under various concessionary tariff regimes or outright smuggled.

Therefore, local engineering industry has been deprived of a major business opportunity. The main causes of poor performance of engineering sector was absence of integrated approach for balanced growth of all economic sectors; lack of consistent policies and political will to develop local industry manifested in widespread smuggling of engineering goods; ad-hoc approach in policy formulation and preferences for turn-key import of plant and machinery; irrational and discriminatory tariff structure with relatively high import tariff on inputs and low zero rates on output/finished goods, along with cumbersome procedures for custom clearance of imported inputs; priority to less value-addition areas for investment and tariff support and lack of incentives to attract investment in high value-added sectors; lack of institutional support and incentives for acquisition and absorption of foreign technologies.

Unfavourable cost structure was due to lack of economy of scale in production, high financing cost, high inventory carrying costs, low labour productivity, high utility costs and high cost of local inputs, particularly steel products, lack of research and development and design, quality standards and engineering support which were resulting in inadequate vending, sub-contracting facilities; and lack of entrepreneurship and management skills.

"Pakistan needs to draw upon the experience of Malaysia and Korea by developing, strong technical manpower which can take the responsibility for absorbing and adopting technologies to produce products of high quality and improving the productivity levels".

In 1995, the government had set up the Engineering Development Board (EDB) for providing policy direction and impetus for growth of the engineering sector. The mandate of the Board was to suggest policy initiatives, provide leadership role, and act as a bridge between the government and the entrepreneurs / investors in this sector to ensure achievement of set objectives.

This step has made a beginning to create a policy environment which is more conducive for survival and growth of local engineering industries, a lot still has to be done for achieving the potential growth rates.

Both the HEC and PIDE believe that a result-oriented policy package, fully backed, strengthened and implemented in its true spirit with an integrated approach focusing on overall development of all sectors of economy is required.

"Obviously it will only be possible if there is a strong political commitment at the highest level for development and growth of engineering sector."

The most important step for promotion of engineering sector in Pakistan is to allocate more resources to basic and technical education.

The existing institutions are not fully equipped to provide requisite skilled manpower for producing quality products. There are only 10 universities and colleges which offer degree courses to engineering students. Enrolment in these colleges and universities is less than 20,000.

Another component of the engineering education is the polytechnic diploma which trains associate engineers. There are a total of 58 polytechnic institutes in the country which provide three-year diplomas to students. The total enrolment in these institutes is 75,000.

The vocational training institutes are also limited in number. The country has only 364 such institutions which provide one and two years certificate and diploma courses to students. The enrolment in these institutions is only 11,500. However, most important is the fact that the graduates produced by these institutions are not in line with the demand.

Just by banning the imports of turn-key imports in power sector in 1992, the local industry benefited tremendously and it resulted into more indigenisation and technology transfer.

As a result of the decision, local manufacturers were awarded business for Muzaffargarh Unit-4, being set up by Chinese.

Long-term plan was also drawn for indigenisation under consortium arrangement with reputable foreign technology partners to achieve a deletion level of about 55 per cent over a period of five to seven years.

"For development of engineering sector, enhanced private sector participation not only in production, but also in the training of workers is crucial".

The role of public sector, the HEC and PIDE report said, should be confined to providing conducive and enabling environment through provision of appropriate physical, as well as human resource infrastructure.

Public sector should provide vision, policy direction and policy instruments and help develop design engineering capabilities, databases and infrastructure: create testing labs and instruments and start projects with the private sector partnership.

"The private sector should innovate and develop new products and processes."