INVESTING in the manufacturing industry is always a risky affair. It can be even riskier in a low-performing economy like Pakistan that favours imports, penalises taxpayers and discourages production at the expense of jobs and growth.

Yet there are businessmen like Kamal Amjad Mian who are ready to “wager on the future, even in tough situations like these, with their eyes on the opportunities that will arise when the going gets easier”.

“Expanding our manufacturing capacity was a critical decision for our family in the given security and economic conditions, when most people are shifting their capital out of the country,” Kamal, a director of Fast Cables — one of the country’s top three electric cable manufacturers — says of his company’s investment in a new cable and aluminium alloy manufacturing plant at the Sundar Industrial Estate near Lahore.

The decision to invest reflects a paradigm shift in the way his family has done business and grown thus far.

“Over the last 30 years, we have added new capacity on a need basis, expanding our production to keep up with the growth in demand,” says Kamal, who was an international investment banker before he returned home from the Gulf two years ago to ‘help his family corporatise the firm’.

‘There is a massive pent-up demand for energy, housing, and other infrastructure. Once the economy picks up, this pent-up demand is going to be unleashed. When this happens, we will be there to grab the new business and grow faster’

“Now, we want to be ready to grab whatever opportunities arise by creating new, excess capacity before the new demand surfaces.”

Fast Cables has grown from a micro business with one machine and five workers to a medium-sized factory, employing about 300 people and turning over Rs3bn in sales a year.

The Rs2bn investment in the state-of-the-art dry curving technology for producing medium to high voltage cables and an aluminium alloy plant to replace imports of 500kVa conductors from China will create 200 new jobs and raise the company’s annual turnover to Rs8bn. The plant is expected to come into production by this September.

The new plant is going to be a quantum leap in the technology of cable manufacturing in Pakistan, claims Kamal. Local manufacturing of aluminium alloy will also go a long way in the production of rust-free ‘aerial bundle cables,’ which will significantly cut the distribution companies’ expenditure on maintaining their supply networks by eliminating the short-circuiting of transformers and power theft.

“Safe and low-cost transportation of electricity is a much bigger problem in our country than its generation,” he notes.

Fast Cables is also replacing PVC with low smoke zero halogen (LSZH) material as the insulation used in cable manufacturing. “The use of LSZH insulation would substantially cut the risk of death by suffocation in the case of fire.” Since the government doesn’t have a facility to test LSZH insulation, the company has imported its own laboratory.

The shift in the firm’s growth strategy isn’t without a reason. “Pakistan is the world’s 6th most populated country; there is a massive pent-up demand for energy, housing, and other infrastructure. We have not invested enough money on creating infrastructure in the past,” Kamal muses.

“So once the economy picks up, and the public and private sectors start investing in power generation and their supply networks and housing, this pent-up demand is going to be unleashed. When this happens at any point in the future, we will be there to grab the new business and grow faster.”

The current size of the electric cable market in Pakistan is estimated at around Rs30bn, with a little more than half of it being shared by organised manufacturers and the rest by importers and the unregulated sector.

“The unregulated or counterfeit market is quite large in size because it is 30pc cheaper than the organised one, and it is growing bigger owing to a lack of quality controls for both its finished products and inputs,” he contends.

The reason for the price differential is obvious: federal and provincial taxes constitute a hefty 25-37pc of the total cost of the imported inputs used by manufacturers, including copper, which covers 80pc of their manufacturing cost.

“On the other hand, the unregulated sector not only does not pay these taxes but also uses substandard inputs, especially copper, to keep their costs low. The share of the taxes goes up by another 5-8pc as a percentage of the costs if we compare them with the cost of finished goods,” Kamal adds.

The ultimate victim of high taxes, he says, are the unsuspecting consumers who buy cheaper but poor quality cable from the unregulated market to keep their upfront costs low, without realising that it raises their maintenance price and puts their lives at grave risk.

Like other cable manufacturers, Kamal believes that Pakistani companies could export their products if the government helps them cut their costs.

“India is exporting cables to Africa and Central Asia. China is way cheaper than us and a major supplier to the Gulf countries. We can’t compete with it despite the distance,” he concludes.

He added that his company had supplied cables worth Rs215m for various Nato and other projects in Afghanistan for a couple of years before the exit of foreign troops from that country, despite facing stiff competition.

His experience of working as an investment banker at ABN Amro and HSBC has also taught a thing or two about how a modern firm is run. So, he hasn’t only redefined the growth strategy of his family business, but also introduced changes in its management. The most important of these changes, he points out, relates to stock options being offered to the firm’s employees.

“Starting from this year, we have given stock options to two of our best employees. This is going to kick-start competition within the firm, encouraging every employee to try and excel to become a shareholder in the company they work for.”

Published in Dawn, Economic & Business, June 15th, 2015

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