THE Khyber Pakhtunkhwa government is working on a new industrial policy to lure investment in the manufacturing sector in the province.

KP Chief Minister Pervez Khattak talked about the new policy while chairing a meeting on July 20 to review industrial progress in the province. “The new policy will help remove the hurdles in rapid industrialisation in the province and create jobs for the unemployed youth,” he told the meeting.

The industrial policy, according to officials, will contain some incentives for investors as part of the economic vision of the PTI-led government.

But the provincial government has little to offer in terms of fiscal incentives, as major taxes and the fiscal policy are the prerogatives of the federation.

This leaves little room for KP, which is already bearing the brunt of being far away from the country’s seaport, to take any significant decision.

This distance from the seaport makes goods produced in KP costlier and less competitive even in the domestic market, not to mention the global market.

While the war on terror has caused an economic slowdown in Khyber Pakhtunkhwa, the more critical factors are locational disadvantage, limited access to finance and lack of skilled manpower

In 2005, the clergy-led MMA government had announced the province’s first-ever industrial policy to attract investment. Under the policy, old and new units in industrial estates were exempted from the property tax for a period of five years.

And a rebate of 25pc in electricity bills for a period of three years was allowed for industrial units producing non-traditional items.

These incentives offered some breathing space to the running industries; however, it could not attract any significant industrial investment.

This is evident from the current state of the province’s industrial estates, where most units are either closed or sick.

In the four main industrial estates — Hayatabad (Peshawar), Hattar, Gadoon and Nowshera, only 439 out of the 1,138 units are operational, while 356 are closed and 238 are under construction.

Promoting sustained industrialisation and growth is required to tackle increasing joblessness.

For this to happen, the economic structure of the province has to be built on solid grounds.

While the war on terror has caused an economic slowdown in the province, the more critical factors are KP’s locational disadvantage, limited access to finance and lack of skilled manpower.No policy intervention can help industrialise the province unless these systemic issues are tackled in a holistic manner.

Keeping in view the unemployment situation and the poor economic conditions of the province, where 80pc of the annual budget is eaten up by salaries and pensions of public sector employees, it is time to look for alternatives for job creation and new business start-ups. Only 5pc of the province’s labour force is engaged in the manufacturing sector.

The upcoming industrial policy must be formulated after a critical review of the previous policy, and identify the core issues and the possible interventions for tackling them.

It must focus on the big picture by having an integrated approach in addressing the core issues, rather than relying on a few short-term incentives.

For sustainable economic growth, the use of locally available raw materials and an adequate credit line for industrial projects is crucial.

Similarly, the KP’s proximity to neighboring Afghanistan and the Central Asian republics is another window of opportunity, which needs to be tapped to its maximum potential.

The provision of cheap energy to the industrial sector can be a game changer. The hydropower potential of the province can be utilised for industrial growth by feeding the industry with cheap electricity.

Currently, the province generates 105MW electricity from four hydropower stations that are built and run by the provincial government. Electricity produced by these plants is sold to Wapda and the province earns over Rs2bn annually.

The PTI-led government has indicated hydropower generation as one of the priority areas, and it intends to generate 596MW of additional electricity over the next four years. This electricity can be provided to the new industrial units on subsidised rates to spur industrialisation.

Published in Dawn, Economic & Business, Aug 11th, 2014