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As industry falters, Pakistan’s lack of policy comes to light

Updated December 03, 2018

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In this photograph taken on November 16, 2016, Pakistani workers operate a machine at a textile factory in Faisalabad. — AFP
In this photograph taken on November 16, 2016, Pakistani workers operate a machine at a textile factory in Faisalabad. — AFP

IT IS beyond irresponsible, perhaps even stupid, not to have an industrial policy in a country like Pakistan, abundant in its resource base but reeling under the pressure of veiled vested interests. While capital is diverted to short-term high-return options, millions are forced to live in subhuman conditions without stable jobs.

Now is the time to develop an industrial policy, to provide a clear, sustainable framework for long-term development to promote investment to broaden the industrial base and create substantial jobs.

The report circulating in business circles that the PTI government has initiated the process of industrial policy development was not confirmed by the hierarchy in the Ministry of Industries and Production in Islamabad.

“I am not aware of any progress on this count. If something is happening I am not in the loop,” Azhar Ali Choudhry, federal secretary industries told Dawn. He called again to inform that the country never had an industrial policy.

“According to information I was able to gather, in later half of 2000 a draft was developed and circulated but then the government of the time fell and the process stalled abruptly. The soft copy of that draft is not available. We will send the printed version soon,” he stated.

This oversight does not appear to be an accident. The economy is beset by rent-seeking resulting in rampant inefficiencies. In the process the nascent industry is barely surviving in a hostile environment

Another senior bureaucrat pointed out that the responsibility of industrial development has been vested with the provinces after the eighteenth amendment. “In 2016 we heard that KP announced an industrial policy. We do not know if it was implemented or not,” he said.

Razak Dawood, advisor to the prime minister who publicly vowed to promote the corporate sector’s ‘Make in Pakistan’ vision, promised input on the subject but his views did not reach the paper within the deadline.

“A coherent, overarching industrial policy will serve to expand the manufacturing base. It may also loosen the grip of brokers and trade agents on the economy who were instrumental in stunting the country’s natural pace of growth,” commented a retired bureaucrat who served in both the ministries of industries and commerce.

This oversight does not appear to be an accident. The economy is beset by rent seeking resulting in rampant inefficiencies. The current state of confusion repelled serious industrial investors and perpetrated the trend of jobless low growth. A conscious effort can arrest the alarming situation.

It is evident that the country’s expanding market has served overseas manufacturers better. Imported consumer items are not just stacked on supermarket shelves, roadside shacks and roaming sellers depend on cheap supplies dumped in wholesale markets across the country. Trade partners particularly China, Japan, India, Malaysia, Indonesia and even Bangladesh have capitalised on easy access to Pakistani markets both legally and through parallel channels.

“Flawed policies corrupted the business class of the country that became risk averse, demanding guaranteed profits. This class adhered religiously to the notion of privatising gains and socialising losses,” commented an economist.

“In Pakistan the industry that has surmounted difficulties of unjust competition without the requisite policy support from the government has been penalised for its success. It has been unjustifiably burdened with taxes. It ends up contributing about 60 per cent of taxes collected when its share in the GDP is miniscule (13.6pc) unlike that of agriculture (19pc) and services (60pc). The collective contribution of all other sectors to the public kitty is less than what manufacturing chips in,” said a tycoon requesting anonymity.

In the process the nascent industry (toy, plastic, ceramic, engineering, textiles, tyre and tubes, footwear, etc.) is barely surviving in a hostile environment.

It is not surprising that instead of expanding over the last two decades, under the watch of three successive governments, the manufacturing base has actually shrunk. The share of industry to GDP has dipped from 17.5pc in 2005 to 13.6pc in 2018.

One consequence for the dip was the further sidelining of the country in global market. Pakistan’s share in world exports shrunk further from a measly 0.16 twenty five years back to 0.12 currently. The situation becomes all the more depressing when compared to the performance of peer countries (Vietnam and Bangladesh) in Asia, according to the data shared in a document by the Pakistan Business Council (PBC).

The depression in the manufacturing sector changed the composition of exports. Instead of switching to value added goods the country ended up exporting more unprocessed goods. It fetched a low price for high volumes and enabled competitors in the region to beat us down in the value added category on the strength of importing cheap raw material from us. The performance of Bangladesh in textiles is a case in point.

The PBC has articulated the position of the corporate sector of Pakistan. They have persistently been warning about the premature deindustrialisation in the country. Adopting a ‘Make in Pakistan’ theme, they prepared and circulated a proposed industrial policy draft. The document identified three key success metrics of an industrial policy: job creation, value addition and import substitution.

The enablers listed for successful implementation of the policy include: fiscal policy reforms, Tariff reforms, reassessment and renegotiation of trade pacts, foreign direct investment policy, corporatisation and consolidation, workers training and focus on small and medium enterprises.

They argued the promotion of a labour intensive industry (textile, agriculture, engineering, petrochemical, IT, pharmaceuticals, oil and gas, ceramic, footwear, furniture and mining) to absorb the unemployed youth.

Published in Dawn, The Business and Finance Weekly, December 3rd, 2018

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