Our industrial strength

Published October 1, 2022
The writer is a former deputy governor of the State Bank of Pakistan.
The writer is a former deputy governor of the State Bank of Pakistan.

HOW can we measure the industrial strength of our country? The strength of a human being is the force exerted by his muscles. Muscular strength determines a person’s strength. While there is no simple indicator of industrial strength it can be argued that the production of iron and steel and its share in industry largely determines a country’s industrial strength. The Quran too emphasises the importance of iron. Surah 57 is named ‘Al Hadid’ (The Iron). From pots and pans to pumps and motors to bridges and tanks, made of iron and steel, everyone derives much utility and benefits.

Our per capita use of steel is only 35 kilogram as compared to the world average of 233kg in 2021, according to the World Steel Association. Compare this with 691kg in China, 64kg in India, 205kg in Iran, 350kg in Turkiye, and 95kg in Egypt. It seems that our industrial policies and endeavours are not yielding the desired benefits to our people with regard to the use of iron. Going by this yardstick, our country fares poorly even after attaining nuclear capability. Our production of steel was 5.3 million tons in 2021, which constituted a miniscule share of 0.27 per cent in the total world production of 1,953 million tons. China’s share is a huge 53pc, the highest in the world. The shares of India, Iran, Turkiye and Egypt are 6.1pc, 1.5pc, 2.1pc and 0.5pc respectively. If our country wants to increase its share to equal that of Iran, it must increase its production of steel to 28.5 million tons.

Why is iron so beneficial and important? Foremost is the fact that it is ecofriendly. Iron ore can be converted to steel by mixing it with carbon and some other elements and heating it in a furnace. The strength of steel is well known. Just take a look at the small steel hinges in the heaviest of doors in a building and it becomes crystal clear how strong they are as they can hold a weight hundreds of times more than their own. Steel is also recyclable and, therefore, unlikely to run out like fossil fuels. About 88pc of steel is recycled throughout the world. Unlike other recycled materials, steel never loses its strength during the recycling process. This is the reason that ship-breaking, which is part of the steel sector, is so important. About 15pc of the domestic production of steel comes from ship-breaking scrap.

Pakistan’s per capita use of steel is only 35kg as compared to the world average of 233kg.

In our industry, the share of iron and steel is only 1.6pc, while in the large-scale manufacturing sector, it is 3.4pc. Such a small share is unlikely to take our country towards rapid industrialisation and development. There is a very close correlation between world growth and the growth of steel. Countries that have expanded their iron and steel sector have developed rapidly because of the input of iron and steel in numerous commodities in every sector. Increasing the share of steel in our industry is a sine qua non for development. This share, however, cannot increase unless the shares of a few other sectors decrease simultaneously. Our largest industrial sector is textile and clothing with a share of 24.3pc in LSM. This is followed by the food, beverages and tobacco sector consisting largely of sugar, cola drinks and cigarettes, with a combined share of 16.6pc (of LSM). Note that the beverage sector is 3.8pc and tobacco is 2.1pc and compare this with the 3.4pc share of iron and steel.

Our industrial policy needs to prioritise steel production over sugar, cola and cigarette production. While there is no need to overly constrain the production of cigarettes and cola drinks (having a high demand), there is definitely a need for promoting the steel sector. Our usage of steel is higher than its production and the gap is met by imports. Even if the reverse were the case, we would have exported steel given the high world demand. Yet we are spending our precious foreign exchange because the Steel Mill is closed and ship-breaking at Gadani is less than capacity. A case can be easily made for imposing special taxes on cigarettes and cola and decreasing existing taxes on the domestic production of steel and importing ships for breaking. If our industrial policy has these two elements, iron and steel production will increase, yielding more benefits to us. Yet we are trying to get benefits from the production of cigarettes!

Our industrial sector in the national income accounts consists of four sub-sectors: mining and quarrying; manufacturing (large and small scale, and slaughtering); electricity, gas and water supply; and construction. While the iron and steel sector is a part of LSM, it has linkages not only with other industrial sub-sectors, but the agriculture and services sectors as well which all use implements made of iron and steel. It is impossible to think of any sector which does not benefit from it. Despite the presence of so many linkages, which can spread development from one sector to various other sectors, we have not been able to revive the Steel Mill. Not only have all restructuring attempts failed, the privatisation effort, too, has failed due to the unwise steps taken by more than one critical institution of our country in the past. What is mind-boggling is that a foreign investment-driven steel mill also shut down a few months after it started producing steel in 2013.

Measuring the industrial strength from the above lens, unfortunately, has morphed into industrial weakness. Is there something wrong with the approach articulated in the previous paragraphs? How large should our share of iron and steel be in order to be described as a strong industry? While we are unlikely to become self-sufficient in this sector anytime soon, we should focus on reviving the two closed-down large production units and promote our ship-breaking sector in which we have shown comparative advantage. We can hardly call our industry as strong before we start exporting steel, whatever the share may be at that time. Yet the road ahead — of expanding iron and steel — is not hard at all; it only requires policy tinkering at a couple of places.

The writer is a former deputy governor of the State Bank of Pakistan.
rriazuddin@gmail.com

Published in Dawn, October 1st, 2022

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