Critical times for industry

31 Dec 2007

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As Pakistan tries to come to terms with the situation arising after the killing of Benazir Bhutto, nervousness in business community has increased regarding the future in a country struggling to revert to democracy after of eight years of military-led government.

No one is expecting a major breakthrough or a turnaround in the industry in 2008. There are too many ‘ifs’ clouding the prospects of industry that failed to fully capitalise on the surge in local demand, in a period of economic expansion and growth.

”There might be some company level balancing and modernising in certain sectors but chances of anything big happening in the year ahead are remote also because of political turmoil and readjustment, during which, traditionally investment plans are put on hold”, an informed professional who interacts with trade bodies told Dawn from Islamabad.

There is huge scope for exports of cement to India that is going to give a boost to cement makers. However, according to people in know of things instead of investing in creating new capacity, the big wigs in the sector are currently focused on marketing.

The restraining factors that inhibited the growth in industry are believed to be both: internal and external, physical and temperamental.

The industry will have to break free of the old mindset and adopt a futuristic approach to face the competition at local as well as international levels. The government will also need to shun short-term ad hoc measures adopted for political expediency in favour of a long- term sustainable industrialisation strategy that addresses real issues such as ensuring supply of quality cotton for textile, flow of credit to small and medium sized industry, etc.

”Industry performed well in 2005 but the pace of growth lost momentum and in 2006 and 2007 its performance was below the official target. Though the regional environment is not hostile, it would take the next government some time even with best of intentions to jump start industrialisation on a significant scale” Chaudhry Mhd Saeed, ex-president Federation of Pakistan Chamber of Commerce and Industry commented from Mirpur, Kashmir.

Optimism, if any, was tempered by anxiety over the sustainability of growth because of tight monetary policy, high inflation, current account deficit and rising trade deficit.

Amongst entrepreneurs, there were also concerns about the policies of the next democratic government that assumes power after populist measures to appease their supporters, increasing pressure on current accounts forcing the country to go back to IMF for budgetary support.

The credit squeeze has started to impact the investment plans of manufacturing sector. The weakening of dollar will lend some support to exporters especially because of appreciation of Indian and Chinese currencies against the greenback.

The impact of high international oil prices (90 per cent of the oil needs are imported), could impact the country’s reserves. It will limit the capability of the government to provide public subsidies to cushion the rises in food and fuel prices.

Majyd Aziz, a former president of the Karachi Chamber of Commerce and Industry, felt that the problems faced by the industry cannot be wished away or disappear quickly as a political government will not be equipped with a magic wand.

”They will need to take hard decisions and opt for a well thought out long- term strategy. This would take time and it would be unrealistic to expect anything before June next when the budget will be announced”, he said.

He, however, expected major foreign investment pouring in the construction sector once the political situation stabilises. If his expectation is materialised it would prop up 36 allied industries besides creating job opportunities for people linked to this sector.

He saw good performance in pharmaceutical and cement sectors but a promising future for agro-based industries in years ahead.

Shafqat Illahi, President All Pakistan Textile Mills Association APTMA, the most influential business lobby, was cautiously optimistic. He, however, felt that there is lack of preparedness on the part of industry to take advantage of the government supported increase in consumer demand.

He emphasised the importance of attaining critical mass through amalgamation and consolidation to face the challenge thrown up by intense competition. He felt that government should create conducive environment for industrial growth and for the progress and sustainability of textile sector in particular.

Recently Dr Shamshad Akhtar Governor State Bank of Pakistan speaking during her visit to FPCCI said: “2000 onwards, by and large, the world economy enjoyed a fairly benign economic environment ... Among the key factor impacting global economy is the financial market turmoil”.

“With this backdrop, I propose to provide briefly Pakistan’s economic update attempting to lay down some emerging trends for FY08 which require stronger vigilance at economic policy-making level and industry and private sector to be more responsive. In general, it has to be underscored that despite domestic and international events, Pakistan economic prospects remain strong”.

She said, “July-October 2007 data for industrial production, while preliminary, reflects mixed picture. Production growth in construction related industries appear reasonable including cement, wood, paints and varnish units, followed by fertiliser, pharmaceuticals, petroleum refining and few metal and engineering goods. In these sectors, Pakistan can reduce rate of import dependency (such as petroleum refining where production capacity is 13.2 million tons relative to consumption which is 18 million tons) through capacity augmentation and even consider exploiting export markets”.

“In contrast to some of these sectors, first quarter results of some industries reflect slower growth. For instance deceleration in cotton yarn and cloth, which has a weight of 20.6 per cent in large scale manufacturing value added, and footwear, automobile, edible oil and vegetable ghee is evident. While demand remained strong, slowdown in manufacturing sector emerged because of combination of reasons including demand for import substitutes (as government relaxed imports of automobile), slowdown in export demand and increase in raw material prices such as palm oil which recorded 73 per cent growth in value of imports”, she added.

She suggested that industry and the Government need to take measures to improve competitiveness of domestic goods. Ensuring quality through innovation, skill development and technological up-gradation, reducing costs through scale, diversifying product-line in line with the market demand, and achieving self-sufficiency in raw materials etc. are some of the areas where entrepreneurs need to concentrate.

Dr Afra Sajjad, head of education and policy development, ACCA, Pakistan sent in her comment via mail: “Like the rest of Pakistan, 2008 is a crucial year for the industry. Its survival depends upon a government that appreciates that the sustainable development depends upon industry generating employment, attracting foreign investment, increasing productivity, exploring new markets for exports and most importantly, generating sustainable profits”.