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Constraints on Punjab’s industrial growth


ELECTRICITY shortages, macroeconomic and political instability, security conditions, inadequate facilities for transportation of goods to and from the Karachi port and corruption are considered the most serious constraints hampering industrial growth and productivity in Punjab.

Other less critical factors that have constrained industrial expansion in the province include the lack of enough skilled labour and limited access to finance and raw materials for small to medium sized manufacturers. In addition to affecting industrial growth in Punjab, these constraints have rendered manufacturing in the province far less competitive than in Karachi and even other parts of the country.

By far, says Ahsan Bashir, leading textile manufacturer and chairman of the All Pakistan Textile Mills Association (Aptma-Punjab), energy (electricity and gas) shortages have emerged as the most crucial constraint to development of industry in the largest province.

His assertion is corroborated by the World Bank’s Investment Climate Assessment (ICA) of 2007 as well as the Lahore Pilot Survey of 2012.

The ICA, for example, shows that the number of companies across the sectors in various industrial zones and clusters in different parts of the province are worried about the impact of electricity shortages which is on the increase.

The ICA says the number of companies that considered electricity the most important constraint to industrial growth and investment rose to about 80 per cent in 2007 from just above 39 per cent in 2002. The shift in the perception about energy crunch dragging down Punjab’s industrial sector is confirmed by the Lahore Pilot Survey that covered 101firms from eight different industrial sub-sectors in and around Lahore. It shows that over 70 per cent firms classified electricity as the most serious and 20 per cent as the second most serious constraint to industry’s growth in Punjab.

While energy takes precedent over everything else restricting Punjab’s industrial output for some years now, other factors are not less critical for the manufacturing sector’s expansion and growth. Syed M. Turab Hussain, assistant professor at the Lahore University of Management Sciences (LUMS), in his paper on constraints faced by the industry in Punjab says apart from energy shortages that add to the cost of production and cut productivity, the companies have identified macroeconomic and political instability, corruption, inadequate skilled workforce and law and order as other major constraints to industrial growth in the province.

The paper presented at a conference on the management of Pakistan economy organised by the Lahore School of Economics (LSE) earlier this month bases its analysis on the findings of the ICA and the Lahore Pilot Survey.

Only less than eight per cent listed macroeconomic and political instability as the most critical factor and another 17 per cent as second most serious constraint, according to the Lahore Pilot Survey. Inadequate workforce was identified as the top most concern by just five per cent companies while 12 per cent ranked it as second most important and 15 per cent as third most serious impediment to industrial growth. Over 18 per cent said access to raw material was the third most serious issue for them while another 13 per cent underlined corruption as third most important constraint.

Punjab’s average growth rate of 5.6 per cent in industry is estimated to be slightly higher than the rest of Pakistan’s growth of 5.5 per cent between 2000 and 2011. In spite of this the industry’s share in Punjab’s gross provincial product (GPP) is assessed to be 21.2 per cent compared to 31 per cent for the rest of Pakistan.

Besides the constraints underlined by the surveys quotes in his study, Ahsan points out that the transportation shortages had substantially increased the cost of doing business in Punjab in the recent years. “We pay Rs135,000 per 40ft container of our imported raw materials from the Karachi port. Similarly, the cost of sending a container of exports to Karachi from Lahore is about $450. This compares to $250 per export container shipped from Karachi to the Far Eastern countries.”

But, he says, various provincial labour related levies and inspections are also responsible for hiking the cost of doing business in Punjab aside from inadequate transportation facilities for the goods. He says the provincial labour levies, equal to almost 50 per cent of the workers’ salaries, are of little use for the workers but a big burden on the employers. Only the government gains from the labour levies. He is also critical of Punjab government’s decision to raise minimum wage to Rs9,000 a month compared to Rs8,000 in other parts of the country.

“The minimum wage should be uniform in all provinces. Punjab has created a distortion by raising it and added to financial burden of the industry.”

Punjab Industrial Estate Development and Management Company (PIEDMC) chairman S.M. Tanvir is of the view that development of dedicated industrial zones like the new Sundar Industrial Estate (SIE) near Lahore would have helped address or mitigate the impact of many constraints responsible for industrial slowdown in the province. The PIEDMC, he says, is trying fill this wide gap by setting up new estates in different cities of the province to exploit the comparative local advantages.

“Such zones or estates offer strategic advantages to the manufacturers. You have access to modern infrastructure at such organised estates or zones needed for the establishment of new factories as well as enjoy advantages of sharing of resources like electricity, transportation and raw materials,” he argues. The electricity load demand of all plants at Sundar, for example, is halved during peak hours that allows provision of power supply to all units throughout the day in spite of power cuts for the industry in the rest of the province.

He is disappointed to note that real estate investors in the past were allowed to buy plots at the estates like SIE that hampered its colonisation. “We have given a new exit policy to real estate investors to get out of Sundar by selling plots to people who want to set up new units,” he adds, contending 50 new factories are expected to be established in one year as a result of the management’s efforts to drive real estate investors out of Sundar.

In his paper, Turab says significant and sustained increase in investment and productivity in the manufacturing sector is imperative to create jobs and income for the province’s growing population , which is projected to rise to 128 million people by 2025.

The provincial government must frame appropriate policy interventions to resolve the issues hampering industry’ growth over the long term. “At the same time, the government needs to take immediate steps to mitigate the negative impact of these constraints (identified by companies in the ICA and the Lahore Pilot Survey) on output and productivity in the short run,” he says.