The country lacks a comprehensive and composite industrial policy and recourse has been found in framing specific industry- related visions/policies , without developing an integrated macro-industrial policy framework.
The world has witnessed drastic restructuring of industrial sector, almost in every country and new philosophy and rationale is being infused into the industrial policies of both developed and developing countries, following the onset of WTO regime and globalization. The present policy has failed to instil dynamism in the spectrum of industries, covering from large and medium industries to small-scale and the unorganized traditional industries.
Pakistan did take cognizance of the new emerging trends and the then commerce and industry minister, just after assuming the office in October '99, stressed the need for announcing a comprehensive policy, but instead, contended with specific policies for different industries and a multitude of institutions. The Board of Investment (BoI), the Engineering Development Board (EDB), the Experts Advisory Cell and the National Productivity Organization (NPO), are under the direct control of the ministry of industry. In addition, the ministry visualized the Textile Vision 2005, the Engineering Vision 2010 and the Leather Vision.
The Pakistan Software Export Board was set up to promote both IT-based industry and export. The Defence Export Promotion Organization is engaged in the production and export of defence-based products. Apart from Small & Medium Enterprise Development Authority (SMEDA), every province has its own Small Industrial Corporation. The Punjab government has announced its own policy. It is noteworthy that the export target of softwares was fixed at $1 billion by 2005. However, the recorded export of softwares during the outgoing year was not more than $30 million.
The institutions, visions, micro-policy framework etc. do not appear to be interlinked with each other in their functions under one umbrella. A disjoined approach is bound to lead to a decelerated-effect on industrialization. The absence of an annual or bi-annual policy is often made up by announcing industry-related issues through federal budget or trade policy. The current budget treats housing as one of the prime drivers of economic growth, but the ministry of industry envisages no housing model.
Similarly, some of the industry-promotion frameworks, including industrial clusters, joint ventures, textile zones, garments cities, etc, have been stipulated in the trade policy. While the ministry of commerce has indeed played a pro-active and pivotal role in the sustainable development of export-led industries, the ministry of industry is found tagging behind,, in influencing the pace and pattern of industrialization, in consonance with the imperatives of current era.
One of the basic objectives of the policy which used to be to bridge the development-gap between leading and lagging areas through industrialization by providing added facilities of infrastructure, electricity, gas, water, telecommunication in the under-developed areas, has relegated to the background. The deletion of the provision of tax holiday/concessions from the tax literature under the dictate of the IMF has eroded the role of the industrial policy, which has nothing to its credit by way of revival of sick industrial units either. Its performance in attracting direct private investment and technology has been disappointing.
The indigenization in manufacturing sector has moved at a snail's pace, thus causing setback to the deletion programme, as a consequence of expiry of period to implement trade-related investment measures (TRIM). The upward moving graph of poverty, mainly emanating from aggravated unemployment situation, points to the lopsided industrial development.
Many industries, including textile, automobile, sugar and cement have excess capacity, which acts as a deterrent to the fresh investment. The excess capacity has been generated due to the urge of entrepreneurs of investing in forward-looking and known profitable enterprises as well as due to lack of any road-map readily available for providing details of aggregate demand and supply of a product, its existing installed as well utilized capacity, along with the import-component. The project-financing in the past has been, in most of the cases, on the basis of fake and unauthentic feasibility reports.
The country, therefore, has witnessed over-crowding of investment in spinning, looms, garments, poultry, IT, in different periods of industrialization. It is imperative that such industries which have reached saturation stage, must be clearly identified and publicized for the guidance of prospective investors. The edible oil-processing sector has already reached the saturation stage, but great potential exists in the extractions of oil seeds industry to substitute import of edible oil.
Likewise, the performance of paper and paper-board industry remains depressing. Leather is basically an export-oriented sector, but has not been organized in that way. Out of around 2500 surgical instruments manufacturing units, with a tremendous export potential are in the unorganized sector. The factors arresting the growth of such industries must be identified for adopting corrective measures.
In the 60's along with the budget, an industrial investment schedule used to be issued which provided detailed information about investment opportunities, along with existing demand, supply, installed/utilized capacity, import component of a product, etc.The Pakistan Industrial Guide 2003, issued by the ministry of industry, has attempted to fill in the information gap, but its data/information is neither elaborate nor uniform. Besides, it has not been developed on modem and scientific lines.
Although the export-led industrialization and growth constitute the corner-stone of the economic policy, but there is no escape from import-substitution industries either. The import-substitution did help the country in accelerating the growth rate of manufacturing sector during the 60s. However, in the 70s, nationalization of basic industries and the inefficiencies caused due to over-protection, restricted the process of industrialization take-off. In the 80s and the 90s, emphasis was shifted from import substitution to export promotion.
As a consequence of a series of reforms, particularly initiated and enforced in the 80s and the 90s, the manufacturing sector now contributes about 18 per cent of GDP. However, there has not been much change in diversification of exports and the textile sector continues to contribute about 67 per cent. The country's dependence on the import of capital goods and machinery continues to persist and even the modern machinery for textile industry, which is the premier industry of Pakistan, is not produced in the country.
The Pakistan Steel Mills hardly caters to the 25 per cent domestic requirement of steel and its product. The wide spread lack of sub-contracting (barring automobile and textile) is one of the major structural weaknesses of the engineering industry as a whole. Besides, most of the SMEs fall within the purview of import-substitution. Nevertheless, the mechanism for the promotion of export-based industries needs to be revised and updated. Every industry is set up to cater to the domestic market, under the protected wall and when it starts producing surpluses, it enters into the arena of export.
An industry, nurtured on an import-substitution style, cannot compete in the global market, particularly following the enforcement of the WTO regime. In the contemporary world, it is not capital and domestic raw material, which makes an industry more viable in the world market. In fact, it is knowledge-based industries which possess more export potential.
Pakistan has delayed Its entry into the software market, but its potential is so wide and vast that opportunities can still be explored. Meanwhile, modernization and technology cannot be restricted to large-scale enterprises alone, but it must be taken to the door-steps of SMEs for employment generation and export promotion.
The formation of an updated policy encompassing all key elements along with the apparatus to accomplish them, is indeed long overdue to avoid accusation of adhocism, It must be made an annual or bi-annual ritual. The objectives of the policy in the context of the unfolding opportunities need to be re-defined and incorporated in the policy.
There must be a balance between labour intensive, value-added, and high-tech industries. The whole gamut of industrialization, therefore, must be reviewed, updated and consolidated by developing necessary backward and forward linkages. Specific industry-related visions/policies must be a well-knit part of the whole strategy. SMEs must support and supplement the sustained growth of large scale enterprises (LSE).
Economic nationalism or Industrialization behind the stone walls of tariff is alien to globalization. Taxation, commercial and monitory policies must operate in conformity and not in conflict with the over-all objectives of industrial policy. The industrial strategy must also address the issues of environmental and pollution control, location and infrastructure, research and development, transfer of technology, quality control, TRIM & TRIP, labour-management and other related major determinants of industrialization.