KARACHI, July 15: The manufacturing cost in Pakistan is showing a constant rise since 1992 because of growth in the input prices that renders these products somewhat uncompetitive in the international market.
"Remedial measures are called for," a review of the budget 2004-05 by the Social Policy and Development Centre (SPDC), a reputed private sector research organization, suggests.
The review questions the vital statistics and data given on industrial production, poverty reduction and in other areas of the economy claimed by the government in the Economic Survey for 2003-04 and in the budget.
"It is not the intention of the present publication to question the integrity of the official data," the SPDC review states at the very outset but goes on to declare "instances of reduced transparency proliferate".
SPDC managing director Dr Kaiser Bengali in a briefing of the budget review on Thursday before a gathering of journalists revealed that wages in Pakistan had remained static since 1998 and increase in the manufacturing cost had come from the rising prices of the input to the extent of 70 to 110 per cent.
The finding of the SPDC research team shows that while the manufacturing value added has increased by 13.4 per cent, industrial consumption of electricity went down by 19.2 per cent, that of gas came down by 13.8 per cent and oil has decreased by 20.7 per cent.
This implies an increase of energy use efficiency between 24 and 29 per cent during 2003-04. Pointing out that the ratio of energy consumption to manufacturing value added has remained generally constant or stable from 1993 to 2003, the SPDC review observes that a sharp increase in energy use efficiency in the manufacturing sector over the period of just one year raises the question of "plausibility".
The chart illustrations show that since 1992, the growth in output prices have been outmatched by a rise in prices of imported raw material, local raw material and energy.
Only the wages factor in the production process has remained lower than the rise in output prices. The review reveals that since 1992, there had been an average of 7.35 per cent increase in output prices.
During this period, the imported raw material with 24 per cent weightage in variable cost showed an average annual growth of 7.18 per cent, local raw material with weighted average of 60 per cent increased by nine per cent and energy cost with nine per cent weighted average in the cost showed a growth of 10.02 per cent.
Kaiser Bengali called the 17.1 per cent growth rate in the large scale industry as the "most striking aspect" of the performance of the economy during 2004. This growth has come in wake of 7.2 per cent growth in 2002-03.
He appreciated the broad-based growth in the large scale industry but was skeptical whether it was sustainable in the long run. For example, the 53 per cent growth in automobile and 46 per cent in electronics, he said, was because of the lease financing offered by the commercial banks.
He said these products known as consumer durables had service life of few to several years and as are not purchased every year. Yet another aspect is that automobiles and electronics are purchased by the higher income group. The automobiles and electronics are basically assembling industry and does not engage a big number of workers.
"Sustainability will require building or enhancing capacity of these industries to enter the export market," Kaiser Bengali observed and stressed that the issue of cost efficiency of the manufacturing sector had been raised in context of international marketing.