One of the greatest achievements of the present government is macro economic stability. There are now unprecedented foreign exchange reserves nearing $8 billion.
The rates of interest are one of the lowest and expected to be single digit, soon. If the dollar-rupee parity is not defended, it will be equivalent to India and Bangladesh’s at about Rs 50-55 per dollar, which would reflect the true impact of policy, resource base of the country, quality of human resource and entrepreneurship,
The stage is thus set for a growth economy with initiatives of fresh investment, optimum use of the existing investment through increased production and export, which will create employment and increase revenues, the two priority issues now. In this connection, presiding over a recent meeting of ‘engineering vision’, President General Pervaiz Musharraf said that when his government took over, the economic strategy agreed was, to begin with, growth through simple manufactures and agriculture which have given results.
After the success of that policy, the emphasis now is on strategic industry-led growth and value-added exports, transfer of hi-tech technology and import substitution. Emphasizing, later, in export trophy function of the FPCCI, the President reiterated to shift the focus from traditional to the engineering sector, raising annual export of $10 billion to a projected $80-90 billion.
This would naturally include the ten basic industries including steel, heavy chemical and mechanical complexes and engineering, nationalized during the’70s, and those recommended sometime ago to be phased out being “internationally uncompetitive” following the adoption of globalization-led strategy.This strategy was however questioned both in the developed and the developing world. The President was joined in the new strategy by all ministers, secretaries, industrialists and members of the vending industry present at the meeting. The consensus was on value addition through manufacturing and not just packaging and assembly. In this strategy alone lies continued macro-economic stability, achieved so far the government.It is considered an antidote to deficit finance, trade imbalance and inflation, the country’s chronic problems.
It is in this perspective that one would also like to highlight assembly by some “brief case assemblers” of several engineering goods including tractors, cars and engineering production contracts, television sets, motorcycles, trucks and buses, to name a few — through smuggling, under-invoicing and ‘pass through’ spare parts. This is in spite of the fact that packaging or assembly and, more so, through irregular channels does neither add value, nor create employment,nor saves or earns foreign exchange, nor reduces costs.Then what about assembling or packaging ?
This is a menace which has continuously been highlighted by genuine manufacturers generally and vending industry particularly. It is, in fact, alleged that massive under-invoicing of parts is being undertaken at a ‘ value’ agreed with customs for clearance, which, in fact, is ridiculously low, as compared with regular imports by the organized sector. A contention that there is no law to restrict such import appears to be a case of misfeasance, as the organized sector cannot do so in whatsoever circumstances. If at all, it is so, then, it does necessitate formulation of law — if the interpretation hasn’t taken care of it.
Such an interpretation or misinterpretation of the law, however, is resulting in a huge loss of revenue as, among others, completely knocked down — CKD — kits are generally imported at 30-35 per cent customs duty while such ‘pass through under-invoiced’ parts are subject to spare parts duty at 25 per cent — a great anomaly — against completely built-up — CBU — rate of 50 per cent to 200 per cent applicable to the organized sector, if these parts are not deleted under the deletion programme.
Thus, there is an obvious case of rationalization of such a practice causing huge revenue loss, to say the least,and damaging the government’s own growth strategy of value-addition,employment-creation, and earning and saving of foreign exchange. The least that may be expected, in this respect is, that no adventurist is allowed to undertake assembly without a technical assistance and/or joint venture agreement with the foreign principals, be in possession of drawings of the components and parts and have long term vending agreements, in-house frame and engine assembly, paint shop, maintenance, testing, after sales/warranty arrangements, PSQCA Certification, etc. Without these pre-requisite,the resultant product may endanger users’ life.
In order to checkmate such spurious manufacturers, the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) and Pakistan Automotive Manufacturers Association (PAMA) - in addition to many other concerned associations, have jointly and severally represented their views to discourage such “brief case assemblers”, among others, to help grow the industry - comprising 850 units, employing 1.1 million persons on average with 5 family members each and a total capital investment of over Rs 26.2 billion in the industry.
They emphasize that deletion obtained already in several industries from about 50-85 per cent in tractors, 50 to 70 per cent in cars, trucks, buses and 85 per cent in motorcycles, involving further investment due to extremely hi-tech value added parts to be deleted would be jeopardized. This would require, among other things,the continuation of the present policies and adequate protection to the industry.
There is also a class of economists focussing on simple agro-economics and - at the most - warehousing, instead of hi-tech value added industry, dismantling all imports and export barriers against engineering goods. However, protection is not as out of mode as sometimes made out. Examples of protection in US and EU to agriculture, textiles and steel are well documented. Let us, therefore, dovetail industrial policies with local priorities which generate employment, encourage technology transfers and save foreign exchange.
In this respect, reliance must be placed on what Mr. Wolfensohn, the World Bank President, calls globalization through localization. He calls for” local ownership and local participation. Gone are the days when development could be done behind closed doors in Washington or Western capitals or any other capital for that matter”. Such thoughts must be harmonized with local aspirations. Experience in countries like Malaysia shows that as long as a country has sufficient reserves - which we now do— then industrial policy can be formulated that simultaneously promotes export-based industries, nurtures import substitution industry and protects strategic industries.
The industry and especially hi-tech manufacturing industry, can be nurtured and promoted to become globally competitive. In India, the engineering industry is now one of the top tax generators for the government. They did it through focussing on manufacturing and value addition and not packaging or assembly. In following such a policy the present government has killed one lion which is economic instability. The other lions that now need to be killed are revenue shortfall and unemployment. In industry and in particular in manufacturing - not packaging or assembly - lies the remedy whether export or import oriented. A balance must be struck irrespective of external pressures at times. The reliance on these policies would be in the larger national interest, to say the least:
Dharam sal dharwai rahinda gordowarai thagh
Wich maseet kehetey rahinday ashiq rahan alagh
(Piety begets Piety)
(e-mail: yhs@atlasgrouppk.com)