Home / Interviews / Pakistan’s LSM has huge growth potential overall but will remain dim in near term
Pakistan’s LSM has huge growth potential overall but will remain dim in near term

Pakistan’s LSM has huge growth potential overall but will remain dim in near term

Industrial sector is capable of providing sustainable economic benefits, needs improvement
Interview with Mr Junaid Esmail Makda – President, Karachi Chamber of Commerce & Industry (KCCI)

PAGE: Tell me something about yourself and your organization, please:

JUNAID ESMAIL MAKDA: Besides being the President of Karachi Chamber of Commerce and Industry (KCCI), I am also the Chief Executive Officer of Makda Group of Companies, which comprises of Makda (Pvt) Ltd, Gaseous Distribution Company (Pvt) Ltd (GDCL), Makda Industries, Makda Enterprise, Friends Real Estate, Friends Packages, Friends CNG, Fuel Star Service Station and Makda CNG Services. Since 1980, I am in knitwear and woven business, managing, administering, procuring all types of textile requirements from yarn to exports. One of my companies is also engaged in sourcing and representation of international companies. I am also in CNG and real estate business and one of my companies imports and exports chemicals & general commodities.

Moreover, I have also offered my services from time to time as member for Karachi Water & Sewerage Board (KW&SB), Sectoral Advisory Committee, Environment Climate Change & Coastal Development Department, Government of Sindh, Provincial Steering Committee, Services, General Administration & Coordination Department, Government of Sindh, Karachi Metropolitan Corporation (KMC), Sindh Solid Waste Management Board, Government of Sindh, Industrial Liaison Committee, Industries & Commerce Department, Government of Sindh, Coordination Committee, Labor & Human Resources Department, Government of Sindh, and National Centre for Dispute Resolution (NCDR).

Furthermore, I also worked dedicatedly for the following organizations from time to time:

  • President, Pak Afghan Joint Chamber of Commerce & Industry (PAJCCI).
  • Patron in Chief, All Pakistan CNG Forum (APF).
  • Director, PHMA – Institute of Knitwear Technology, Karachi (PHMA-IKTK).
  • Member International Chambers of Commerce (ICC) National Committee Pakistan Chapter.
  • Chairman, KCCI’s International Affairs – Liaison with International Chambers formation of joint Chambers and MOUs implementation of Karachi Chamber of Commerce & Industry (KCCI).
  • Former Executive Committee Member of Federation of Pakistan Chambers of Commerce & Industry.
  • Member Advisory Committee on Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.
  • Former Chairman/ Director, Pakistan Hosiery Manufacturers & Exporters Association (PHMA).
  • Honorary Secretary, Dhoraji Cooperative Housing Society.
  • Honorary Secretary, Dhoraji Housing & Relief Trust.
  • Director, SITE Industrial Estate Limited.
  • Former President, SITE Association of Industry.
  • General Council Member of ICC World Chambers Federation (WCF).
  • Life Member SAARC Chamber of Commerce & Industry.
  • Life Member Karachi Club.
  • Chairman, Special Committee Bombay-Karachi Joint Chamber of Commerce & Industry.
  • Chief Coordinator, Commissioner–Karachi Chamber Liaison Committee (CCLC).
  • Coordinator, Governing Body Police Chamber Liaison Committee (PCLC).
  • Managing Director, Pakistan Hosiery & Textiles Manufacturers Inc., USA.
  • Former Chairman, Steering Committee on Espire Project Bavarian Employers‘ Association (bfz) GmbH.
  • Chief Coordinator, Pakistan Hosiery Manufacturers & Exporters Association.
  • Chairman to represent on USAID Pakistan Firms Project.
  • Former Director, Sindh Board of Investment SBOI.
  • Former Vice-President / Director, Karachi Chamber of Commerce & Industry.
  • Former Chairman, Pakistan Hosiery Manufacturers & Exporters Association.
  • Former Central Chairman, All Pakistan CNG Association. (Founder Member).
  • Chairman, Industry, Investment and Privatization, Karachi Chamber of Commerce & Industry.
  • Chairman Sub-Committee on Estate Management, Legal Affairs and Hospital of Karachi Chamber of Commerce & Industry (KCCI).
  • Chief, Governing Body Police Chamber Liaison Committee (PCLC).
  • Coordinator City District Govt. – Chamber Liaison Committee. (CGCLC).

PAGE: How would you comment on the growth of LSM in Pakistan over the past 5 years?

JUNAID ESMAIL MAKDA: Large Scale Manufacturing (LSM) growth in Pakistan has fluctuated between 3% and 5.7% over the last five years, peaking to a 10 year high of 5.68% in FY17. But what is heartening is that it has remained positive despite varying levels of growth, unlike during the global economic crisis of 2008 when it actually posted negative growth (in FY09). This is a sign that infrastructural issues have somewhat been resolved, the domestic economy is moving in the right direction, albeit slowly, and it has the potential to head towards further betterment. On closer examination, it can be seen that LSM growth for the last 2 years running has been contributed in most by the electronics sector, followed by the iron and steel sector. This indicates that there is considerable development and diversification taking place in the country. However, with increasing interest rates and reduced government development spending in the years to come, LSM growth may be subdued in the near term, thereby stifling growth in the overall economy.

 

PAGE: What are your views on the industrialization in Pakistan?

JUNAID ESMAIL MAKDA: The growth of the industrial sector in a developing economy like Pakistan should be consistent and un-interrupted. Almost all of Asia’s economies have grown on the basis of their industrial sectors. Pakistan’s industrial sector is capable of providing sustained and far reaching benefits to the economy, and is capable of producing sufficient extra funds earnestly needed by the cash-strapped government. However, policy measures taken by the previous governments have unfortunately had long lasting demotivating effects for industrialists. A glance at the taxation statistics of Pakistan explains why the industrial sector has suffered. The manufacturing sector accounts for 13.5% of GDP even though it contributes a whopping 58% towards taxation. On the other hand, the retail and wholesale sector constitutes to 18.5% of GDP but its share in taxation is around only 1%. The agricultural sector is no different, enjoying near tax exemption. Naturally, this has deterred many rational individuals from taking high risks and investing hefty amounts in a sector, which is taxed 4.3 times of its proportion. The investor is aware that more return at much lesser risk can be generated through other means like investment in real estate.

PAGE: Should or could Pakistan replicate the 1960s model of Japan and South Korea?

JUNAID ESMAIL MAKDA: Characteristics of the Japanese economy during the 1960 included close cooperation of manufacturers, suppliers, distributors, and banks, and good relations with government bureaucrats. Interest rates and taxes were lowered to motivate spending. In addition, the government rapidly expanded its investment in infrastructure by building highways, high-speed railways, subways, airports, port facilities, and dams. Japan implemented a system of import controls designed to prevent flooding of foreign goods; it used foreign exchange allocation to stimulate the economy by promoting exports, managing investment and monitoring production capacity.

In case of South Korea, the most significant factor in rapid industrialization was adoption of an outward-looking strategy. The strategy was well-suited due to South Korea’s low savings rate and small domestic market. It promoted economic growth through labor-intensive manufactured exports, in which South Korea could develop a competitive advantage. Government initiatives also played an important role in the process. Through the model of export-led industrialization, the govt. incentivized corporations to develop new technologies and upgrade productive efficiency in order to compete in the highly-competitive, global market.

Pakistan is also at similar crossroads at the moment. Pakistan needs to devise and implement a two pronged strategy which would reduce its import dependence and enhance its export productivity at the same time. In the current global scenario, diversity and high technology orientation is the name of the game as Pakistan simply could not boost its exports by virtue of exporting traditional low value added items to traditional markets. Yet, bringing wholesale improvement in its domestic industrial structure would take time, as the current problematic economic situation may not allow high levels of government incentives at low costs.

PAGE: Do you think that the government seems serious enough to promote import substitution concept to get rid of trade deficit?

JUNAID ESMAIL MAKDA: Governments in the past have made many a policy on import substitution, but none of them proved to be successful owing to entrenched structural problems, with the result that the country’s trade deficit has now reached alarming proportions. Recent policy measures such as high import tariff duties and currency devaluation have helped but that to a limited extent as oil imports are largely inelastic while other imports are downward sticky. However, the new government seems to be serious in taking long term measures to get Pakistan rid of its perpetual trade deficit, as it has pledged wide ranging institutional reforms which are the key towards self-sustainability, while it is also reconsidering Pakistan’s numerous trade agreements with its trading partners (ill devised trade agreements have been a major cause of Pakistan’s high trade deficit). I am optimistic that if the government goes by its promises of across the board reforms, import substitution would materialize, yet it would take time.

PAGE: Your views on the facilitation to the business community by the incumbent govt.?

JUNAID ESMAIL MAKDA: The government has made many promises to the business community in general and to Karachi’s businessmen in particular prior to the general elections 2018. Initial government interaction with the business community has been healthy, as high ranking government officials are in regular contact and are giving a keen ear to the community’s suggestions. The government at different levels has also contended to make the business community an integral part of key decision making, which is encouraging. Yet, its tenure has just begun and it is too soon to gauge the impact of this healthy interaction.

KCCI has recurrently raised its voice against the prejudiced treatment meted out by different governments to Karachi and its business community in the past. It contends that as Karachi is an integral part of the country’s economy by virtue of its contribution to the country’s exchequer and it’s GDP, it needs to be given a fair allocation in federal and provincial budgets, and adequate representation in key decision making at all levels. The current government is amply aware of the problems that businesses in Karachi face, and I look forward to a mutually beneficial and fulfilling relationship for resolving those problems.

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