. .

WB objections on Industrial Policy

There is need to focus on those industries which create employment and self-reliance


Oct 02 - 08, 2000

The World Bank has objected to the industrialisation policy of the present government and advised to immediately curtail further investment on seven key industries which are among the fifteen sector selected for main focus in the new industrialisation policy being presently persued.

In a letter addressed to the Minister of Commerce and Industry, the World Bank operational advisor to Pakistan, Dr. Abid Hussain has recommended that the government must immediately curtail further investment on industries contributing "negative value addition at world prices". The Bank has asked Pakistan to frame a new industrial policy that would phase out seven existing industries, including sugar, chemicals, fertilizers, automobiles, cement and engineering goods which were considered internationally uncompetitive. On the other hand, all these industries are included in the list of 15 industries that have been identified for special attention under the industrial policy of the present government.

The Minister for Commerce and Industry, Mr. Razzak Dawood had a tough time at a meeting with leading industrialists of the country which he had called to devise measures and strategy to accelerate the process of industrialisation. The participants of the meeting sought clarification as to what would be the future of their industries, made uncertain by WB recommendations. They asked how could they contribute to "conceptual thinking" in evolving new industrialization strategy and to create business confidence for which the meeting has been convened when their own industries were threatened with extinction." Among those attending the meeting were top representatives of the fertilizer and automotive industries.

Sources said that leading industrialists were so agitated on the WB proposal that the issue was first discussed for about 30 minutes before formal agenda was taken up for consideration. So far, the government has not publicly responded to the WB letter addressed to the industries minister and published in the newspapers. The Minister however assured the entrepreneurs that WB advice was not binding on the government and we are going to accept the recommendation.

Private sector participants also stressed that government should not only focus on textile industry and on export-led growth but also give due importance to those industries which create employment and promote national self-reliance. For example, the investment in auto industry is estimated at Rs. 10 billion comprising over 300 units and providing livelihood to no less than five million people, says an industrialist, which the World Bank would like to phase out of existence.

The Minister has rightly rejected the World Bank advise.

It should not be surprising if the advice has shaken the confidence of the industrial community. In fact, that came out clearly during a recent meeting that the Minister had called to elicit the industrial community's conceptual thinking" in evolving a new industrialization strategy, to create business confidence. Understandably, instead of offering their "conceptual thinking", participants of the meeting were more concerned about seeking assurances as to the uncertainties created by the World Bank recommendation. There seems to be no reason for them to worry about the future of their industry in view of the categorical assurance of the Minister and specially in view of the fact that the recommendation of the World Bank comes in direct conflict with the policy of the government which has included all these industries in the list which, according to the new industrialization policy, need special attention.

The 15 sectors identified by the government for special attention are: textiles, plastic processing, leather, sports goods, surgical instruments, fisheries, edible oil and vegetable ghee, cement, chemicals, sugar, fertilizer, carpets, mining and quarrying, furniture and automobile and engineering goods. On the face of it, this is not an exciting list. What is depressing about it is that the majority of the sectors named on the list have continued to refuse to respond positively to every kind of concession and incentive, both monetary and fiscal, given to them over the past several decades.

They are the product of the outdated policy of import substitution which they served well for a time but at a very high cost in terms of finances and efficiency. By clinging to such a policy longer than advisable Pakistan has only encouraged the rent seekers among its entrepreneurs.

Pakistan today is producing perhaps the costliest sugar and edible oil, the most expensive fertilizer, overpriced automobiles and cement and prohibitively priced chemicals and plastics. The country would certainly save a huge lot of resources if it were to try to improve the working of these industries by introducing efficiency at the production levels and by means of effective cost control. Efforts should also be made to rationalize the costs of local raw materials used by these industries. That should be the bottom line of Pakistan's industrial policy. There is no need to accept the WB advice which virtually amounts to recommending the dismantling of most part of the country's industrial structure, inefficient though it largely is. At the same time however, it is urgently needed that our policy should focus attention on developing a better strategy for industrialisation on the concept of comparative advantage by improving the efficiency and cost competitiveness of our traditional sector. If we fail to do that, sooner or later, we will be compelled to follow the path, suggested by the World Bank under international pressure.