The banking sector has come out in a big way in
cementing the way of growth for the cement manufacturing sector in
Pakistan.The State Bank of Pakistan (SBP) under a policy has allowed the
commercial banks to extend financing to the housing and construction
industry. As a result to this policy the commercial banks have launched
house financing schemes at a massive scale. The commercial banks are now
offering house building loan to an extended limit of Rs7.5 million at
reasonably low lending rates which is around 10 per cent to an
individual. The HBFC in the public sector has also enhanced its advance
limit up to Rs5 million.
The involvement of the commercial banks at such a
large scale in house building schemes, is expected to gear up the
construction activity, bridging the gap of housing units and above all
generating the economic activity at a larger scale.
In fact, the participation of the commercial banks in
housing schemes is the part of a well thought out plan to uplift the
economy by activating the construction industry which is allied to a
variety of downstream industries at the grass root level.
Besides the support provided by the commercial banks,
the budgetary allocations for Public Sector Development Program (PSDP)
is yet another significant factor contributing to the growth of various
industrial sectors producing construction material especially the cement
The cement industry has started producing tremendous
financial results which are reflected in their annual reports. Almost
each unit of the cement industry has posted handsome profits at the end
of the financial year and has also declared dividends for the share
The local sales of cement in the domestic market is
likely to register a substantial increase during the current financial
and the total production of the commodity which was 11.4 million tons in
the previous financial year is likely to increase to the level of
12.5-13 million tons during the current financial year 2003-04.Cement
sales during the current fiscal year would register a growth of 9 per
cent because of several housing projects are to commence following
government's initiatives to provide cheaper loans to builders and
The federal budget 2003-04 has provided several
incentives to the cement sector in line with the policy to use it as a
tool for overall economic growth of the country.Cement sector in fact
has a strong industrial base in Pakistan with an installed production
capacity of 18 million tons as against the requirement of around 12
million tons per year.
The cement sector was not an exception to the over
economic recession, the country witnessed during last decade.
Consequently, the entire cement industry was sinking due to lower demand
and was running even below 50 per cent of the production capacity three
However, the changing environment and political
events and of course the right decision at the right time by the present
government bailed the economy out of the deep crisis. With the start of
the development activity within the country and the start of
re-construction of Afghanistan helped increasing the demand for cement.
According to an assessment, the demand for cement was jumped
substantially which is reflected in the increase of production by 1.5
tons during last financial year.
Generally speaking, when the production of an
industry grows on the economy of scale, its prices are naturally come
down. However, it does not happen in Pakistan due to known
characteristics of making maximum profit by the trading community. They
always succeed in making profits mainly on two reasons. Poor mechanism
for price control and secondly, the lack of consumer resistance is
responsible for instability in prices of the consumer goods in Pakistan.
The representative bodies in the private sector normally get published
their voice of protest in the newspapers which usually fizzle out due to
ineffective follow up.
The cement prices are one of the examples of such
cases. In the federal budget 2003-04, the government had reduced the
excise duty on cement at 25 per cent with reduction of Rs250 from Rs1000
per ton of cement. However, the price of cement either remained static
to the previous level or even increased by Rs20-25 per bag. The builders
and the construction industry representatives were of the view that the
price of cement should have come down to the level of Rs170-180
according to rural or urban area location of the sales point. However,
the cement industry especially in the private sector has formed a cartel
obviously to maximize the profits. The manufacturers have their own
grievances. They say that despite the considerable reduction in the
interest rates or the financial charges of the banking system, the
cement industry is paying the financial charges on the previous rates.
The decision of reduction in mark up rates on bank lending should have
implemented with retrospective effects. Another excuse for maintaining
the current prices is that the cement industry has suffered huge losses
in the past on account of costly oil prices and other factors due to
persistent economic recession which hit the industry's economic
viability and many units were closed down. Now they must be given time
to overcome the adverse effects of the losses they suffered in the past.