The Federal Minister for Industries and Production
has, according to press reports, asked the Ministry to formulate a
National Industrial Policy (NIP) covering all the potential sectors for
foreign and domestic investment within two months. He constituted the
Committee on 7th May at Islamabad while presiding over a meeting
attended by the Secretary to the Ministry, the chairmen/heads of all the
public sector corporations/organizations and other senior officials.
Talking to newsmen after the meeting, the Minister said that the
Committee headed by the Secretary Ministry of Industries and Production
would comprise all the stakeholders. In view of the importance of the
Small and Medium Enterprises (SMEs), an SME convention would also be
held in all the four provinces and the President is likely to inaugurate
one of them. At this occasion, he said that the government would not
compromise on quality of locally manufactured vehicles and in this
regard the Engineering Development Board (EDB) has been asked to submit
its report by May 31, 2004.
At one time industrial policy mainly comprised
Industrial Investment Schedule, List of Priority Industries, principles,
incentives for locating industries in under-developed areas, guidelines,
etc. The Schedule specified investment in monetary terms by the private
and the public sectors to manufacturing units — Medium and Large; and
Small during the Five Year plan period. List of Priority Industries
divided the industries into different categories such as Industries that
were open to all; Industries that could only be established with
specific government permission; and Industries which were not allowed to
the private sector. The NIP, however, is expected to be different in
many respects and also more complex due to the factors and challenges
that are discussed below.
The NIP is being revised after quite a while. In the
meantime the ground realities have considerably changed. Things are
expected to change further from January 1, 2005 when all quotas would
come to an end under WTO arrangements. It is good that because of the
NIP exercise many areas and challenges would come to the attention of
the policy makers. However, the exercise is considered unlikely to be
completed soon due to the discussion and spadework needed on
industrialization in the light of local and international
factors/challenges, some of which go beyond the purview of the Ministry
of Industries and Production (MI&P) to a number of other Ministries.
This paper is an attempt to list such challenges, for consideration by
the Committee as well as other stakeholders in the private sector.
The Federal Minister, while talking to the
journalists that day also said that the EDB has been asked to consider
the deletion policy for new investors with some incentives as China,
Russia and France have expressed their interest in auto sectors. In due
course more such interest from prospective investors would become
evident. However, all these matters should be examined in the best
interest of the country. It has also been said that the EDB would issue
its study report on investment, tariff, WTO regime for engineering,
surgical and auto sector by end June 2004. It is suggested that the EDB
report might also be shared with the general public by placing it on the
website of MI&P. Other reports on textile, engineering and chemicals
— the sectors preferred for future — might also be released on the
Ministry's web page. Wider participation might help generate more ideas
for preparation of an improved NIP. Investment in traditional industries
such as cotton spinning, sugar and cement might not be restricted.
It is imperative that our industry has close linkage
with our agriculture and mining. Agro-based as well as mineral-based
based are expected to be preferred. Instead of exporting surplus cotton
to earn foreign exchange we should be exporting value-added fabrics.
This would promise us many times more foreign earnings as well as
creating of more job opportunities in the country. We can meet many of
our chemical or other requirements from minerals found in the country,
waiting for proper exploitation. As mining is not developed and the
industries based on local raw mineral would face teething problems, some
sort of incentives might be required to pull them through the initial
years. Cattle-farming might be an attractive sector for promotion in the
Pakistan has since embarked on privatisation of
public sector enterprises (PSEs). Privatisation is picking up speed and
the process is expected to continue. At the same time, some of the PSEs
are planning for expansion or for the setting up of the new plants.
Policy decisions for addition in capacity in different sectors would
help clarify things for possible implementation in a systematic manner.
At present almost all sectors once reserved for the PSEs are open to the
private sector. It is expected that investment by PSEs will continue in
sensitive industries or in industries where private sector is shy or
return is low. It is also expected that public-private-partnership will
see more activity in future.
Income Tax Holiday and concessions in import duties
due to plant location in under-developed areas was an important element
of the industrial policy in the past. This policy did attract industries
to the underdeveloped areas away from the market but in many cases it
also exposed the industries to extra transportation costs of raw
material as well as the finished goods. Over the long-term such costs
adversely affected profitability of such industries. All the same, there
is justification for balanced development of the under-developed areas.
Appropriate measure might have to be provided to develop these areas to
provide more employment opportunities to the people. Cottage,
non-traditional and SMEs have the potential to bring more economic
activities to these areas. The areas might attract more industries if
proper roads and other infrastructure is there. The government might
take urgent steps for improving infrastructure in these areas.
At one time, industrial units in certain industrial
estates were allowed lower rates of taxes or utilities were provided to
them at lower costs. This attracted a large number of industries.
However, once a large number of industries became operational, the
government withdrew these incentives. The investors as well as the
creditor institutions suffered badly. The social-economic objectives
envisaged originally for the people of the areas were also not fully
realized. Sudden changes in such policies breed industrial sickness.
Smuggling of goods adversely affects the local industry and should be
The local investors feel sort of left out, due to
government's emphasis in conducting investment conferences for
attracting foreign investors. The government might take measures to
remove such an impression. The foreign investors would normally not
believe in the government policies unless they see the local investors
making big investment. The government is urged to provide level playing
field for large industries to all investors while the SMEs might be
reserved exclusively for local investors.
The government allows guaranteed return on investment
in petroleum refineries or some specified industries. Also, the
government guarantees maintaining of import duties at agreed minimum
level for a specified period say ten years to certain chemical
industries owned particularly by the multinational companies. These
measures introduce unfair advantage to certain investors. An account of
all such cases might be taken as part of the NIP exercise. For future
transparent and fair procedures might be introduced.
Many industrial estates, once outside the populated
areas, due to growth in cities, are now in the midst of residential
areas. Karachi is a typical example. There are pros and cons of the
prevailing situation. It is considered proper that the industrial units
that contribute more pollution or create traffic congestion are
relocated away from the populated areas in a planned manner. Other
industries might be asked to control pollution by different means
including installation of effluent treatment plants. Under WTO
arrangements, all exporting industries will be required to be in
environment and social compliance. The government might have to apply
the principle "the pollutant pays".
Labour laws and practices might be brought by the
government in line with our commitments to the International Labour
Organization (ILO). As part of social compliance, the labour might be
provided congenial work atmosphere, living accommodation, schools for
their children and health facilities for their families. All future
special zones and industrial estates must have such facilities for the
labour. Motivated labour can make the industries prosper.
The NIP should also have within its scope a built-in
mechanism for the rehabilitation of sick or closed industries, which
number thousands at present. There are apprehensions that after January
1, 2005 many local industries might not survive the competition if these
industries are not supported now and guided to prepare for the
international competition in the coming days. Provision of conducive
environment by the government would help.
In Pakistan, many SMEs are handicapped as they are
obliged to comply with tax and return-filing requirements reserved for
large industries. These are big obstacles and the Committee is urged to
find a satisfactory solution to them. Promotion of the SMEs might be
dealt in a separate section in the NIP, in consultation with SMEDA and
The Export Processing Zones (EPZs) have been set up
at Karachi and a few other places. Special Economic Zones, Textile
Cities, Textile Engineering Parks, Engineering Parks, etc are being
announced for establishment. It is expected that the manufacturing units
set up in all these areas would enjoy certain incentives that are
presently not available to the industrial units located in regular
industrial estates or in the rural areas. The industrial units in the
special areas would largely be export-oriented but a major part of their
output would also be disposed in the local markets. The NIP must take
account of all these developments and the Committee might provide level
playing field to all.
Many new manufacturing/production activities are
presently being undertaken; the plants enjoy the status of industry but
are not in the purview of the MI&P. Power generation plants in the
private sector fall in this category and are being looked after by the
Ministry of Water and Power (MW&P). Housing construction and hotels
might be other example. Possibly there are many other industrial
activities that are monitored by Ministries such as Ministry of
Petroleum and Natural Resources (MP&NR) or the Ministry of Tourism.
The Textile Ministry at the federal and the provincial level is also
about to be established. This might oblige the MI&P to share the
load with the new ministry. The Board of Investment (BoI) is providing
one-window facility to investors. It is evident that the
industrial/manufacturing activities and investments are these days
handled by a number of ministries in addition to MI&P. It is
suggested that clear-cut guidelines might be issued for handling of such
industries by different ministries.
These days all provincial governments are vying for
attracting industries to their respective areas. Balochistan is
conducting an international investment conference. It is understood that
each province would encourage industries that have comparative advantage
for location in particular areas. The provincial governments are urged
to provide and improve physical infrastructure such as roads and bridges
to reduce the transportation time and costs. Similarly, they are urged
to liaise with the utility companies to provide power, gas
telecommunication services, etc to the industries located in the area.
Law & order and security of life and property are important for
attracting investment and for successful operation of the plants. The
provincial governments should ensure full security. These measures are
important for creating conducive environment for industry to flourish.
The provincial authorities are urged to reassure the
investors by resolving the problems in a timely manner and thus reduce
their cost of doing business. It is suggested that Sub-committees might
be constituted in each province to study the existing situation
including problems/irritants and to make recommendations for inclusion
in the NIP. The aim should be the reduction in the number of departments
coming into contact with the industry/investors at approval,
construction and operation stages. Each provincial government might
release on its website the facilities being extended to the industries.
Further, special reports prepared by the experts or the special
committees might also be released on the website for general
information. This should bring more transparency, better governance and
create atmosphere of goodwill and credibility.
The MI&P might be concerned with the resolution
of genuine operational, financial or regulatory problems faced by the
industry, with other ministries and Departments. The MI&P and other
Ministries as well as the provincial governments, in their respective
areas, are urged to act more like facilitators and less like regulators,
as otherwise Pakistani industry might not become competitive
internationally after all quotas are abolished under WTO arrangements
effective January 1, 2005. The working of the Ministries/Departments has
to be streamlined for cutting delays/red-tape and thus reducing cost of
doing business. There should be one-window facilities at the federal and
provincial levels so that the industrialists deal with a small number of
authorities and have more time to improve operations and market their