BOOMING CEMENT INDUSTRY

It would generate economic activity in 80 sub-sectors allied to the construction industry

By AMANULLAH BASHAR
June 30  - July 6, 2003

Pakistan's cement industry, having an installed production capacity of 18 million tons, has running at unprecedented 80 percent of the capacity obviously because of ever increasing demand both in the domestic as well as in the export market.

The enhanced industrial activity in the cement sector is the outcome of various factors including good economic decisions, which enhanced the demand in the local market, which was supplemented by financial incentives announced in the recent budget 2003-04.

Resultantly, the cement sector has enhanced its production quota to 79 per cent from 72 per cent. This was the second quota increase within a period of one month as the cut in excise duty plus growing demand has obviously encouraged the cement manufacturers to increase their production.

It is the second time that the production quota has been increased after the federal budget for 2003-04 announced on June 7. Prior to the budget the production capacity was being utilized at 60 per cent which was pushed up to 72 per cent and now the industry is running at 79 per cent of its capacity which is unprecedented in recent past.

Once the pace of development picks up in the country, it would generate economic activity in 80 sub-sectors allied to the construction industry.

In the budget for 2003-04, a duty cut of 25 per cent was permitted to the cement sector which would ultimately pass on to the consumers with effect from July 1, 2003. Besides 25 per cent cut in government levy, the cost of production has also come down significantly as a result of its switching over from oil and gas based system to the much cheaper fuel of coal which has also provide cost effective and reduced the input cost of this important sector.

Another important factor which helped increase in production capacity was the growing demand of the cement both in the private as well as in the public sector as the government has also announced a 30 per cent increase in Public Sector Development Projects which include construction of highways and above all the construction activity at Gwadar where country's third deep sea port is under way at a high pace under the technical and financial assistance of friendly country, China. While the demand of cement in Afghanistan where re-construction activity was also taking place, the industry was already engaged in export business to that country.

The cement units both in the public and the private sector have a production capacity of 18 million tons a year out of which the industry has reached an unprecedented level of production capacity that is estimated at 14.2 million tons.

Three years back, the cement industry had reached at the brink of total collapse due to crippled state of the economy. Many of the units had laid off a large number of their work force due almost a standstill of the construction industry in Pakistan. That period now seems like a nightmare when the industry was running even 50 per cent below of its installed capacity and hardly producing even less than 10 million tons of cement throughout the country. The economics of this sector was not feasible due to exorbitant furnace oil prices at one hand and low demand of the production.

On the financial side, the State Bank of Pakistan has allowed the commercial banks and other financial institution for extending housing finance at easy terms. The accelerated activity in the banking sector in housing finance is reflected in the fact the House Building Finance Corporation (HBFC) has raised its house financing limit to the unprecedented level of Rs5 million while commercial banks are offering up to Rs20 million which was never expected in the housing finance schemes in Pakistan.

Although the finances have been made available, how ever the financing area still needs some correction especially by eliminating the complexities of the system keep away the people of middle and low income groups from this facility.

Easy access to housing finance at an affordable mark up rate is of vital importance for providing low cost housing facility to the common man. It may be mentioned that due to non availability of low cost housing facilities in Pakistan and the trend of Katchi abadis is growing at much faster rate in the urban areas of the country. It may be mentioned that in Karachi number of Katchi abadis is more than 500 which are become a major source of disrupting the uninterrupted supplies of water, electricity and construction of roads even in this metropolitan city of Karachi.

The decision to allow house building loan to the government employees on much soft terms is another attraction for the cement industry to enhance its production to meet the growing demand in future.

If the national economy which has arrived at a take off point goes on accordingly and Pakistan gets its share in the reconstruction of Afghanistan and Iraq, the existing production capacity i.e. 18 million tons may not be sufficient to meet the future demand hence this sector may attract more investment in near future.