ESCALATING PRODUCTION COST IMPEDING INDUSTRIAL GROWTH

SADAF AURANGZEB
Jan 01 - 14, 2007

In order to have an overview of the industrial performance, growth, and challenges during 2006, PAGE conducted an interview with Ameen Bandukda, the Chairman of SITE Association of Industry, the most active industrial zone of Karachi. Increasing cost of production due to escalating prices of power, gas and other inputs besides higher financial charges was the gist of his views.

PAGE: First of all tell us how do you see the year 2006 with regard to industrial sector?

A. BANDUKDA: I have not been very happy with our industrial sector's performance, specially the small to medium sector. Industrial capacity building has not really taken place except for some large-scale sectors like cement and automobile, etc. The SME sector, which is considered the engine of growth or the economy, has not been competitive and suffering from rising costs of utilities and lack of infrastructure.

PAGE: What major achievements and milestones our industrial sector achieved this year?

A. BANDUKDA: No major achievement, I would say. Cost of production has continuously been going up. Absence of infrastructure still remains the bane of industry. Too little has been done too slowly. Industry is still starved of good quality, consistent and competitively priced energy. Water is very scarce and not available for industrial processing, especially in Karachi and Sindh. Law and order is still a big problem. Going forward we feel that there will be a tremendous shortage of energy which would hamper industrial growth. In short an enabling environment is lacking.

PAGE: How effective do you think the removal of sales tax remained on the import of plant machinery, instruments and spare parts? Does that help the industries grow on a much faster pace?

A. BANDUKDA: This has definitely been very effective but in the absence of other ingredients that I have mentioned the full advantage could not be taken.

PAGE: If I ask you the growth percentage of our industrial sector in view of economic growth rate, what figures do you have in this regard?

A. BANDUKDA: The focus of our economy has primarily been on the service sector, which is good but industry and agriculture have been ignored. These are the sectors, which are generally, labor intensive and generate employment. Chunk of the growth has come from the services sector. I would say that industrial sector might have hardly grown by 3% compared to the overall 6.6% GDP growth.

Most of the liquidity of our economy has gone in speculative activities like real estate and stock market. Capital formation that needed to take place to expand the industrial base of the country has not been done. The focus of the economy has been on promoting consumerism rather than savings and long-term investments.

PAGE: How many more industries came into scene this year and how many closed down?

A. BANDUKDA: My guess would be that more industries must have closed down than those started.

PAGE: What is the major weakness that our economy faces and what remedy do you suggest in this regard?

A. BANDUKDA: Unfortunately, income distribution has been heavily skewed and has created major imbalance in our economy. The rich-poor gap is continuously increasing. Trickle down effect has been very slow. The fruits of development and economic growth are not being distributed to all across the board. This imbalance can only be corrected if small to medium industry especially agro-based is spread all over the country, including rural areas. This will generate employment and correct income imbalances and reduce poverty. But for this good infrastructure is needed which is lacking. The long-term success of a country depends on the strength of its middle class. We have to radically increase the size of our middle class, which will become the engine of growth, as is evident in the developed economies.

PAGE: Have you reached the margin that you set as your target this year and which industries remained most successful in pacing the growth rate towards positive heights?

A. BANDUKDA: Not really. The export industries especially textiles, which contribute 60% to our economy, have been in crisis. As I said before, only some of the large-scale industries like the auto sector due to easy consumer finance, the cement sector due to construction activities after the earthquake and the fertilizer sector due to subsidized gas availability have done exceptionally well.

PAGE: How do you see the import substitution strategy vis-a-vis our export promotion during this year's trade policy?

A. BANDUKDA: Import substitution has been negligible. There have been huge imports of basic consumer stuff. Even small things like pencils, balloons, toffees, sweets, etc. are being imported. Government policies should have been geared towards protecting and developing those industries, which provide import substitution. This would have given us a solid foundation and helped us in reducing the increasing trade gap in the future.

PAGE: If I ask you to mention us the growth potential of the industries in years ahead, how do you see that and what measures do you think are the most important to take up in the coming year?

A. BANDUKDA: Textile is still a very important industry that not only earns foreign exchange for the country but also provides massive employment.

Besides the above, information technology like business process outsourcing operations have a huge potential as we have seen in India and needs to be focused on. Light engineering industry is another sector with huge potential and it should be encouraged.

The government should only concentrate on developing infrastructure and ensure that electricity, gas, water and communications networks are cheaply and abundantly available. Bureaucratic bottlenecks and unnecessary levies should be removed.

PAGE: How do you see the monetary policy of this year and it's impact on our industrial growth?

A. BANDUKDA: The monetary policy this year has been restrictive and rightly so due to high inflation. But this has obviously resulted in squeezed liquidity and high mark-up rates, which will retard industrial growth.

PAGE: How do you see our industrialists are coping with the free trade market and how are they facing the fierce competition of the international traders?

A. BANDUKDA: In the short run free trade is going to affect our economy adversely. We do not have any export surplus to take advantage of the free trade. On the other hand our markets will get flooded with cheap imported products because import substitution has also not taken place.

PAGE: Last of all, tell us about the hopes that our industrialists keep with them to meet the challenges of the years ahead?

A. BANDUKDA: Pakistan is a large country in terms of population, which provides a huge market for any industry. The potential needs have to be tapped. The government understands the problems and hopefully the issues will be resolved.