INSTABILITY MAKES EXPORT TARGET UNATTAINABLE
Tariq Ahmed Saeedi (email@example.com)
Apr 13 - 19, 2009
According to the figures prepared by the State bank of Pakistan, production in large-scale manufacturing depicted a negative growth of 5.4 percent during July-Jan 2008-2009 as opposed to 5.6 percent growth in the corresponding period last fiscal year. The data were of selected items and reflection of the main industries. The contraction in industrial production could be attributed to high cost of capital, hike in input costs, and others. But, according to business community, the main reason that affects Pakistan's export industrial base is uncertainty about the future of society and the economy amongst people.
Considering recent developments of reinstatement of Justice Iftikhar Mohammad Chaudhry as Chief Justice of Pakistan, political reconciliation approach adopted by the government towards opposition parties, restoration of provincial ministry in Punjab, and indication by the government of implementing charter of democracy as good omens, Mian Zahid Husain, Chairman KATI is hopeful that political stability like beacon has started to appear at the end of the tunnel.
Political instability is harmful to growth of exports of the country. "Due to subsequent eruption of societal chaos, trade and industry mainly losses its control to maintain smooth functioning and every industries suffer. When industries backtrack in production the automatic fallouts are tolerated by exports of the country," he explained. "Foreign perception of the country plays an important role in determining momentum of national exports. If importers are not satisfied with the social conditions in exporting country, they bring substantial reduction in orders at the prospect that social upheaval may delay completion of production order on time", he said. All in all export-oriented industries are affected seriously because of political instability and social unrest.
President KCCI Anjum Nisar believed instability in the country was the main factor that made attainability of exports target of this fiscal year difficult. Instability has distanced the possibility of meeting exports target of $22 billion this fiscal year, he said. July-Feb FY09 exports were over $13 billion. It is difficult to raise export revenue of $9 billion in the remaining four months of this fiscal year. "We are loosing exports because of uncertainty and instability." When there is social unrest, local investors let alone foreign ones are reluctant to come to take effective part in economic building. We have been suggesting government to take some solid actions to uproot social unrest, Anjum said. He sees government measures to tone down political differences positive. "Positive government intentions are appearing." However, he said government should make these claims of reconciliation true by actions.
Talking about last week incidents that disturbed peace in parts of Karachi, Mian Zahid said some elements wanted to destroy the recovering law and order in the city. "No such attempts would succeed in its sinister design," he said with conviction. Decline in production in large scale manufacturing was witnessed in many economic indispensable industries in this period. During July-Jan FY09, textile sector depicted growth decrease of 0.4 percent while its overall production posted 2.4 percent increase in the corresponding period last fiscal year. Except cotton ginned that depicted 3.6 percent growth, all other sub-textile sectors mitigated production. In spite of that textile sector exhibited a substantial growth in its revenue during first half of the current fiscal year. Depreciation of rupee by 21 percent in this period increased earning from sales of textile exports across the border.
In food and beverage, production plunged by 8.2 percent while the industry recorded growth of 13.6 percent in July-Jan FY08. Similarly, petroleum production saw decline of 8.1 percent over 7.8 percent. Automobile industry seemed to be highly affected with the slowdown in economic growth during the period as it slashed production by 36.4 percent while the industry depicted growth of 2.7 percent in previous comparable period. Metal industries production dropped by 6.7 percent as against negative 0.5 percent earlier. Electronics saw negative growth of 15.7 percent as against 9.5 percent. However, in this period some industries posted growth in production. For example, pharmaceuticals depicted 0.5 percent despite the growth rate was 33 percent earlier. Chemicals production was surged by 0.8 percent as compared to 3.9 percent. New metallic minerals industries increased production by 3.9 percent in a wide contrast to 14.6 percent. Production in leather products increased 1.8 percent over 2.9 percent earlier. Paper and board depicted 0.6 percent growth while production slowed down 5.6 percent in the corresponding period last fiscal year. Tyres and tube posted growth of 14.8 percent, up from 6.2 percent earlier. Woods and products showed growth of 42.8 percent in production as against 27.4 percent. Fertilizers production increased 22.7 percent in this period while it declined by 10.7 percent in the comparable period. Production of engineering items increased 3.5 percent in this period while it was 22.1 percent earlier.
Slowdown in large scale manufacturing unfolds a chain reaction to other small and medium industries. On one hand, it reduces inputs intakes from other industries and outputs. The reduction in economies of scale increases cost of production and prices of consumer products. Finally, it adds upsurge in inflation. Unemployment is fallout of slowdown in industrial production on the other hand. Though indirectly, LSM contraction leads to unemployment. Majority of workforce of over 50 million belongs to small and medium sectors whose cut in supply implies retrenchment. For exporting industry, outsourcing inputs from local industries remains no more competitive. In addition, it losses shares in foreign market due to high cost of production. Exports revenue may be increased because of currency deprecation, but quantity of exports keep on decreasing. This further adds fuels to social unrest. Government should step forward on war footing to remove petty differences among social groups and political parties to get the country out of socio-economic crisis.