Cutlery industry needs spice, and the govt should give it
Pakistan suffers from low exports as entrepreneurs face quality, skill-oriented issues
PHOTO: FILE
ISLAMABAD:
There is no doubt Pakistan is facing challenges in export growth due to a variety of reasons.
However, the dialogue focuses narrowly on macroeconomic policies. There is a need to unearth microeconomic foundations of this slow growth in exports in various sectors.
This piece focuses on the cutlery sector that has a small contribution in exports but owing to its potential for job creation in a small city of Wazirabad, it is important to bring a fresh perspective.
The cutlery industry is established side by side with the surgical industry and stainless-steel utensils in Wazirabad and Sialkot using the same kind of raw material. This industry manufactures spoons, forks, knives, swords, kitchen gadgets and utensils and other stainless-steel articles. These are largely exported, while meeting domestic needs of the country as well. This industry has an installed annual production capacity of around 10-12 million pieces but it is operating at around 5-6 million with about 15,000 workers of the local area.
The cutlery industry’s contribution to Pakistan’s GDP is quoted as 0.11% and it has a share of 0.25% and 6.5% in total exports and engineering exports, respectively. The industry predominantly occupies the domestic market.
Exports from Pakistan under HS code 82 were around $60 million in 2000 and it is astonishing that this sector exported only around $94 million in 2016. Global exports under the HS code 82 were $25.8 billion in 2000 and reached $56.7 billion in 2016. By including a few other related items, exports were even recorded at around $200 million during mid-2000s.
However, Pakistan could not keep pace with the growth in global exports. With reference to cutlery products, Pakistan’s share in global exports is a mere 0.55% despite a lot of potential, capacity and global demand.
Reasons for lacklustre performance
First, there are professional and operational deficiencies in the labour market. Due to low-tech production methods, manufacturers do not want to hire technically qualified and highly skilled workers. The professionally trained workforce rarely stays in a small city like Wazirabad which significantly lacks civic amenities.
Second, intergenerational entrepreneurs are still dominating. There are rare examples of emergence of new entrepreneurs. Third, the size of most enterprises has still not reached at the level of a medium enterprise. It is hard for such small firms to compete with large economy scale firms in China.
Fourth, there is lack of trends in bringing new designs in the market and mostly, a makeshift arrangement in product designing is dragging them away from international customers.
Once I visited a knife show in New Jersey, and found that one custom knife was at sale worth $2,000-3,000. Almost similar articles made in Pakistan are sold starting from $5 to 100. Our manufacturers cannot design such knives due to a lack of expertise in design and quality of raw materials.
There was a strong urge to develop a university-industry liaison to come forward to help the industry in design and materials, but it could not happen. Fifth, the government-support organizations like Small and Medium Enterprise Development Authority, Engineering Development Board, and Technical Educational and Vocational Training Authority are still stuck in the 1960s model of private sector support. They are unable to realise that in today’s world businesses need an enabling environment and support in research and development.
Futile training programmes and preparation of useless feasibility studies are no longer going to add value. Most exporters have developed informal channels abroad to sell their products as they do not have renowned brands. In my personal interactions with cutlery entrepreneurs, they often complain about harassment by both federal and provincial tax authorities, and non-cooperation of commercial offices of the Ministry of Commerce established in different countries of the world.
Ministry of Commerce established a Cutlery Institute of Pakistan through the Export Development Fund which could not perform optimally due to weak governance of associated public-sector organisations.
Moving forward, this centre needs to be revitalised with the institutional support of the private sector, a engineering university, and a business school. The State Bank of Pakistan needs to come forward to enhance access to credit for this sector.
Moreover, the industry needs research from leading think tanks, engineering universities, and business schools over how can the industry and city add new products and services in its export basket. This strategic transformation to allied industries – such as hand tools – can add vibrancy to the sector and Wazirabad.
The largest association of the cutlery sector, called the Pakistan Cutlery and Stainless Utensils Manufactures and Exporters, has recently taken an important initiative of developing an industrial estate with self-financing. The Punjab government has been facilitating this move but there is a need that other federal government departments also come forward to remove distortions in the regulatory and taxation structures. Along with the modern physical infrastructure, the industry needs an enabling business environment to thrive.
The writer is a public policy advisor and researcher with interest in public-sector governance, cities, and entrepreneurship
Published in The Express Tribune, January 15th, 2018.
There is no doubt Pakistan is facing challenges in export growth due to a variety of reasons.
However, the dialogue focuses narrowly on macroeconomic policies. There is a need to unearth microeconomic foundations of this slow growth in exports in various sectors.
This piece focuses on the cutlery sector that has a small contribution in exports but owing to its potential for job creation in a small city of Wazirabad, it is important to bring a fresh perspective.
The cutlery industry is established side by side with the surgical industry and stainless-steel utensils in Wazirabad and Sialkot using the same kind of raw material. This industry manufactures spoons, forks, knives, swords, kitchen gadgets and utensils and other stainless-steel articles. These are largely exported, while meeting domestic needs of the country as well. This industry has an installed annual production capacity of around 10-12 million pieces but it is operating at around 5-6 million with about 15,000 workers of the local area.
The cutlery industry’s contribution to Pakistan’s GDP is quoted as 0.11% and it has a share of 0.25% and 6.5% in total exports and engineering exports, respectively. The industry predominantly occupies the domestic market.
Exports from Pakistan under HS code 82 were around $60 million in 2000 and it is astonishing that this sector exported only around $94 million in 2016. Global exports under the HS code 82 were $25.8 billion in 2000 and reached $56.7 billion in 2016. By including a few other related items, exports were even recorded at around $200 million during mid-2000s.
However, Pakistan could not keep pace with the growth in global exports. With reference to cutlery products, Pakistan’s share in global exports is a mere 0.55% despite a lot of potential, capacity and global demand.
Reasons for lacklustre performance
First, there are professional and operational deficiencies in the labour market. Due to low-tech production methods, manufacturers do not want to hire technically qualified and highly skilled workers. The professionally trained workforce rarely stays in a small city like Wazirabad which significantly lacks civic amenities.
Second, intergenerational entrepreneurs are still dominating. There are rare examples of emergence of new entrepreneurs. Third, the size of most enterprises has still not reached at the level of a medium enterprise. It is hard for such small firms to compete with large economy scale firms in China.
Fourth, there is lack of trends in bringing new designs in the market and mostly, a makeshift arrangement in product designing is dragging them away from international customers.
Once I visited a knife show in New Jersey, and found that one custom knife was at sale worth $2,000-3,000. Almost similar articles made in Pakistan are sold starting from $5 to 100. Our manufacturers cannot design such knives due to a lack of expertise in design and quality of raw materials.
There was a strong urge to develop a university-industry liaison to come forward to help the industry in design and materials, but it could not happen. Fifth, the government-support organizations like Small and Medium Enterprise Development Authority, Engineering Development Board, and Technical Educational and Vocational Training Authority are still stuck in the 1960s model of private sector support. They are unable to realise that in today’s world businesses need an enabling environment and support in research and development.
Futile training programmes and preparation of useless feasibility studies are no longer going to add value. Most exporters have developed informal channels abroad to sell their products as they do not have renowned brands. In my personal interactions with cutlery entrepreneurs, they often complain about harassment by both federal and provincial tax authorities, and non-cooperation of commercial offices of the Ministry of Commerce established in different countries of the world.
Ministry of Commerce established a Cutlery Institute of Pakistan through the Export Development Fund which could not perform optimally due to weak governance of associated public-sector organisations.
Moving forward, this centre needs to be revitalised with the institutional support of the private sector, a engineering university, and a business school. The State Bank of Pakistan needs to come forward to enhance access to credit for this sector.
Moreover, the industry needs research from leading think tanks, engineering universities, and business schools over how can the industry and city add new products and services in its export basket. This strategic transformation to allied industries – such as hand tools – can add vibrancy to the sector and Wazirabad.
The largest association of the cutlery sector, called the Pakistan Cutlery and Stainless Utensils Manufactures and Exporters, has recently taken an important initiative of developing an industrial estate with self-financing. The Punjab government has been facilitating this move but there is a need that other federal government departments also come forward to remove distortions in the regulatory and taxation structures. Along with the modern physical infrastructure, the industry needs an enabling business environment to thrive.
The writer is a public policy advisor and researcher with interest in public-sector governance, cities, and entrepreneurship
Published in The Express Tribune, January 15th, 2018.