Large-scale manufacturing grows 4.4%

Analysts believe that large-scale manufacturing industry has still not been able to reach the level where it was in 2009-10.

KARACHI: Though the large-scale manufacturing (LSM) sector has grown 4.4 per cent during the first nine months of the current fiscal year 2009-10, analysts believe that the industry has still not been able to reach the level where it was in 2007-08.

LSM growth has been a major contributor to the overall gross domestic product (GDP) growth of 4.1 per cent in FY10 as the agricultural sector grew by only half of what was expected.

“LSM growth of 4.4 per cent is impressive compared to expectations of 1.8 per cent rise,” said the Economic Survey of Pakistan 2009-10 released on Friday.

Deteriorating law and order, massive power shortages and a sharp fall of the rupee against the dollar had negatively impacted LSM growth over the last three years.

Despite stronger export orders for some segments of the textile industry from November last year, reported output growth for textiles as a whole remained marginally negative at 1.8 per cent for July to March.

However, the survey said, there are signs of improvement in the textile sector, and if external demand for exports remains strong in the months ahead, the overall LSM sector may benefit further.

Khurram Schehzad, Head of Research at Invest Capital Investment Bank Ltd, said “the LSM growth was impressive in FY10. But the 4.4 per cent rise is mostly contributed by the automobile sector and the trend looks fragile.”

The growth has also come on the back of some improvements in the second half of FY10. “The security situation has improved a bit along with an increase in local demand,” he said.

“The most important thing is power conservation and power management that we saw in the second half which helped LSM production,” he added.

Farhan Rizvi, analyst at JS Global Capital Limited, said this year the LSM growth came due to low base of last year when the sector dropped 8.2 per cent.

“We are still at a point where we were in 2008. Suppose, we were producing 100 cars in FY08 and then it fell eight per cent to 92 per cent in FY09. In FY10, though we improved four per cent to reach 96 per cent, we have still not touched the overall production of FY08 to reach the 100 mark,” he explained.

More than half of the sub-groups within LSM depicted improvement compared to the previous year. Main contributors to the growth were automobiles, tyres and tubes, leather products, electronics, fertilisers, non-metallic mineral products, pharmaceuticals and engineering products.

However, a few important groups recorded a negative growth which were steel products (-26.9%), petroleum products (-5.9%), sugar (-3.5%), paper & paper board (-2.9%), textiles (-0.5%) and chemicals (-0.2%).

Published in the Express Tribune, June 5^th, 2010.