Industrial sector begins expansion

The incentives announced by Prime Minister Imran Khan to support the construction sector are yielding desired results as the industrial sector has reported business expansion.

To minimise the impact of Covid-19, the government announced a package for the construction sector in April 2020 and later incorporated it into the Finance Bill 2020.

Tax benefits under the package such as exemption from wealth declaration under Section 111 of the Income Tax Ordinance, coupled with government’s focus on the Naya Pakistan Housing Scheme, are expected to give a boost to both public and private sector demand.

“Resultantly, the industrial sector of Pakistan has begun showing signs of expansion owing to encouraging policies coupled with investment-friendly initiatives undertaken by the current government,” said Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Mian Anjum Nisar.

Speaking to The Express Tribune, he said the construction package had started yielding positive results and the second phase of China-Pakistan Economic Corridor (CPEC) would generate further demand for cement and steel.

The State Bank of Pakistan’s Temporary Economic Refinance Facility, aimed at incentivising import of plant and machinery, drew an overwhelming response as Rs388 billion in loans for 372 projects were requested by businesses.

Out of this, Rs157 billion for 203 projects has been approved by commercial banks.

“This is surely a sign of industrial expansion with regard to both export-oriented and locally focused sectors,” said Nisar. “Growth in the construction sector will have a huge impact on economic development and job creation.”

He praised the government for slashing power tariff for small enterprises, which constituted almost 90% of the country’s industrial segment. The official appreciated the State Bank for boosting economic activities and providing liquidity and other kind of support to businesses during the difficult time under Covid-19.

“The central bank has taken various steps to mitigate the impact of Covid-19 on economic growth,” he said. “Since the onset of pandemic-related economic decline, the State Bank has reduced the policy rate from 13.25% to 7%, allowed one-year extension in repayment of principal amount of bank loans, rescheduled and restructured bank loans without affecting credit history of borrowers.”

He added that many other measures were also announced by the SBP to contain the impact of Covid-19 on the economy.

The official pointed out that demand in the construction sector picked up after two years of slowdown and allied sectors including steel and cement were also reporting positive growth.

Since April 2020 to date, the cement sector has recorded a modest rally at the stock market and generated a return of 60% on the KSE-100 index, according to Arif Habib Limited’s report titled “Pakistan’s cement sector”.

“Our preliminary calculations suggest that 100,000 houses under the Naya Pakistan Housing Programme can augment the demand for cement and steel by 2.3 million tons (5.8% of the current demand) and 0.29 million tons respectively,” said the AHL report.

As of May 2020, total private sector credit stood at Rs6,259 billion, according to the report. Currently, Rs235 billion has been set aside for the sector following SBP’s directive to allocate 5% of credit flow for the housing and construction sector.

Assuming 10% growth in total private sector loans by December 2021, the banking sector is expected to allocate an additional Rs23 billion for the housing and construction segment.

Assuming consumption of 23 tons of cement for a five-marla (151-square-yard) single-storey house and steel-to-cement ratio of 1:8, 100,000 houses under the the Naya Pakistan Housing Scheme could augment cement and steel demand by 2.3 million tons and 0.29 million tons respectively, it said.

Published in The Express Tribune, November 10^th, 2020.

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