Let’s focus on big industries

Innovation is the key to bringing changes to production, marketing practices

KARACHI:

The large-scale manufacturing (LSM) output showed a huge expansion of about 14.5% in November 2020 and the cumulative LSM growth for July-November 2020 came in at 7.4%.

This gave the Pakistan Tehreek-e-Insaf (PTI) government a valid reason to claim that its policies fo®r industrial revival are working. And, this cannot be denied.

During Jul-Nov 2020, 10 out of 15 sub-sectors of LSM recorded an increase in output in comparison to the year-ago period. These included textile; food, beverages and tobacco; coke and petroleum products; pharmaceutical; chemical; non-metallic mineral products; automobile; fertiliser; paper & board and rubber products.

Five sub-sectors experienced a decline in the year-on-year production. These were iron and steel products, electronics, leather products, engineering goods and wood products.

What is heartening to note is that on top of the list of 10 sub-sectors whose production went up are textile and food industries that are not only massive job creators but are also the first and second biggest export sub-sectors.

The depressing aspect, however, is that the iron and steel sector – that too is a big employer and has the potential to create indirect jobs in allied industries – recorded a decline in output.

Going forward, the production of iron and steel industry can be expected to grow as the government is pushing forward its housing programme for the ordinary people and banks have already started offering Naya Pakistan housing loans.

But banks are currently offering loans to those people who are interested in purchasing already constructed housing units, particularly in large cities like Karachi, whose builders were not able to sell them in the last fiscal year when economic growth decelerated 0.4%.

This means that the revival of housing sector cannot give the required boost to the output of iron and steel products in the near future. For that to happen, we will have to wait for the next fiscal year.

Construction of roads and other civil infrastructure can pick up pace if public representatives immediately get Rs500 million per parliamentarian, as recently announced by the government.

Similarly, if China-Pakistan Economic Corridor (CPEC)-related construction and civil work projects are accelerated immediately, they too can push up output of iron and steel. But in both of these cases, there are many ifs and buts that will determine the actual outcome.

Textile sector’s output has shown an impressive growth thanks to a myriad of cash-and-kind incentives offered by the PTI government, which is facing political challenges and is trying to create political capital in the elite business class. This increase has led to a handsome growth in textile sector’s export earnings barring a few sub-sectors for obvious reasons.

During Jul-Dec 2020, textile sector’s export earnings grew about 8% year-on-year to $7.442 billion. Key sub-sectors like knitwear, bed wear, towels, readymade garments, canvas, tents and tarpaulin posted a substantial increase in export earnings.

Exports of cotton, cotton yarn and cotton cloth, however, showed a decline in earnings because of the reason that the country’s last cotton harvest had crashed.

With prospects of improvement in cotton crop and with incentive packages for textiles still effective, one can hope that textile output and exports will continue to grow by the end of current fiscal year in June 2021.

In LSM, food and pharmaceutical sectors are producing more but while increased output of pharmaceuticals is reflecting in exports, the large production of food and beverages is not bringing additional export earnings.

During Jul-Dec 2020, Pakistan’s food exports fell to $2 billion from $2.2 billion in Jul-Dec 2019, according to the Pakistan Bureau of Statistics. On the other hand, exports of pharmaceutical products shot up to $139 million from $112 million.

Efficiency ratio

A faster recovery and sustained growth of LSM can surely help export growth as well. But the government and private sector will have to ensure that not only industrial output but productivity levels also rise.

Productivity, as we know, is an efficiency ratio. It means what output we get by using a certain amount of inputs? Sadly, in Pakistan a fair amount of working hours and other inputs like utilities go to waste during industrial production.

The reasons include lack of most modern machinery and the required skills to operate them optimally, lack of best management skills and absence of a proper corporate culture in most industries. These result in an increase in the cost of final products.

On the other hand, the lack of modern global marketing continues to keep per unit export prices lower than in other countries. As a result, the increase in industrial output does not push export earnings as much as it can.

This has to change. And, for this change to happen, innovation is the key. Industries will have to find innovative ways of purchasing quality raw material at right prices; they will have to find innovative ways of mass-training workers; and they will have to innovate production processes in addition to be more innovative in marketing their products.

If that is done – and that can be done once the private sector understands the importance of being competitive - then not only industrial output will grow, but even a modest rise in output will boost export earnings.

Otherwise, for exports to take a quantum leap, we will have to wait for a meteoric, miraculous rise in the overall industrial production – and that will not be possible after this fiscal year when the low base effect vanishes.

The writer is an electronics engineer and pursuing Master’s degree

 

Published in The Express Tribune, February 8^th, 2021.

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