Manufacturing: Growth in food and pharmaceuticals masks otherwise dismal year

While activity picked up slightly in 2012, most subsectors are still contracting.

KARACHI: While Pakistan’s manufacturing sector grew at a faster rate in fiscal year 2012 than in the previous year, the overall figures hide what has been a particularly difficult year for most industrial subsectors.

According to the 2012 Economic Survey of Pakistan, released on Thursday, manufacturing in Pakistan grew at a rate of about 3.56%, which is marginally better than last year’s 2.96%.Yet that figure hides the fact that eight of the 15 subsectors within manufacturing actually declined, with only seven – food and beverages, textile, pharmaceuticals, leather, paper, wood, and non-metallic minerals showing positive growth.

The single biggest contributor to growth – for the second year in a row – was the food and beverages sector, which grew by 6.5%. Even in this sector, however, that growth rate was a slowdown from the 14% that it grew during fiscal year 2011. (All growth rates in the Economic Survey are real growth rates, meaning they have already been discounted for the effects of inflation.)

The pharmaceutical sector had a surprisingly good year, growing at 10.9% compared to a more lackadaisical 1.3% the year before.

The bulk of the growth in manufacturing appears to be deriving from a rise in consumer spending, a phenomenon attributed by many economists to the rise of a growing Pakistani middle class. The Economic Survey alluded to this reason in its explanation of the manufacturing sector’s uneven growth.

“Growth was mainly derived from consumer goods,” wrote Ataullah Shah, a research officer in the finance ministry, in the Economic Survey. “In addition, intermediate goods such as building materials, fertilisers and petroleum products posted a modest contribution in overall large scale manufacturing performance.”

The survey offered several reasons for what it appears to admit was the poor performance of the manufacturing sector.

“Agro-based industries, which were recovering from the impact of the floods of 2010, were again hit by another natural calamity in the form of heavy rains in Sindh during August 2011. The floods also damaged industrial supply networks and rural demand, this coupled with severe power and natural gas shortages led to a number of key industries (textile, fertiliser, steel, glass etc) not operating at expected levels,” the survey said.

The references to the power crisis were made only in passing in the section on manufacturing, although the power sector’s woes were separately discussed elsewhere in the survey.

The government also tried to claim some credit for the growth in the few sectors of manufacturing that did well. “Effective fiscal policy helped in revitalising the growth to some extent due to reduction in duties on beverages, automobiles, cement and air conditioners,” said the survey.

Perhaps disappointing, in the 13 pages that the survey devotes to manufacturing, only about half a page is devoted to small and medium-sized manufacturers, despite the fact that the finance ministry acknowledges that they account for 99% of the industrial establishments in the country and 80% of its unskilled industrial workforce.

Published in The Express Tribune, June 1^st, 2012.