Paint Industry in Pakistan.

INTRODUCTION

Local paint industry operates both in organised and unorganised sectors. The data regarding production and number of units of the unorganised sector is not available, therefore, it is difficult to have complete data about the production and number of units of the paint industry. According to an estimate, over 350 units of paints and varnishes are operating in the unorganised sector. Their products are substandard though their cost of production is comparatively low. Many of them also avoid payments of excise duties and therefore, are in a better position to compete in the local market.

Tale-V depicts that the production of paints and varnishes has been erratic during 1990-91 to 1997-98. The tip in production may be attributed to the shortage of raw materials, contraction in demand for certain paints due to slump in paint consuming sectors and low level of efficiency etc. The production of paints has been reduced to half in 1997-98 as compared to 1990-91. During the same period varnishes have also registered a declining trend.

To start a paint factory all one needs an excise licence and perhaps one or two mixers. The government tolerated this for a long time as a concession to small industry, but the situation was abused until 1992 when the government developed a new policy to prevent tax evasion. Information was obtained about all the excise-licence holders manufacturing paint in Pakistan and a survey was conducted to ascertain what each unit expected to pay. But even then it got no cooperation from factory owners, and so the government established a fixed rate of tax, possibly with the assistance of the small manufacturers. No one was concerned at that time as to whether or not the figure was fair.

The idea was just to bring this very large sector into the tax net. However, the manner in which the rate was fixed was haphazard and totally out of line with reality, but opposition was undermined when the paint companies put up their own suggestion, each one different and some almost poles apart. So when this system came into operation it resulted in double taxation for the paint industry.

The larger listed units and eight or ten others were paying and continue to pay, regular taxes on their finished products, (i.e. 10% excise duty and 12.5% sales tax on an ad valorem basis. These units are required to keep all records - purchase, sales, imports, exports, etc. - while companies paying just the fixed rate of tax are required to do none of this. It is difficult to get a true picture of how many such units exist in this country, how much fixed tax they pay and the volume of paint produced by them. On the other hand, the duty paid by those in the full tax system in 1995-96 was nearly Rs. 500 m. It now appears that the recorded volume of paint produced fell between 1992 and 1997, while the number of fixed tax units increased from 252 to above 345 today. As by one unofficial survey claimed 80% of the decorative market is controlled by these companies. The implications are clear:

RAW MATERIALS

Paint industry uses about 300 different types of raw materials for producing various kinds of paints. About 15 per cent raw materials of the industry are petroleum based. In 1971 between 80 to 90 per cent requirements of the materials were met through imports which currently have been reduced to about 40 per cent due to increased production of indigenous raw materials. The major imported raw materials include pigments, zinc oxide and titanium oxide. Most of raw materials is available locally. At times raw materials are imported in large quantities compared with their demand which affects quantity of imports.

The imports of major raw materials of paint industry are shown in the Table-V. The major raw materials produced locally include mineral turpentine, resins, vegetable resins, red and yellow and gums. The, availability of indigenous raw materials has gradually been increasing and in a few items the country has attained self sufficiency. For instance, marine blue is produced in a large quantity that it allows even some exports. The reduction in imports of various raw materials is due to enhanced production of these in the country. As mentioned earlier, since about 15 per cent raw materials of the paint industry are petroleum based, with the rising production petroleum at home, the availability of raw materials also increases. The development of chemical industry will further ease the supply of raw materials and will cut its import. The future prospects to increase local production of raw material for paint industry are quite bright. Projects for the manufacture of Titanium Dioxide and Lithopone have started pro duction already.

FOREIGN INVESTMENT

Foreign companies in Pakistan's paint industry have been fairly active. In fact quite a few of the leading paints manufacturing units were sponsored by foreign manufacturers and are operated in collaboration with local entrepreneurs. Two of these foreign-sponsored paints manufacturing enterprises are public limited companies whose shares, after being offered for public subscription, are quoted on the local stock exchange. The interest of foreign investors in this industry appears to be due to the fact that most of these companies began their operations in Pakistan as importers and traders of paints which were manufactured by their principals in the home country. After the imposition of restriction on the import of paints, through high tariff barrier, these companies have established their own factories and are manufacturing their well-known brands. Foreign investment in paints industry was estimated to be in the vicinity of Rs. 10 million.

Some of the local paint manufacturing enterprises have also established paint manufacturing factories in the Middle East countries in collaboration with the host country's investors. Such joint ventures by Pakistani sponsors are reported to have been established in Kuwait, Afghanistan and Lebanon while more such opportunities are being explored in Saudi Arabia, Iran and other countries of the Gulf.

DEMAND

The main consumers of paints and varnishes are Government and semi-government organisations such as Defence Service, Shipyard, Railways. WAPDA, Tarbela Dam; Government Road Transport Agencies etc. The private housing sector is estimated to account for 20 per cent of total paint consumption in the country.

The demand for paints and varnished is derived from expansion in construction, building, manufacturing, transport and other sectors. The country has yet to go a long way in its development efforts, for the pursuit of which a five year plans have been formulated Moreover, a favourable turn in the investment outlook in the private sector, brought about by a desired change in the industrial and economic policies of the Government, is expected to contribute to a pick-up in the private industrial sector. In view of this, there appears to exist a sizeable potential for further strides in the country's paints industry.

The demand for paints in conservatively estimated to increase by 20 per cent annually during the next five years. Moreover, the development of chemical industry is also taking place and in view of this, most of the raw materials used by the paints industry, are expected to be produced and manufactured locally during the next five years. The paint industry would thus find a favourable raw material for further expansion and growth.

EXPORTS

Pakistan's export performance in regard to paint and varnishes is not very encouraging. In terms of value exports touched the highest in 199798 at Rs. 122,907 million. As compared to this exports touched the lowest at Rs.5.665 million 1989-90 as illustrated in the following table-III.

Major exports of paints and varnishes include colours prepared, enamels, paints oil, paints prepared, pigments and varnishes. In term of value, the average share of these items in total exports of paints and varnishes was about 86 per cent during the last five years.

Pakistan exports paints and varnishes to a number of countries, prominent amongst them being Saudi Arabia, Japan, UAE, Dubai, Bangladesh, Iran, Singapore, Sri Lanka and Oman. Export prospects of paints and varnishes is not much bright under the present conditions. Pakistan exports mainly conventional type of paints mainly to Middle Eastern countries. In Middle Eastern market, Pakistan faces tough competition with the products of the Western countries which enjoy an upper edge as their cost of production is relatively low. Secondly, their products are well established and Pakistan has joined their rank with a few type of paints. Thirdly, a large number of foreign companies are operating in these markets in different sectors of the economy which prefer the products of their own countries, if available.

To increase exports, it will be necessary that a number of other products should be developed which have a potential market abroad. Secondly, Pakistan has to diversify its market. Currently Middle Eastern countries are in process of establishing different type of industries including paint industry, therefore, dependence of these countries for exports will not be much useful.

Paint's exporters also need incentives as provided by the Government to other industries. Multiple taxation system is a hurdle in the development of exports. This has increased the prices of paints in international market and Pakistani exporters face difficulties in competing with other countries.

TYPE OF PAINTS

Paints are made to serve hundreds of specific purposes and in view of this, they are classified into innumerable types. For instance, the paints which serve the purpose of protecting the surface of any article may be made to resist acidity, moisture, heat etc. Similarly, decorative paints may be of several types, some of which may give luminous effects and some types may give simple effects of different colours. However, paints are broadly classified into three main types viz (i) Primers; (ii) Undercoaters and (iii) finishing paints. These types are exclusive of water thinned materials such as distempers or emulsion paints. Within the aforesaid three categories, some of the paints may be described in brief as under:-

Acid Resisting Enamels: These paints give resistance to acidic atmosphere and environmental conditions. These are made with pigments and media. Synthetic resins are used in the media.

Aluminium Paints: In the manufacture of this type of paint, the basic pigment, e.g. white lead, zinc oxide is replaced by aluminium powder. The outstanding quality of an aluminium paint is to give resistance to moisture and heat. Such paints are made with a variety of media depending on the specific purpose it is intended to serve. Head-tested oils, varnishes (either natural resin or synthetic resin), cellulose lacquers, chlorinated rubber and spirit varnishes are among the materials which are used to manufacture this type of paint. The important consideration however is that what is employed as media should be low in acid value.

Anti-Corrosive Paints: Special paints are made for use in ships to counter - act corrosive effects at the bottom of the ship. These are manufactured by incorporating toxic ingredients, e.g. oxides of mercury, which have quick drying properties.

Bitumen Emulsion Paints: The paint is made like the ones which are oil - bound and thinned in water. After application, the water evaporates and the surface, which is painted, is left with a film of bitumen and pigment.

Bitumenous Paints: These are generally of dark shades due to the fact that the basic ingredient is bitumen, the property of which is difficult to conceal. It is prepared by mixing bitumen in driving oil.

Fire - Retrading Paints: Such paints are generally used to protect wood material if exposed to fire. If the wood materials are painted with fire retarding paints, the fire is not likely to spread quickly although a greater intensity of fire may destroy and consume paints to the extent, of the degree of thickness of coatings and the nature of paint.

Fungicidal Paints: Several types of paints are manufactured to resist the growth of fungus. Such paints incorporated agents, which are toxic.

Heat - Resisting Paints: By using pigments which stable at high temperatures combined with short-oil synthetic resin media (Melamine resins), paints are made to stand temperature up to 350 degree Fahrenheit or even more without any change.

Hydro-Additive Paints: These paints may be successfully applied to damp surfaces where ordinary paints fail to work: These are available in the form of primers, under coatings and finishes in which suitable substances are added to develop the properties for adhering to damp surfaces.

Luminous Paints: The luminous paints which are generally used for decorative purposes are divided into two types viz phosphorescent and fluorescent.

Machine Paints: These are enamels specially formulated for use on machines and tools. These are available for use by brush and also for spraying.

Metallic Paints: These types of paints are heat-resistant and are generally used to paint radiators and heating pipes. These are made of aluminium and bronze powders, which are treated in oil or varnish, synthetic resin or cellulose. The colours of these paints are generally pale gold to dark bronze.

Rubber Paints: These are various types of paints dry quickly and give a flat finish. These are made with the combination of abrasive matters to give tooth to the surface. These are generally used for painting roads. They are commonly made with spirit soluble manila gum with suitable pigments and pesticisers.

Wet-on-Wet Paints: These paints are made with specially treated oils so that coats can be applied at short intervals of about 30 minutes to one hour. They are intended mainly for spray application.

Wood Preservation: These paints are classified into three types: (i) Creosote and coaltar derivatives, (ii) organic solvent types and (iii) water solution types.

Glue: Glue in the crude form of gelatin, prepared by boiling animal bones, clippings of hides, skins, horns etc. The main use of glue in the paint industry is in the preparation of washable water paints.

Paint Removers: These are products, which if applied, soften the paint or varnish so that it could be removed easily with a knife. The two main types are Alkaline Removers and Spirituous Remover.

CLASSIFICATION

Pakistan's Paint Industry classifies its paints generally into six types as under:-

Defence Service Paints: These are variously described as vehicle paints, camouflage paints, scamic paints, heat resisting paints, ammunition general service paints, radar paints, cellulose lacquers and enamels.

Marine Paints: Antifoulding paints, anticorrosive paints, deck non-slip, boat topping paints, hull paints, rudder paints, cabin paints, weather resistant paints, machinery enamels; under water paint etc.

Decorative Paints: Synthetic Enamels, hardgloss paints, quick drying paints, varnish paints, ready mixed paints, stiff paints, paste paints, aluminium paints, bituminous paints black Japan swimming pool paints, coaltars, varnishes and all types of surface coatings.

Building Paints: Plastic Emulsion paints, oil-bound distemper, dry distemper, dry oxide colours, masonry paints, flat paints, oil paints etc.

Industrial Finishes: Anti-corrosive paints, chemical resistant paints,, heat resisting paints, hammer finishes, boiler paints, chimney paints, water proof paints, bobbin lacquers, automotive paints and lacquers, locomotive paints and lacquers, pencil lacquers, nitrocellulose lacquers, enamels insulating varnish, primers, under-coats surfacers, clear lacquers, polyurethane lacquers, Epoxy lacquers, Tin printers lacquers etc.

Special Paints: Cellulose Dopes, heat resisting paints all weather paints, leather finishes and all types of special paints which are generally used for painting aircraft.

                         Paint Production by Types
                              Volume     Value
                               Litre       Rs.
                               (000)     (000)
Nitro Cellulose
Lacquers                         780   115,200
Insulating Enamel
and Varnishes                     69     8,970
Organic Solvent Type:
- Alkyd Resin Enamels
  and Varnishes               30,370 2,809,860
- Alkyd Resin Base
  Anticorrosive Paints         3,200   355,200
- Thermo Setting Amino-
  Alkyd Enamel and
  Varnishes                      445    56,515
- Epoxy Resin Enamels
  and Varnishes                  105    28,875
- Polyurethane Enamels
  and Varnishes                   25    10,250
- Chlorinated Rubber
  Base Paints                     75    17,250
- Ships Bottom Paints
  Others (Marine Paints)          40     4,200
Water Soluble Type:
- Emulsion Paints (PVA
  and Acrylic Based)          53,651 4,643,980
Non-Solvent Type:
- Powder Coatings                 10       480
- Road Marketing Paints
  C/R Alkyd, T.P.H. Melt          60     7,570
Inorganic Coatings:
- Miscellaneous
  Thinner                      2,050   125,250
- Related Products
  (Putty, Remover etc.)           40     4,400
  Total Production: (000 Ltr)           90,920
  Total Export:     (000 Rs.)            8,188
                            Paint Production in
                            Unorganised Sector
                            Volume     Value
Market Breakdown       Litre (000) Rs. (000)
Buildings                   63,611 4,853,096
Steel Structure              5,763 1,071,918
Marine and Ship Bottom          40     4,400
Motor Vehicles:
- New Vehicles                  80    20,800
- Refinishing                  400    72,000
Electrical Appliances        2,728   319,180
Industrial Machineries       7,535   778,912
Metallic Products            4,259   425,048
Wooden Products              4,386   509,346
Road Marking                    70     8,050
Others (Thinner)             2,050   125,250
                             Exports of Paints
                               and Varnishes
        Quantity       Value
Year      (Tons) ('000' Rs.)
1988-89      664      13,188
1989-90      298       5,665
1990-91       --      15,940
1991-92       --      26,967
1992-93       --      20,964
1993-94       --      15,068
1994-95      320      33,734
1995-96      210      44,038
1996-97       --      83,270
1997-98       --     122,907
Source: Federal Bureau of Statistics,
Export Receipts - SBP Karachi.
                           Production of Paints
                          (1990-91 to 1999-2000)
                 Production of        Production of
                    Paints and           Paints and
          No. of     Varnishes No. of     Varnishes
Year       Units      (Tonnes)  Units    '000' Ltr.
1990-91      119        16,197     90        19,174
1991-92       83        18,950     50        18,553
1992-93       72        16,626     63        23,323
1993-94       49         9,373     64        16,112
1994-95       36         6,865     36        15,524
1995-96       31         8,030     46        14,848
1996-97       52         8,005     87        16,688
1997-98       52         5,917     87        17,000
1998-99       47         6,501     95        21,149
1999-2000     63         7,347    152        20,749
Source: Federal Bureau of Statistics