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Economic forecast, 1990-91.

POPULATION

Pakistan's population in 1990 will increase to 112.03 million and to 115.50 in 1991. Nearly two thirds of Pakistan's population is under forty. Employment prospects, for a rapidly growing labour force, are bleak. Unemployment is likely to rise to 7% in the near future (it was 2% in the midseventies). The development proces could benefit from eager, young participants. A dissipating alternative is the growth of an army of frustrated, disillusioned angry young men and women. Accordingly, it would be economically necessary, and polically beneficial, to adopt policies which revolve around the need for human resource development.
Population of Pakistan
Year Million
1986-87 102.23
1987-88 105.40
1988-89 108.67
1989-90 112.03
1990-91 115.50


Pakistan's population growth rate has risen in almost every decade since the country's creation. The government will find it difficult to maintain, let alone improve, provision of social services if people continue to increase by 3 million a year. Religion is not an unsurmountable obstacle, since other Muslim countries have succeeded in reducing their population growth rates.

The next population census is due in 1991 and it is believed that the growth rate of population would not have come down despite all efforts.

GDP
GDP Growth at Constant Factor Cost
 Rs. %
Years billion Increase
1984-85 75.88 9.4
1985-86 80.90 7.5
1986-87 84.73 5.1
1987-88 88.88 6.2
1988-89 93.41 5.1
1989-90 98.92 5.8
1990-91 104.85 6.0


The Annual Plan 1989-90 projected a growth rate of GDP of about 5.8 per cent with a total fixed investment outlay of Rs. 141.8 billion (Rs. 73.5 billion private sector and Rs. 68.3 public sector). During the year 1988-89 the GDP at constant factor cost) registered a growth of 5.1 per cent compared with 6.2 per cent in 1987-88. Against the Seventh Plan annual growth rate of 6.5 per cent the GDP is project to grow by about 5.8 per cent. In view of slowdown in production due to political strike in Sindh the growth may be a little more than 5 per cent.

AGRICULTURE

The growth rate in agriculture in 1989-90 will be around 5.2 per cent against the actual growth of 6.1 per cent in 1988-89.

Targets of Agriculture Production

(Million Tonnnes)
 Target
 1987-88 1988-89 1989-90
Wheat 12.65 14.20 15.00
Rice 3.24 3.16 3.64
Sugarcane 33.03 33.74 34.33
Cotton 8.63 8.40 9.00
Maize 1.13 1.19 1.21
Milk 12.93 13.71 14.53
Source: ADP--1989-90


Within agriculture the share of major crops, which accounts for about 50 per cent of agricultural value added is forecast to growth by 5.5 per cent. While the rice target of 3.64 million tonnes assumes a recovery, for wheat the preceding year's target of 15 million tonnes has been retained. The cotton production target is placed at 8.7 million bales and that of sugarcane at 34.33 million tonnes. Of the other constituents of agriculture, value added in minor crops is forecast to grow by 3.6 per cent and of livestock, fishing and forestry together by 5.6 percent. To achieve the targeted level of output, the fertilize off-take is projected to increase from 1,760 thousand nutrient tonnes in 1988-89 to 1,936 thousand tonnes in 1989-90 and water availability from 114.66 MAF to 117.14 MAF.

Wheat

The 1989-90 target for wheat production has been fixed at 5.5 million tonnes which is a repetition of last year's target but it is 7.6 per cent higher than the estimated production of 14.4 million tonnes in 1988-89. This is being proposed keeping in view the yield potential and use of other inputs. The shortfall against the target was on account of unfavourable weather conditions and floods in the Punjab Sindh.

Economic Coordination Committee of the Cabinet has now decided to import 2.2 million tonnes of wheat in the next financial year. This certainly will cost a good deal of money of about $ 400 million particularly when Rs. 4.72 billion were spent on import of wheat in 1985-86 and Rs. 1.18 billion last year.

Assuming a wheat consumption level of 120 kgs. per head a year, the domestic need of wheat for a population of 113.56 million to be fed during 1989-90 (13.62 million tonnes) plus an allowance of 10 per cent of production for seed feed and waste (1.51 million tonnes) and 220 thousand tonnes to be provided to Azad Kashmir would amount to a total requirement of 15.4 million tonnes.

The government has been fixing the production target at 15 million tonnes for the last few years, while the actual production has remained much short of this target. It was only in 1988-89 that the country harvested 14.11 million tonnes of wheat, whereas past production did not exceed 12.6 million tonnes except in 1985-86 when it almost touched 14 million tonnes. Thus a gap has constantly been developing between demand and domestic production. The annual demand would continue expanding at least at the same rate as the population growth of over 3 per cent a year even if no increase in per capita consumption due to higher incomes is assumed. If, therefore, the self-sufficiency objectives is to be realised, wheat production must be stepped up at a much higher rate than population growth so that it would not only take care of the population increases but also help reduce imports so that overtime imports could be totally dispensed with. Only for meeting the additional demand arising from the population growth, wheat production must go up by over 400 thousand tonnes at the present level of annual per capita consumption.

Cotton

The 1989-90 production target for cotton is at 9.0 million bales which is 7.3 per cent more as compared to last year's finally estimated crop of 8.40 million bales. In Punjab the production target has been placed at 7.5 million bales which is 2.7 per cent above last year's output. Sindh has been given a production target of 1.5 million bales which is 36.4 per cent more than last year's crop.

As growers hope to harvest a bumper crop this season, Pakistan is expected to have an exportable surplus of 3.5 million bales this year. The government had allowed export of up to 2 million bales by end December. In the private sector, exporters have so far been able to export only 0.5 million bales.

Sugarcane

Sugarcane production target for 1989-90 has been set at 34.33 million tonnes, about 0.7 per cent more as compared to 34.09 million tonnes produced in 1989-89. Last year's harvest was 2.6 per cent higher as compared to the 1987-88 crop but it registered as shortfall of 2.6 per cent against the target of 35 million tonnes set for that year. Growers are expecting a bumper harvest this year due to favourable weather conditions. Sugar industry sources have forecast a record sugarcane production in Sindh in particular.

Crushing operation in the country started in October. During the fortnight ending November 1, about 219, 605 tonnes of sugar is reported to have been produced by sugar mills in Punjab, Sindh and NWFP by crushing 3.21 million tonnes of sugarcane, which is 40.1 per cent more as compared to 156,715 tonnes of sugar produced in the corresponding period of last year. The Government has fixed a production target of 1.88 million tonnes for this season which is about 3.87 per cent more as compared to 1.81 million tonnes produced last season. Sugar industry sources expect that this season's production will easily exceed the target and it could be in the region of 2 million tonnes.

Rice

The production target of rice for 1989-90 has been fixed at 3.64 million tonnes which is higher by 15.2 per cent as compared to 3.16 million tonnes produced in 1988-89. During 1988-89, rice production was badly affected by heavy rains and floods and its production showed a shortfall of nearly 11 per cent against the target of 3.55 million tonnes and a decline of about 2.5 per cent compared to 3.24 million tonnes produced in 1987-88.

For 1989-90, the production of basmati rice has been targeted at 1.06 million tonnes, which is higher by 1.9 per cent as compared to 1.04 million tonnes produced in 1989-89. In the same period the production of irri rice is targeted to grow by 21.7 per cent from 2.12 million tonnes to 2.58 million tonnes. Last year, the production of basmati rice exceeded its target of 0.915 million tonnes by 14 per cent while the production of irri rice fell short by 19.4 per cent against the target of 2.63 million tonnes fixed for the year.

Standing crop at over 0.419 million acres in six districts of Larkana and Hyderabad divisions in Sindh is reported to have been badly affected by heavy rains. However, growers are hopeful to make-up the loss. The government expects that though overall production during 1989-90 may fall short of the target it would be well above last year's crop of 3.16 million tonnes.

INDUSTRY

Against a dismal performance of industrial sector in 1988-89, it is now targeted to grow at the rate of 7.4 per cent. Estimated growth of 3.1 per cent in this sector during 1988-89 not only fell short of the target but was sharply lower than the actual growth of 10 per cent recorded in 1987-88. Lower growth in 1988-89 was caused mainly by the decline in the production of cotton cloth, vegetableghee, cigarettes, chipboard cloth, vegetableghee, cigarettes, chip board and billets. As a result Largescale manufacturing grew by only 1.2 per cent against the target of 8 per cent.

The projected growth of 7.4 per cent in the manufacturing sector during 1989-90 assumes a sharp increase of 17 per cent in the production of cotton cloth and moderate increases in the production of sugar, vegetableghee, nitrogenous fertilizers, and rolled sheets. Production of billets is expected to increase by over 40 per cent. Production of tractors and trucks is also expected to make a significant contribution to the overall industrial growth. Largescale manufacturing is projected to grow by 7.0 per cent in 1989-90.

The Ministry of Industries is considerating measures to penalise industrial units for failure to implement deletion programme. Though the penalty clause forms part of the deletion policy of 1987, this clause was not being imposed for lack of legislative support. Several industries managed to get away for non-implementation of the programme. The policy approved in July 1987 had stated that if any item is not deleted as scheduled it will be charged a penal duty of 100 per cent over and above the industrial rate or the full commercial value rate of duty which ever is higher.

The deletion programme though slow is saving the country about 400 million dollars annually. The Deletion Monitoring Cell of the Ministry of Industries has started a review of the deletion programme. A proforma has been sent to various units. The review is expected to be completed by February this year. The Deletion Monitoring Cell formulated programme for 255 industries and industrial units in consultation with the National Institute of Electronics, Heavy Forge and Foundry, Heavy Mechanical Complex and Special Technical Cell. The industries include Suzuki vehicles, trucks, buses, motor-cycles, scooters, electricity metres, deep freezers, diesel engines, KSB pumps.

Textile

Production and capacity utilisation has considerably improved although under-utilised capacity still exists in the textile sector. For instance against 4.421 million spindles installed in the country, 3.815 million were reported to be in operation in 1988-89. While 0.606 million spindles or 13.7 per cent of the total were lying idle. In the weaving sector the installed capacity declined from 30,000 looms in 1971-72 to 16,000 in 1988-89 out of which only 9,000 were reported to be working thus 43.7 per cent of the installed capacity remained idle.

To increase cotton yarn production and consumption of raw cotton, drastic changes were made in the Industrial policy for the spinning sector. Import duty of 50 per cent on spinning frame was reduced to 20 per cent in 1987-88. Besides funds were made available to investors to set up spinning units. The two important factors that are engaging the attention of the government are that Pakistan's cotton faces tough competition in the world market which has affected its exports for the last several years at a time when the demand for cotton yarn in the local as well as foreign market has been on the increase

Sugar

Production of refined sugar, which had increased by 37.7 per cent in 1987-88 rose by 4.9 per cent to 1,857 thousand tonnes during 1987-88.

It is strange enough that despite the fact that current annual per head sugar consumption of 18 kg. is the lowest in the world comparing with 50 kg. in developed countries, the present total demand, according to official sources, stands at 1,818 million tons; but the estimates by manufacturers tally it at 2.1 million tons. This limit, according to the National Commission on Agriculture, is likely to touch a figure of 3.2 million tons by 2000 because of a six per cent increase in sugar consumption due to rising population and higher standard of living.

Vegetable Ghee

Production of vegetable ghee which increased by 14.5 per cent in 1987-88 declined by 8.2 per cent to 639.7 thousand tonnes in 1988-89. A new law is in the offing to regulate vegetable ghee and cooking oil industry. The law being framed under the Companies Ordinance-1984, will be known as the Vegetable Ghee and Cooking Oil Companies (Cost Accounting Records) Order, 1989.

The order shall apply to every company engaged in production, processing and manufacturing of vegetable ghee, cooking oil, margarine, bakery shortening and allied products. Besides, it will also apply to other products such as refined hard oil, margarine or any such product using the same plant or machinery, partly or fully.

INVESTMENT

Private investment is projected to increase by 14 per cent with a total amount of Rs. 70 billion over the last year's amount of Rs. 614.4 billion when the growth from the previous year was estimated higher at 19.60 per cent. This shows that if the projections turn into a reality since there are still six months to go in the current financial year, the growth in private investment, despite depreciation in the exchange value of rupee, would indicate a decelerated rate compared with 1988-89.

The projected private investment for 1989-90 covers different sectors of the economy viz agriculture, industry and mining, construction, electricity and gas, transport services, wholesale and retail trade, services, etc. The projections further indicate that 40 per cent of the expected investment would represent gross fixed capital formation in industry - in small scale and large-scale industries - compared to 38 per cent share of industrial investment in total fixed investment last year. This may be described as an encouraging trend.

The Planning Commission's estimates of 40 per cent share of industry in the total projected investment, in aboslute terms, would amount to about Rs. 28 billion compared to about Rs. 22 billion recorded last year. This would reflect a handsome growth of 27 per cent in private investment in industry in 1989-90.

The pick-up in the investment activity in the private sector, not only in industry but also in other spheres, is admittedly an encouraging phenomenon which has lately emerged on the economic scene. But the investment interest continues to be noticeably selective with major concentration on textile spinning and textile weaving.

However, a large backlog of projects which were held up with the IPB and Ministry of Industries over the last two years due mainly to procedural difficulties, were reported to have been disposed of by the present Government. These projects included over two dozens of joint ventures. As a result, the figures relating to sanctions must have gone up but hardly to the extent as claimed by the Government.

FOREIGN TRADE

Trade Deficit is likely to reduce from Rs. 45.658 billion in 1988-89 to Rs. 42.000 billion in 1989-90. Pakistan has perennial trade deficit. As from 1986-87 the trade deficit has widened from Rs. 29.075 billion to Rs. 45.658 billion in 1989-90. This is evident from the table 1:

Raw cotton retained its first position on the export list for 1988-89 as in the previous year. Its exports in this year amounted to Rs. 18,032.5 million, 93.0 per cent of the total export during 1988-89 consisted of 23 items viz. Raw cotton (20.0%) cotton yarn (12.9%) cotton fabrics (9.9%) textile clothing & accessories (7.2%) rice (6.6%) leather (5.2%) carpets carpeting rugs and mats (4.9%) other textile made up (4.4%) hosiery (3.6%) leather clothes and accessories (3.1%) towels (3.0%) synthetic textile fabrics (2.5%) fisch and fish preparations (2.3%) sports goods (1.5%) surgical instruments (1.4%), fruits vegetables & preparation thereof (1.0%) tarpaulin and other canvas goods (0.9%) guar and guar products (0.8%) molasses (0.6%), footwear (0.4%) raw wool (0.4%), Petroleum Products (0.4%) and tobacco and tobacco manufactures (0.3%).

Increase in exports during 1989-89 as compared to previous year was recorded mainly in raw cotton (+Rs. 7,273.9 million) cotton yarn (+Rs. 2,115.0 million), hosiery (+ Rs. 419.8 million) cotton fabrics (+407.4 million), leather clothes & accessories (+ Rs. 375.1 million) textile clothing & accessories (Rs. 310.5 million), tarpaulin and other canvas goods (+Rs. 257.1 million) sports goods (+Rs. 224.0 million), surgical instruments (+ Rs. 59.8 million), fruits, vegetables & (+ Rs. 59.8 million), fruits, vegetables & preparations thereof (+Rs. 222.8 million) and carpets, carpeting rugs and mats (+ Rs. 6.3 million) Export on the other hand declined of synthetic textile fabrics (-Rs. 1,230.2 million) rice (-Rs. 437.8 million), leather (-Rs. 323.9 million), tobacco and tobacco manufactures (-Rs. 295.0 million), guar and guar products (-Rs. 160.7 million),

[TABULAR DATA OMITTED]

[TABULAR DATA OMITTED]

petroleum products (-Rs. 126.7 million), molasses (-Rs. 110.9 million), fish and fish preparations (-Rs. 90.5 million) and footwear (-Rs. 10.3 million).

An encouraging development is the signing of accord with the USA to restructure the 1986 textile agreement. The main features of the accord are:

i) Quota restrictions disappear on 66 categories in Group Three i.e. man-made fibres while it remains on the remaining 14 categories.

ii) Cotton categories have been increased by six million sq. meters and better growth rate has been allowed in fast moving items like knitted cotton shirts from six to seven per cent and in table dusters from five to seven per cent.

iii) Some quotas have been shifted from man-made fibres to cotton categories, like mmf knitted shirts and increase of five per cent has been allowed in men's shirts and 10 per cent in women's shirts.

iv) Certain restraint levels have been imposed on pillows, bed sheets and overalls which will get 20 per cent over the import levels upto September 30, 1989.

The new arrangement comes into force from January 1, 1990 and so all shipments upto December 31, will be allowed. The restructuring would have an impact of 50 million dollars over long run. At present the existing exports were around 260 million dollars.

BALANCE OF PAYMENT

The Balance of Payment deficit is expected to narrow down to $ 1964 million in 1989-90 as compared to a deficit of $ 2027 million 1988-89. Earlier the deficit widened from $ 719 million in 1986-87 in 1988-89. The widening of the gap was due to steep decline in home remittances. The following table gives the actual picture of the Balance of Payment position.

FOREIGN AID

The change in Europe may change the aid complexion in 1990 and aid giving countries would divert their aid to the emerging East European countries. Pakistan contracted foreign loans and credits of 2551 million dollars with various loan giving and donor agencies during 1988-89 against 1902.1 million dollars in the previous year registering an increase of 34.1 per cent. It is perhaps the biggest increase in foreign loans in a year with the exception of 1984-85. In respect of multilateral agencies credits and loans the IBRD which committed 548 million dollars against 477.4 million in the previous year. Similarly the IDA assistance was 193.9 million against 182.5 million dollars in the preceding year.

The biggest offer was from ADB where loans and credits of 668.2 were committed while in the previous year this amount was 564.5 million dollars an increase of nearly 20 per cent in one year. IFAD also increased its commitment from 11.9 million dollars to 15.3 million dollars, as small amount but percentage wise it was over 25 per cent.

In the sphere of bilateral commitments, Japan stood out. The biggest commitment of 691.4 dollars was made in one year which is all time record. Last year this amount was 270.1 million dollars i.e. jump of 150 p.c. America also increased its commitment from 169.6 million dollars in 1987-88 to 292.9 million dollars in 1988-89 an increase of 73 per cent. It is interesting to mention that with the induction of democractic order in the country, foreign assistance rose sharply. The figures for debt servicing showed that in a number of countries, payment of interest exceeds the principal. Japan heads the country in this phenomenon.

[TABULAR DATA OMITTED]

During the last year the principal amount repaid to Japan by Pakistan was 57.277 million dollars while the interest payments amounted to 63.989 million. For several years the amount of interest has exceeded the principal. The official documents show that this practice has continued, since 1982-83. In the case of debt servicing of America the principal amounted to 136.736 million dollars last year and interest paid was 85.275 million dollars i.e. about 62 per cent. For all consortium countries the principal paid was 340.351 dollars and the interest 215.2 million dollars constituting about 63 per cent.

EXCHANGE RATE

Pakistan is expecting the rupee exchange rate to stabilise at about Rs. 23 a dollar during the next financial year against an average rate of Rs. 21.50 per dollar during the current financial year. Helped by this stabilisation in exchange rate, the country hopes to export goods worth about 6.7 billion dollars during the next financial year against an expected export of about 6.1 billion dollars during 1989-90.

Also, the country hopes to restrict the growth of imports to about 9 billion dollars with the help of a stable rupee against an import bill of 8.82 billion dollars expected in the current financial year. This improvement in exports and restriction in imports plus a stable rupee are expected to help the country reduce its current account deficit from an expected 1.7 billion dollars this year to 1.4 billion dollars in 1990-91.

INFLATION

Inflation rate would remain below 8 per cent during the fiscal year 1989-90 as against 11 per cent during the fiscal year 1988-89.
Year % Increase
1985-86 4.83
1986-87 3.87
1987-88 6.00
1988-89 11.00
1989-90 8.00


In 1988-89 the country's exports registered an increase of 4.64 per cent while imports rose by 10.05 per cent as compared to the corresponding period of 1987-88. The Consumer Price Index (CPI) for November 1989 as compared with November 1988, showed an increase of 5.11 per cent. The cumulative increase in the CPI during July-November, 1989, has been 5.56 per cent as against 10.56 per cent during the corresponding period of last year. The index of food, beverages and tobacco showed an increase of 2.77 per cent, apparel textile and footwear 8.32 per cent and house rent 6.34 per cent, fuel and lighting 13.85 per cent, household furniture and equipment 11.80 per cent, transport and communications 2.86 per cent, recreation, entertainment and education 6.84 per cent, cleaning laundry and personal appearance 11.14 per cent and miscellaneous group 9.19 per cent over the corresponding month of last year.

LABOUR

The new labour policy would be announced by the Government by March 30 this year. Under new labour policy there would be complete freedom of trade union activity and all those removed during Martial Law regime would be reinstated. Moreover no worker would be removed from his job without consulting Labour Ministry. Workers will also get loans from government and other schemes "for their welfare". Meanwhile PIA has started taking back all those employees whose services were terminated under MLR-52 and whose appeals have since been upheld by the NIRC. Nearly 1500 such employees are likely to be taken back with letters of reemployment being issued to 605 employees.

There is a consensus on the point that contract system in all firms and in all industrial and commercial undertaking should be abolished and to provide such contract labour with all the facilities as laid down in various labour laws and to absorb them as regular employees of the company. In 1990 a bill is likely to be tabled that would seek to abolish contract labour in the country. It may be mentioned that the allowed contract labour for those manufacturing units which work on temporary basis. This law has been used as a legal loophole by industrialists for all kinds of labour practices. Unemployment is a serious problem. It is rising at a rate of 3.13 per cent and it is estimated that there are 3.19 million unemployed workers in the country.

NEW PROJECTS

PUBLIC SECTOR PROJECTS

Second TV Channel

Japan has agreed to provide a total of Rs. 321.86 million (yen 2,138 million), under two separate agreements, as grant-in-aid for the establishment of a second TV channel and a Geoscience laboratory in Pakistan. Under the first agreement, an amount of Rs. 247.14 million (yen 1,643 million) will be made available to Pakistan Television Corporation for Phase-1 of the project for establishment of a second TV channel.

The second TV channel will contribute to the improvement of the living standards by imparting practical knowledge on population welfare, nutrition, health care and by spreading basic technical knowledge about agriculture even in the remote areas of the four provinces.

Pakistan Suzuki Plant

This project would be fully commissioned by Mid 1991. The project would be completed in three phases. First phase would deal with engine and transmission assembly while the second and third phase would cover building and civil construction work. Plant and machinery will be reaching in this soon. The installation and trial run is expected to begin in January 1990. The plant will manufacture export quality 800 and 1000cc cars in the country. The expansion in the current Suzuki company is being carrie out with a total of Rs. 14.35 million out of which World Bank would offer $17.5 million.

NFC Project

Plans are underway to expand and modernise a Rs. 818 million project of National Fertilizer Corporation. Asian Development Bank will provide foreign exchange component of Rs. 563 million as loan for the project. It is proposed to increase the urea production from 1740 tonnes per day to 2175 tonnes. Through this project there will be saving of 14 million US dollars through saving in imports. Modernisation of the plant is expected to reduce energy consumption by 18.5 per cent. Based on Mari gas, the project will be completed in 30 months from the date of commencement. It will provide 1,020 additional job opportunities. The plant situated near Sukkur will partly meet the national requirements of nutrigenous fetilizers.

Ferrite Manufacturing Project

Punjab Industrial Development Board has worked out a ferrite manufacturing project of Rs. 55.55 million, according to a letter from Industries Department, Punjab, to LCCI. The unit will manufacture soft ferrite for production of deflection yokes, fly-back, transformers and antenna rods for TV and Radio sets. The estimated cost of the project also includes a foreign exchange component of Rs. 31.39 million and working capital of Rs. 2.68 million.

The PIDB has initiated a draft contract with the China National Electronics and Export Corporation for the supply of machinery and technical know-how. The supplier's credit for this project is also hoped to be achieved from the same agency. Punjab Government desires to set up this unit in private sector. The members interested to take it up in the private sector have been asked to approach Industries and Mineral Development Department, Government of the Punjab.

Chashma Nuclear Plant

China will supply a nuclear reactor to generate 300 MW of electricity under an agreement. Work on this project would commence by the end of the next year and would be completed in six years time which means in 1996. It would also provide opportunity to Pakistan's atomic scientists and engineers to participate fully in the transfer of technology as a similar nuclear plant is operating in China and two more plants of this type which use the high pressure water reactor, would be established in China before the completion of the project in Pakistan.

Agreement signed between Pakistan and China is a new start to the nuclear programme which was stalled for political reasons for many years. About fuel arrangements, the first instalment will come with the reactor and subsequently Pakistan will fabricate the fuel bundles. However, two to two and half per cent of enriched uranium may be used at the reactor as fuel.

PRIVATE SECTOR PROJECTS

TV Set Plants

The Federal Government has recently sanctioned three assembly-cum-manufacturing plants in collaboration with Japanese firms for the production of television sets in the country. The total capacity of the three plants will be 70,000 colour and black and white TV sets. These three plants are in addition to the eight others sanctioned recently. Of the three plants one will be established at Nooriabad with the total estimated cost of Rs. 9.47 million involving a foreign exchange component of Rs. 1.6 million. It is being set up with the technical cooperation of Japanese company and would annually produce 15,000 colour and 10,000 black and white TV sets with the brand name of JVC.

The second plant will be set up at Lahore with the total estimated cost of Rs. 12.88 million which includes a foreign exchange component equivalent to Rs. 3.25 million. In this plant there will be an equity participation to the extent of 45 per cent by a Japanese company and the brand name of the TV set will be Spectrum. Its total capacity will be 25,000 coloured sets per annum. The third plant will also be established at Lahore with the total estimated cost of Rs. 12.45 million, including a foreign exchange component of Rs. 1.40 million. This plant is to be set up with the collaboration of a Japanese company which will produce 10,000 sets of colour TV sets and an equal number of black and white sets yearly.

Pioneer Cement Limited

This project is being set up in the District Khushab Punjab province by Noon Group at an estimated cost of $ 102.6 million including foreign exchange component of $ 34.2 million. The new plant will have a capacity of 688,400 tons of ordinary portland (grey) cement a year and is scheduled to start commercial production in early 1993. It will supply cement to the domestic market and help Pakistan substitute imports needed to meet growing domestic demand. The new plant will create around 450 new jobs.

The Asian Development Bank has approved a direct loan of Yen 1,645 million (about $ 11.5 million) to Pioneer Cement Limited (PCL) in Pakistan and an equity investment of Rs. 77 million ($3.5 million) in the company. The loan, from the Bank's ordinary capital resources, along with two complementary loans of $ 12.7 million equivalent and $5.0 million under the Bank's Complementary Financing Scheme (CFS), will be provided to PCL without a government guarantee to assist the private sector in Pakistan. The CFS loans will be provided through Nissho Iwai Corporation and the Asian Finance and Investment Corporation (AFIC). AFIC is also making an equity investment of Rs. 22 million ($ 1.0 million) in the company.

Urea Fertilizer Plant

The Fauji Fertilizer Company Limited has entered into an agreement with M/s. Snamprogetti Spa of Italy for the setting up of a second urea fertilizer plant adjacent to the existing plant at Goth Machhi, Sadiqabad, district Rahimyar Khan, at a total estimated cost of Rupees seven million. The project is sponsored by Fauji Foundation and Holder Topsoe as of Denmark with participation in equity of various national and international financial institutions. Loan financing for the project has been arranged by Asia Development Bank, Asian Finance and Investment Corporation, and Commonwealth Development Corporation of UK. The project will also be financed by Export Credit Financing of the Italian government.

The new plant is being set up to meet the growing demand of urea fertiliser in the country and is consistent with government's policy to enhance local industralisation and agricultural production. It will enable import substitution of urea fertiliser which will result in the foreign exchange savings of over US $ 76 million annually and shall supplement to the national efforts for reducing the balance of payment gap. The plant has a designed capacity of producing 1925 metric tons of urea per day making up an annual output of 632,250 metric tons. With the settling up of this plant, adjacent to the existing urea fertiliser plant of the company, the total annual output of the complex, will be 1,329,750 metric tons of urea. When commissioned in 1992, the plant will be the largest urea manufacturing facility in the country.

The package approved by the government for urea is to supply gas feed stock at the existing prices for ten years, dutyfree import of machinery not manufact red in Pakistan, at least 20 per cent return on equity for pricing of urea, permission to import of second-hand machinery and above all to treat expansion project as new unit entitled to the concessions to new units.

Video Cassette Making Plant

A project for assembly-manufacture of video cassettes in the private sector with a capacity 800,000 pieces per annum is to be established at SITE, it was reliably learnt. The project involves a total cost of about Rs. 48.200 million with a foreign exchange component of Rs. 20.860 million which has been sanctioned by a local financing agency.

The rupee cost includes local currency loan of Rs. 1.5 million for the purchase of indigenous machinery and equipments, Rs. 3.23 million to take care of customs debentures, Rs. 3.3 million to be raised through issue of Term Finance Certificates (TFCs) from the financial institutions while Rs. 17.5 million will be mobilised as initial paid-up capital 50 per cent of which will be offered to public and NIT through issue of shares.

The project will be based on imported raw materials (to the extent of 80 per cent) which would include recording tape (magnetic tape) splicing tape, pad, spring, rollers, taping screws etc. The sponsors would probably not require any technical assistance as this industry has already made enough progress in the country. However, the machinery suppliers would be responsible for erection, installation and start-up.

Local production of video cassettes is estimated to be only 9 lakh pieces per annum is only one enterprise while imports during 1988-89 rose sharply to over three million cassettes. This shows the heavy dependence on imports and therefore the industry needs attention for further expansion. The project is stated to have foreign exchange savings potential of about Rs. 11.971 million per annum.

It may be recalled that a project envisaging manufacture of video heads in technical collaboration and equity participation from reputable Japanese firm has already been accorded sanction. The said project was proposed to be established in the industrial area of Islamabad. The sponsors of the video heads were reported to have requested Government to include the manufacture of video heads in the electronics industry for the eligibility of such concessions as are allowed to this industry.

Hub Power Project

Pakistan Government has initialed a 3-year agreement calling for a consortium of largely British, Saudi Arabian, and Japanese companies to supply 1300 mw in oil fired capacity to the national grid. The complex is to be built at Hub Chauki at Hub River in Balochistan province, 50 km west of Karachi. The companies include Hawker-Siddeley Power Engineering of the UK, Xenel Industries of Saudi Arabia, K and M Engineering and Consulting Corporation of the US, and group of four Japanese companies consisting of Ihi Toshiba, Mitsui and Kumagai Gumi. Other companies in the group include British Electricity International and the Canadian utilities Power Group of Alberta.

The foreign contractors will work on the basis of build-operate transfer (BOT). Under BOT the foreign contractors take a long-term lease hold on the project and finance it from the sale of electricity produced by the project to the local utility. At the end of the lease, the project is turned over to the utility's control for a nominal fee.

To make the BOT more acceptable to Pakistan, a dollar 300 million PSEDF Fund was set up by the World Bank and other international aid institutions to lend money to potential local investors to take an equity investment in the project. A further 30 per cent of financing is to come from export credits and conventional loans, with most of the balance to be supplied by the International Finance Corporation, the Commonwealth Development Corporation, and the Islamic Development Bank.

The full agreement covers a 30-year period, after which the project will be turned over to the control of WAPDA. The Hub Power River Group will now incorporate itself in order to be listed on the Karachi Stock Exchange (KSE). Its primary shareholders will be the consortium members themselves. Its first commercial step will be to issue dollars 100 million in convertible bonds (it has yet to appoint an underwriter), and later it will issue shares on the KSE, to attract Pakistani investment, although initially the consortium members themselves will be the largest shareholders.

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Title Annotation:Cover Story
Author:Haidari, Iqbal
Publication:Economic Review
Date:Jan 1, 1990
Words:6500
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