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New industrial trends.

The industrial sector accounts for 17.61 per cent of GDP and is a major source of employment. The value added in manufacturing is estimated to grow by 5.74 per cent during 1990-91. The target for 1991-92 is estimated at 10.3 per cent. The textile sector comprises the largest segment of Pakistan's GDP. Cotton yarn and cloth production accounts for 66 per cent of all large scale manufacturing in the country. The share of the textile sector in exports increased from 36 per cent in 1978-79 to 59 per cent in 1990-91. A new incentive package has been announced by the government. A third export processing zone would be up at Khuzdar in Balochistan. One such zone is operating at Karachi while onother has been proposed near Port Qasim. The government has decided to allow industrial estates located in rural areas the same concessions and exemptions in duty and taxes allowed only in rural areas other than industrial estates. The decision would greatly benefit Nooriabad and other industrial estates located in the rural areas.

It was also announced that 30 kilometers from Karachi would be treated as rural areas for the purpose of industrial concession and exemptions. For the first time Karachi has been given three years tax holiday.

The sugar and textile industry is being modernised. New units are being equipped with modern spinning frames and autocone winders. As many as 65 new units are presently under installation. In garment making gerber technology of pattern making, grading and marker making, laser cutting etc. has been adopted by several large scale units. WAPDA is planning to set up a complex for manufacturing thermal power plants having a capacity of 210 to 300 MW.

Sugar

Work of installation of about 12 new sugar mills in different parts of the country is proceeding and keeping in view the internal capacity of manufacturing five to six units annually, it is expected that four new units will be in operation every year.

Working on the basis of average 4500 TCD a day and season of 160 for the new units, the additional cane requirements roughly works out to 2.88 million metric tons. On economic grounds the existing sugar mills have to steadily upgrade their capacity. Availability of sugarcane to8 augment corresponding with it and that too each year in succession is very much unlikely because of certain constraints. These include limitation to bring more land under sugarcane crop, replacement of other crops with sugarcane may not be desirable, vagaries of weather effecting growth in yields, sugarcane crop being relatively more difficult to handle may not find favour, and sugarcane yield not improving due to varietal changes non-existing, supervised cropping rendered not feasible after free zoning and farm inputs supplies disruption after dezoning.

Taking all factors into consideration, there is going to be decline, in the foreseeable future, in sugarcane supplies and crushing on an average by each mill. With this background, the capacity tax on the sugar mills is increasingly becoming a brunt instead of benefit to the industry. According to latest trends the average crushing is likely to come down due to various reasons, hence the formulation of a suitable model for capacity taxation is neither feasible nor such form of taxation would benefit the sugar industry.

A significant feature of the industry is that in the province of Sindh, the mills crush the maximum quantity event to the tune of 98.57 per cent. In the Punjab only in 1990-91 it touched the percentage of 61.60 but in the NWFP it has dropped to 20.18 per cent the record low percentage of 8.14 per cent was in 1986-87. This low utilization is due mainly to the manufacture of gur in the province and to some extent in the Punjab.

Vegetable Ghee

The Economic Coordination Committee of the Cabinet (ECC) has appointed a sub-committee to review the possibility of vegetable ghee export from Pakistan. The export prospects for vegetable ghee are very bright. The markets are attractive in India, Iran and Afghanistan. The Middle East may also import ghee from Pakistan. According to rough estimates, about 300,000 tons of ghee finds its way to border outlets per annum. It goes to Iran India and Afghanistan. It is a fact never cenied by the Government. The only way to stop smuggling is to allow the export of this commodity. Ghee makers have already asked the Government to allow the export. The Government is also reported to be inclined to this move and therefore, this committee has been formed.

There are 24 units in the public sector. After the disposal of 11 units, the remaining 13 units will be privatised through the sale of shares on the stock exchange. The Ghee Corporation, is reported to have already started reducing the edible oil imports for its units. The market sources are of the view that it would be very difficult to maintain the price line after the entire ghee industry will be in the private sector. At present the prices are kept at reasonable level as the GCP maintains the supply line even after sustaining heavy loses. The 13 units to be privatised through stock exchanges are running in losses.

Cigarette Industry

Cigarette industry is in doldrums for quite sometime. High taxes and smuggling of foreign brands are the twin problems of the industry. It may be recalled that in the Budget of 1990-91 import of cigarettes along with ice crem was allowed. The import duty levied in the Finance Bill was 95 per cent. However, no cigarette import was made as it was un-economical to do so at this rate. The following year, the maximum rate of duty on consumer items was reduced to 90 per cent. As such in the Finance Bill 1991-92 the import duty on "cigarette containing tobacco" under the custom import head of 2402.2000 was fixed at 90 per cent along with sales tax of 12.5 per cent and surcharge of 10 per cent. With the reduction in duty import of cigarette has become economical.

The consignments cleared from the port are Dunhill brand cigarettes imported from the U.K. It's landed cost is reported to be under Rs. 22 per packet of 20 and it is being sold in the market at Rs. 24 per packet. The local cigarette makers have been claiming that large scale smuggling is hurting the local industry resulting in closure of factories and reduction in production.

According to reports the bulk of the smuggled cigarettes are in the high brand categories. Dunhill, Benson & Hedges and State Express - 555 are the most popular brand in the top most category with Mild Seven from Japan in the middle order segment. These upper segment brands are sold at between Rs. 20. to Rs 24 per packet of 20 with daily wholesale price fluctuations defending on the availability of smuggled stocks and the volume in the pipeline. These cigarettes largely are coming inform Afghanistan, Iran via Quetta and from UAE with the passenger baggage.

Consumption: The cigarette industry excise figures reveal that the local consumption of cigarettes is around 35 billion per month and if execise evaded production is accounted for, then the consumption would be 40-billion per month. Around eight to nine per cent of the volume is in category 'A', category 'B' is five to six per cent, category 'C' is 35 per cent and around 50 per cent balance is sub-divided into categories 'D' 'E' and 'F'.

The cigarette industry has been claiming that since 1988, smuggling has become unbearable and has doubted from 40 to around 80 million cigarettes a month. Even if these figures are accepted at face value then the share of smuggled cigarettes of the upper most brand is a mere 2.2 per cent.

On the other hand despite a price hike the most popular local brand whose share is 99 per cent in category 'A', it has been able to increase its clearance from 160 to 185 million per month. In case the smuggling is curbed then the local production could jump by 40 per cent which would benefit the exchequer immensely as the exercise duty rate is of over 70 per cent. Simirly, curbing of smuggling could also benefit the legitimate import of deluxe brand cigarettes with the Government collecting over half a billion rupees in a year.

Exercise Evasion: The realculprit which has becaused so much turmoil in the cigarette industry and resulting loss to the government revenue from its most important source is proliferation of cigarette makers in the Mardan area. Due to political compulsion, the Federal Government on the behest of the NWFP provincial authorities, has failed to take corrective action. The proposal of a capacity tax, even though agreed by the CBR, was shot down by the Ministry of Finance.

Textile Industry

A total of 37 new textile and spinning mills will go into production during 1992-93. After commissioning of these mills, the number of textile and spinning mills in the country will increase from 341 to 378 including six units located in Azad Kashmir. Out of these 37 units coming up in the country, 34 textile units are located in Funjab having total of 613,760 spindles, three are located in Sindh having 48,000 spindles. A total of 16 textile and spinning mills comprising 242,760 spindles had gone into production during July 1990 to June 1991. All these units were located in Punjab.

During July 1990 to June 1991, a total of 34 textile and spinning mills had gone into production comprising 517,600 spindles and 1,152 rotors. Out of these units, 30 textile and spinning mills comprising 476,320 spindles were located in Punjab, three units comprising 26,880 spindled and 1,152 rotors were located in Sindh and one unit having 14,400 spindles was located in the NWFP. Whereas during July 1989 to June 1990 a total of 34 units comprising 437,057 spindles and 6,958 rotors had gone into production.

Textile Quota Policy

The new textile quota management policy, announced on March 7, aims at simplifying the procedures and safeguarding the genuine performance of the performance holders. The new policy has been framed in consultation with the textile trade associations and it reflects by and large the consensus of the trade.

Privatisation

Privatisation process is going apace. Several units were handed over to private sector. During the week under review two ghee units including Sheikh Fazalur Rehman and Sons Multan and Kakakhel Industries Faisalabad were sold out. Earlier Fazal Vegetable Ghee Mills Islamabad and Associated Industries Nowsher a were sold.

Sindh Engineering

This unit producing Suzuki Motor Cycles light commercial vehicles, engines of Mazda was handed over to Enimis Service at Rs. 400 per share against the second highest bidof Nisar Jamil offering Rs. 385. The workers and Stock Management Group which was represented by the Managing Director of Sindh Engineering had the option to match the highest bid. The group said that they were not interested in the ideal and gave up their right to purchase it. If the workers do not buy two lakh shares to which they are entitled the new owner will have to buy them too. In that case the unit would cost, in terms of the bid, Rs. 800 million.

Gharibwal Cement

Gharibwal Cement was put on auction at the floor price of Rs. 1011. The successful bidder Haji Saifullah offered Rs. 1360 per share. The total value of the 51 per cent shares of Gharibwal is estimated at Rs. 614.950 million.

Zeal Pak Cement

The Zeal Pak Cement with 51% shares (valued at Rs. 2.21 million) was purchased by Haji Saifullah who offered Rs. 108 against the floor price of Rs. 112 per share. Although the Commission has put a condition that no bid less than the floor price would be considered, it moved this case to the Chairman Cabinet Committee on Privatisation and got his approval as according to the Commission officials this bid was very close to the reference price.

Kohat Cement

The unit was purchased by Palace Enterprises for Rs. 52 per share against the floor price of Rs. 48 share. The unit had earned a net profit of Rs. 15.907 million during the past six months. The unit has annual production capacity of 300,000 metric tons of cement.

Quaidabad Wooll en Mills

Haji Saifullah bought the unit by offering Rs. 56 per share. The sale capacity of Quaidabad unit is estimated at about 2600 sq/m. The unit was established in 1953. It had a pretax profit of 1.2 million during the six months.

Balochistan Wheels

The Balochistan Wheels with 90 per cent shares has been given to the highest bidder Tawakkal Group of Companies at Rs. 73 per share as against the second bidder's offer of Rs. 72.5 per share. The Commission had fixed Rs. 65 as basic price per share along with a face price of Rs. 10 pershare. The successful bid amount to a total of Rs. 304.7 million. According to Managing Director of Balochistan Wheels, it is the only industrial unit of its kind in the country. "The unidt had earned Rs. 90.6 million as pretax profit this year as against 56.9 million last year". The loans worth Rs. 212 million upto 1997 will remain secure and that its terms will remain the same after privatisation.

Pak China Fertilizer

The Pak-China Fertilizer, which is now to be owned by Schon Group, was put on auction by the Commission at the floor price of Rs. 27 per share with 50 per cent of the total 16.92 million of shares. The group faced no hurdle in acquiring this unit by offering Rs. 27 per share as there was no other bidder. The Labour Union could only offer Rs. 5 per share as second bidder.

Khurram Chemicals

Upjoin Pharmaceutical the US multinational has purchased Khurram Chemicals a subsidiary of FCCL. The firm had already paid 26 per cent of the price as a down payment of the unit at the rate of Rs. 46 per share nearest to the reference price of Rs. 50 per share. Upjohn not only assured that the employees of unit would be retained and their working conditions be improved further with the expansion programmes of the Khurram Chemicals.

It is not clear what the government would get out of privatisation. That the government will get only 1.7 billion rupees instead of an originally spelt out figure of Rs. 3.9b, is an indicator of how the government is going about the exercise and calls for a serious enquiry. It is such jumblings, characteristic of Pakistan bureaucracy which recently prompted the Asian Development Bank to withdraw its financial umbrella from PakistaniDFls. The Government must end the prevalent fogginess about the reserve price setting procedure. This could be done by following the British example and entrusting the task to an independent investment bank.

The truth is that the current approach to privatisation is fundamentally flawed. Disinvesting 115 GOCs, worth an estimated 30 billion dollars in just one year, is absurd for a country a GDP less than 50 billion dollars especially whent the saving rate is as low as ours. Privatisation of this scale involves a total restructuring of the economic and social set-up and a helter skelter approach would end in an utter mess. The fruit of denationalisation are only realised when the preponderance of the state gives way to wide ownership and out to private monopolies. The example of Britain is instructive, it took a woman of Mrs Thatcher's mantle 5 years to reduce the state sector by 40 per cent.

The most dangerous pitfall in any privatisation lies in tackling the labour problem and no one in the Government seems to have even a ghost of an idea about it. Simply lingering on, Mr. Nawaz Sharif must know, will not help and only hasten brewing of discontent. With a targeted opposition, seething with displeasure, law and order problems already mounting and an absence of any security net; insouciance on this count would be courting disaster which is exactly what the Government is doing. Privatisation is always painful in the short-run and bulldozing through over the heads of the Opposition will result in political instability. Prosperity, the government must realise, is the chief rationable behind any privatisation and it never arises out of political instability. The need therefore, is of a balanced, careful and conciliatory approach.

Cement

The rated capacity of cement production is 8.23 million metrictons againstj demand of 9.6 million metric tons. To met this demand total installed capacity has to be raised to 10.1 million metric tons in the year 1993-94 assuring a capacity utilisation factor of 95%.

At present, most of the cement plants are concentrated in southern part of the country and the cement production in the South is far in excess of its requirements. The position is exactly the opposite in the northern regions. This anomalous situation has added to the transportation cost as large bulky material has to be transported from the south to the north resulting in a higher cost per ton of cemen. Hence setting up of cement factories in the northern areas, particularly where limestone and infrastructure are available, would be a highly profitable venture.

Historical sales of cement each zone during the last 8 years show the following overall growth rates:
 per annum
 a) Growth rate for
 North Zone: 9.6%
 b) Growth rate for
 South Zone: 6.5%
 c) Overall national
 growth rate: 8.3%


The higher growth rate in case of North Zone is mainly attributed to suppressed demand, past trend of urbanization and construction of pucca house, water and power projects and consumption in defence sector. This growth rate also does not represent realistic demand because of widespread reports of shortage of cement in this zone. In 1985 the price of cement was decontrolled but State Cement Corporation of Pakistann because of its dominant position continued to be the price maker. At present, in it endavour to keep uniform prices, State Cement Corporation of Pakistan sells some of its production from its southern plant to northern region. This monopolistic position would end once the current privatizationn process is completed, converting this leader-follower market to a free market. Price would thus follow cost of manufacture, transportation cost and supply demand equilibrium.

Paper & Board

According to Pakistan Pulp Paper & Board Makers Association there were 23 paper units who were its members. Production of these units increased from 80,920 tons in 1984 to 169,228 ton in 1990 showing more than 100 per cent rise in six years. The production in different categories was: writing and printing paper 33 per cent packing and other 20 per cent paper board 26 and chip board 21 per cent.

In the last three years capacity utilisation in the paper industry has shown improvement. This is evident from the capacity utilisation which was 63 per cent in 1988-89 increased to 70 per cent in 1990-91.

Pakistan Paper Corporation has been closed down. However, new units have come up and these units are supplying writing and printing paper to the domestic market. Production of writing paper was estimated at 56,365 tons in 1990 as compared to 31,709 tons in 1984 showing a rise of 77.7 per cent in the last six years. Production of paper board was estimated at 45,627 tons in 1990 as compared to 30,391 tons in 1984 showing a rise of about 50 per cent during the same period. Production of wrapping and packing paper registered a rise of 316 per cent during the same period up form 8079 tons in 1984 to 33618 ton sin 1990.

Automobile Industry

From a non-existing industry at the time of creation of Pakistan in 1947, automobile industry is now producing around 50,000 cars and commercial vehicles 12,000 tractors and over 80,000 motorcycles annually. The local content of the vehicles produced ranges from 40% to 60% in cars and commercial vehicles, over 80% in tractors and around 55% in motorcycles.

The automobile as one single product the manufacture of which encompasses a wide spectrum of manufacturing facilities and technologies. At the upstream level, these include manufacture of high grade alloy steels, aluminium and non-ferrous alloys, plastic raw materials, glass, chemicals, including paints and lubricants, and capital goods such as machine tools. On the ancillary industry i,e, these include modern foundries and forge shops, pressure diecasting, precision machinery, sheet-metal presses, plastic moulding, rubber products, electrical and electronics, hydraulics an pneumatic and miscellaneous other facilities required for the production of fitments and accessories.

Thus, the automobile with its 10,000 parts and ever increasing complexity remains one of the most challenging products to manufacture and a telling measure of an industrial society's capabilities. It requires: 1) a sizeable investment per unit (both

foreign and local currency). 2) long gestation period for attaining

technological and production

efficiency. 3) comparatively lower margin of return

and expected losses in the intial years

of operation. 4) high pace of technological

development in the world creating short

life cycles of products/processes

necessitating technical tie-ups. 5) requirement of infrastructure. 6) non-acceptance of second quality

goods.

Imports

Imports of automobile showed a sharp rise in the last five years. This is illustrated in the following table:

Cars of several makes were imported. These cars are finding their way into the country mostly under the Gift Scheme. No less than 3 million Pakistanis are supposed to be working abroad and the bulk of them visit the home country every one or two years. This is in addition to the facility available for the import of commercial vehicles and tractors. These vehicles can be imported in any number.

Chemicals Industry

Pakistan has sufficient natural resources to establish a sound chemical industry. It is necessary to review the whole structure of incentives now available for the investors. Incentives framework need reappraisal. Duties on basic raw material required for manufacturing of chemical end-products are unnecessarily high and these should be reduced so as to encourage the establishment of chemical industry in the country. There bureaucratic delays in the implementation of some projects. For instance coal tar processing plant which is a downstream project of Pakistan Stell is not yet off the ground. As a raw material coal tar ranks high for the chemical industry and implementation of this project should be accorded high priority.

Facilities for the fabrication and manufacturing of chemical plants are available but these facilities are scattered and disjointed. A fair amount of Hazara Phosphate Fertilizer was manufactured locally. Attock Chemical Sulphuric Acid plant was wholly manufactured by Karachi Shipyard and Engineering Works. Heavy Mechanical Complex (HMC) is in a position to manufacture power alcohol and fertilize plants. It is necessary to study the existing facilities so as to create coordination amongst different facilities.

Pakistan import bill for chemicals and related products is quiet heavy. The share of chemicals in total import has sharply increased from 8.9 per cent in 1981-82 to 16.3 per cent in 1990-91. Average annual growth in imports in the last eight years worked out to 18.0 per cent. These ever increasing imports necessitate urgent development of chemical industry. In fact there was very little technology transfer in this regard. Countries like India and China followed a policy that insisted purchase of plants with an eye on self-reliance and their engineers involved deeply in the design and engineering of the projects. The Indian has made it mandatory for all projects to be engineered in India and usually the purchase is only for the acquisition of process knowhow.

Pharmaceutical Industry

Plans are underway to make amendments in the Drugs Act for the registration of the herbal medicines to keep a check on the quality and prices of these medicines. At present the herbal medicines were not being registered and no control was exercised by government on such drugs. About 200 local manufacturers and 30 multinationals are manufacturing about 2,000 varieties of medicines within the country. The prices of medicines were increased in May 1991 last time and after that no prices were raised. A total of 2,683 medicines had been registered so far. The list of the Would Health Organisation (WHO) comprises 250 to 300 essential drugs, the government had allowed permission for more drugs to encourage competition and lower prices in the country.
 Industrial Production
 (000 Tons)
 Actual
 Production Target
 Items 1991-92 1992-93
Vegetable Ghee 680 710
Sugar 2180 2375
Cement 8030 8440
Paper & Board 180 195
Fertilizer 1113 1305
Soda Ash 205 215
Caustic Soda 87 95
Billets 346 396
Cotton Yarn 1135 1295
Cotton Cloth 305 320
(million Sq. M.)
Source: Annual Development Plan.
 Sugar Production
 No. of Productions Recovery Molasses
 Units Crushing (000 Tons) Rate%
Punjab 24 12,094 934 7.72 611
Sindh 22 9,598 902 9.40 473
NWFP 5 911 73 8.26 35
TOTAL: 51 22,603 1,909 8.44 1,119
 Industrial Production
Item Unit 1990-91 1991-92 1992-93
Vegetable Ghee (000 MT) 656 680 710
Sugar (000 MT) 1956 2180 2375
Jute Goods (000 MT) 100 110 114
Cement (000 MT) 7745 8030 8440
Paper & Board (000 MT) 160 180 195
Fertilizer (N) (000 MT) 1120 1113 1305
Soda Ash (000 MT) 158 205 215
Caustic Soda (000 MT) 80 87 95
Billets (000 MT) 330 346 396
H & CR Sheets (000 MT) 535 405 405
Petroleum Products (Mln. Brls) 52.7 54.2 55.9
Cotton Yarn (000 MT) 997 1135 1294
Cotton Cloth (Mln. S.M) 295 305 320
Cigarettes (Mln Nos) 29880 28690 29690
Trucks/Buses (000 No) 3.0 3.0 4.0
LCV/Cars/Vehicles (000 No) 39 43 48
Bicycles (000 No) 429 510 520
Tractors (Public) (000 No) 14 16 18
Sewing Machines (000 No) 81 85 95
Air Conditioners (000 No) 19 20 25
Electric Motors (000 No) 31 28 35
Motor Tyres (000 No) 952 995 1070
Transformers (000 No) 21 21 25
HMC/HFF (Mln Rs)(*) 774 920 889
PMTF (Mln Rs)(*) 293 337 354
Cotton Ginning (Mln Bales) 9.63 12.48 12.60
(*) At 1987-88 prices Source: Annual Plan 1992-93.
 Capacity
Year Utilisation Production %
1988-89 156,101 63
1989-90 156,798 66
1990-91 169,228 70
 Production of Paper & Board
 (Quantity M. Tons)
 Writing & Packing Paper Chip
Year Total Printing Other Board Board
1980 79,591 28,226 12,120 27,315 11,930
1981 84,791 33,122 11,867 28,597 11,133
1982 86,317 32,975 14,579 28,657 10,106
1983 80,249 29,592 10,649 29,568 10,440
1984 80,920 31,709 8,079 30,391 10,741
1985 109,544 35,477 22,618 36,445 15,004
1986 121,578 32,827 23,105 36,676 28,970
1987 146,133 40,095 30,644 43,405 31,989
1988 156,101 55,511 24,026 45,170 31,394
1989 159.798 55,524 30,742 42,505 31,327
1990 169,228 56,365 33,318 45,627 33,618
Source: Pakistan Pulp Paper & Board Makers Association
 Imports of Automobile
 (Rs. in million)
Year Value
1986-87 5,538.8
1987-88 6,969.2
1988-89 7,557.5
1989-90 8,704.0
1990-91 10,006.1
 Source: State Bank
 Annual Report 1990-91.
 Production of Motor Vehicles
 4x4 Cars
 Vehi-Suzuki
Year Trucks Buses LCVs cles800CC Total
1987-88 2,238 732 10,088 2,63119,032 34,721
1988-89 1,857 777 11,899 3,340 1,996 19,869
1989-90 1,715 626 11,609 1,58125,747 41,278
1990-91 2,029 252 11,882 2,80525,166 42,134
1991-92 1,137 823 7,499 82918,648@ 28,936
@July-January
(*) Production of Cars started from September.
Source: Economic Survey - 1991-92.
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Title Annotation:Pakistani business and industry report
Author:Haidari, Iqbal
Publication:Economic Review
Article Type:Industry Overview
Date:Jul 1, 1992
Words:4665
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