Image Credits: Urdu Point
LAHORE, AUGUST 08 (Online Int’l): The Pakistan Industrial and Traders Associations Front, while showing serious concern over the continued decline in the large-scale manufacturing index, has stated that a National Industrial Growth Strategy from the government is essential with ownership at the highest level, as large-scale manufacturing (LSM) output shrank 10.3% in the first 11 months of July-May of fiscal year 2019-20 while it contracted by 24.8% in May alone over the same month a year ago.
PIAF chairman Mian Nauman Kabir said that COVID-19 has adversely impacted the world economy as well as the Pakistan trade and industrial sectors.
In a joint statement with senior vice chairman Nasir Hameed and Vice-Chairman Javed Siddiqi, Mian Nauman Kabir said that the large industrial sector, which had been shrinking even before the deadly pandemic hit the economy, further contracted by 10.3% in first 11 months of the previous fiscal year, underscoring the need for a review of economic policies.
The respiratory disease of COVID19 had started impacting Pakistan’s economy from the third week of March this year. But large industries had been struggling even before the pandemic hit the economy.
Mian Nauman Kabir said that the industry can pick up pace in the new fiscal year with the implementation of envisaged policy measures. The plan anticipates the private sector investment to lead the revival of economic activity with the help of necessary policy and regulatory support through public sector. However, in the high production of cost, it is unlikely that private sector can trigger economic expansion or increase investment.
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COVID is an opportunity to re-orient the manufacturing strategy,of Pakistan – Part 2
The Manufacturing Matrix in Pakistan
Option 1 – The Pre-Requisite
Captive Raw Materials – For Captive Raw Materials in the Agri and Mining Sector,the State has to support the complete value addition of the product,near the source.These 2 cordinates,combined with Tax Holidays,will make it a viable venture,for any Foreign Capitalist – subject to Politiical Risk.Take the Sugar sector – for Political Risk – and so, only Pakistani Politicans,can set up Sugar Mills.
However, one needs to be practical here. Just because Pakistan has the best Cotton in the world (along with long staples, from Egypt),does not mean that yarn or fabric units, will be viable in Pakistan. Large Technologies of Scale, allow imported raw material from the Moon (like Helium),and still be viable. So there is no harm in exporting the cotton or some minerals. If the same technologies of scale, were set up in Pakistan – it will involve
large capital costs – and would accentuate the financial and politcal risk,of the project. And if it sinks,it will doom the Pakistani Banks (like in India).dindooohindoo
Pakistani Capital should be used where Pakistani has an exceptional edge,like in the Cement Sector (with complete maaterial and logistics integration).Another example is the Agri Processing,Foos and Agri Waste Insustry.These also provide large scale employment,as they have extensive supply and value chains.
Option 2 – Strategic Leverage
Some Manufacturing is required as a strategic leverage,to ensure that Pakistan is not coerced, in pricing,in international procurements.Therefore,there have to be sufficient capacities,in some critical sectors,like steel,oil,food,fertilisers etc. Howvever, this is an offset,to procurement price risk.If there is a Force Majeure event or a Trade embargo – then,there will be no raw material imports,in any case – and the fertiliser plants etc,will be mothballed.
Option 3 – Manufacturing Hydrogen for the Balloons
So let us say,you have floated a billion balloons,by importing hydrogen – and now, the balloons are used,for entertainment,space travel and advertisements. Next Step,is to manufacture the Hydrogen.Just like Pakistan,is sponsoring the manufacture of mobile phones and accessories,in Pakistan to STOP their imports,as it is a waste of USD and much cheaper to make.Just like the Auto sector,it is an assembly operation – and so,the capacities are modular for the phones and their parts.At any stage,of the manufacturing, any process can be outsourced to PRC,at any time,by IMPORTING the interemediate products.
Thus,there is large scale employment – with impact on entrepreneurship and tax revenues and FX savings and reduction in economic costs.
The Crux is to LET THE PRIVATE SECTOR EXPAND THE BALLON (THE MARKET).LET THEM USE ANY MEANS (SMUGGLING ETC.).Then when the supply chain,logistics,servicing,spares,maintenance,skilled and unskilled labour value chain,is in place – BRING IN MANUFACTURING OF THE PRODUCT.
Option 4- Manufacturing to Stop Smuggling
There are several imports into Pakistan where the market is highly matured and seasoned.No one likes to pay import duty.The Philosophy is,that the importer has spent time and monet to locate and hide the supplier,and is giving JOY to 200 million people,by selling cheaper and attractive products.If you travel to Yiwu or Guangzhou, you will find Pakistanis relabelling their cargos (to be shipped),so that competition CANNOT trace the supplier.They stuff the container far away from the port – drive it to the port – seal the container – and then,track it on GPS sites ! There is a large group of the Pakistani traders – as they carry large amounts of cash (which has to be stored and guarded) – as the suppliers are paid in cash – and since,there is no insurance or underinsurance, there is a lot of tension in the supply chain.
So Y Should they pay Import Duty ?
However,after the market in Pakistan,is seasoned and matured – the Pakistani state should ban imports,and allow manufacturing.The same importers can bring in the Chinese,as a JV into Pakistan.For FMCG and Consumer Goods,like Toys,Stationery etc.,all the raw materials, which are used in PRC,are available in Pakistan.Labour Cost in China is 10 times that of Pakistan.It is simple Maths
But the real gain is that – IT WILL BOOST GOVTT REVENUE.As the manufacture will leave a forensic trail,from power meters to pollution,and so,the state will earn large revenues which were lost before,and also save FX.
Option 5 – Manufacturing Intermediation
If you look at the state of pollution and effluents, in Karachi – it is a BAD and SAD situation. However,that is what has led to the COVID immunity in Pakistan.So the Good news just does not end.But this poisoning of the air,water,food,fish and meats – will take an incalculable toll on the intellectual,spiritual,social,sexual and physical evolution of Pakistanis.
Therefore,it is time to OUTSOURCE pollution,using Manufacturing Intermediation,by carrying out Manufacturihg from Intermediates.Hence,Pakistani manufacturing should use imported intermnediate products – wherein,all the poison,effluents and pollution,are in the exporting nation.PRC has the effluent treatment and waste recovery plants and dump sites on a scale,cost and technology,WHICH NO NATION IN THE WORLD HAS (not even the USA – as the USA,imposes a TAX,on storage of Hazardous Cargos).Of course,then COVID breaks out – but then,the PRC export it,and recover all the costs,of the effluent treatment.