Now is the right time to implement pro-growth policies: Chief Executive, Lucky Cement

Law and order has improved, inflation is down, the fiscal house is tamed and the economy has been stabilised. Further, the development of projects envisioned under the China-Pakistan Economic Corridor (CPEC) will create opportunities for local companies and workers. According to the chief executive of Lucky Cement; "Now is the right time to implement pro-growth policies". In a recent interview with BR Research, Mr. Muhammad Ali Tabba shared his views regarding the cement industry, the economy and the measures needed in order to ensure that Pakistan is able to capitalise on emergent opportunities. The key takeaways are summarised here:
Demand abroad and at home
The share of exports in Pakistan's total cement dispatches has been on a declining trend for the past few years. When asked about this fall, the chief executive of Lucky Cement contends that the demand for cement in these markets has not fallen; rather Pakistani exports have become uncompetitive when compared to competitors from India, Iran and the United Arab Emirates; all of whom have scaled up their production capacities to reap the benefits of economies of scale. He also laid blame on the imposition of high barriers to trade by some countries; "Iraq has imposed 50 percent import duty, Mozambique has imposed additional duty of ten percent while South Africa has imposed an anti-dumping duty".
He explained that a decline in the share in international markets is not the only pain being caused to domestic cement manufacturers. "A lot of cement continues to be smuggled into Pakistan from Iran via the Taftan border; roughly about half a million tons per year" contended Mr. Tabba as he asserted that this is causing a significant shortfall; not just in revenues of local cement makers but also the government in terms of taxes foregone due to illicit trade.
The fall in exports has not troubled domestic cement manufacturers too much, thanks to a concurrent increase in demand within the country. Total dispatches have continued an upward trend while at least three companies have unveiled plans to enhance capacity with the addition of new plants and supporting infrastructure. When asked whether he expects this trend to continue, Mr. Tabba predicted even higher growth in domestic demand for cement on the back of the CPEC projects, major housing projects, infrastructure development.
Even with the addition of new plants, BR Research believes that the current pace of domestic demand will keep overall industry's capacity utilisation close to 90 percent. The chief executive of Lucky Cement backed this view; "I have no doubt that we can continue to experience growth of 20 percent per year, at least for the next few years".
Specter of commodity prices
Evidently, he is not the only one bullish on the country's growth prospects. From multilateral donors to international banks, most are convinced that Pakistan is poised to break the shackles of sluggish growth that have held the economy back for past many years. However, Pakistan's economic fate has often been tied with the gyrations in international commodity prices.
Yet Mr. Tabba is sure this time is different. He highlighted that international oil prices are expected to remain sluggish for some time while the country's dependency on the fossil fuel, is also waning. "In three years, as new power plants based on coal, solar, hydro and wind come online; our fuel mix will shift drastically" he pointed out. He is also quite hopeful of the positive impact of the proliferation of liquefied natural gas on the country's energy bill.
Formula for investments
The stars may well be aligning for Pakistan in the form of improved growth outlook and the attainment of a semblance of economic stability; but foreign direct investment remains dismal. So does the business magnate expect this to change? "There is a formula to investment; first there has to be domestic investment and the foreign investors follow suit" he responded.
He lamented that it is unfortunate that "we chase after foreign investors to invest in our country while the people who want to invest in this country are discouraged" while adding that the government has to take measures to pursue the liquidity available with private investors in the country similar to the strategy followed in the 1960s.
Imports versus industrialisation
The prevalent conditions in the country favour imports over domestic investment and production, he contends adding that unless this bias is addressed attracting investment to the country will remain an elusive goal. Not all the chips piled against domestic production are by design; many are also down to inefficiency and complacency. "Our domestic transportation cost is among the highest in the world because we have not developed our railways" highlighted Mr. Tabba.
Citing an example from the cement industry, he informed that the cost of transporting one ton of coal from Karachi to Lahore, is $24 while "to bring the coal from South Africa or Indonesia to Karachi Port, it costs about $8 per ton". He contended that while the private sector can improve cost efficiency through modern equipment and captive power plants, it cannot perform the government's duties such as the development of logistics infrastructure. "If the government is serious about taking advantage of the investments from CPEC to improve our infrastructure, it should build more railway tracks and privatise" he contended. He also called for government to clamp down on smuggling and under invoicing and implement import duties to protect domestic industry; particularly the segment which service local demand.
From each his due
Similar to other organised sector companies, Lucky Cement prides itself on its contributions to the national exchequer. Unfortunately, it remains among a handful of compliant firms compared to a vast majority of businesses which avoid or evade taxes altogether. Mr. Tabba highlighted that while it is important to broaden the tax net, the tax collection authorities have to be rejoiced to achieve this goal. "The black economy is a huge problem and a lot of liquidity is parked in it. The government must implement new taxes, enhance the tax net and bring those sectors into the formal fold" he insisted.
While pointing to estimates that contend the informal economy is as large as the formal economy, he stated that a drive to capture the undocumented economy will boost national income and take a slice out of indicators such as debt as a percentage of GDP.
He lauded the government for the achievement of macro-economic stability. Pointing to the rising levels of foreign exchange reserves he warned that these savings must not be squandered through rampant consumerism on the back of high non-essential imports. 'The government should encourage strategic industries such as steel, agro processing and low hanging fruits such as agriculture, textiles and manpower exports".