Industry Review 2010

EDITORS NOTE
The countrys economy - a semi-industrialized economy - is in shambles on account of a variety of factors. One of the key areas of economy - Industrial Sector, which is also known in economics parlance as the Secondary Sector - makes a highly significant contribution to the countrys GDP.
Unfortunately, however, this sector has been hit hardest by the economic slowdown that has taken hold since 2007. Its greatest casualty has manifested itself in the shape of ever-increasing numbers of unemployed people as this sector provides a sustained and reliable source of employment to the teeming millions of this country. Any further deterioration in this sector would only lead to multiplying the number of jobless people, thereby directly contributing to social unrest in society.
A point that often receives less attention in policy formulation parleys in Islamabad is a lack of focus on the need of a comprehensive policy to help the countrys industrial sector determine the course of action on different segments of industry.
In Pakistans Secondary Sector, which needs to take a clear precedence over all other sectors, cotton textile production and apparel manufacturing are the largest industries, accounting for about 66% of merchandise exports and almost 40% of the employed workforce. Other major industries include cement, fertilizer, edible oil, sugar, steel, chemicals, machinery, and food processing. All of these, along with some others, have come under renewed focus in Business Recorders Industrial Review in your hand.
Although, each of the three of Industrial Sectors in the country have different types of problems, some common challenges faced by them include woeful shortage of energy; unavailability of required capital on account of a serious lack of FDI and high interest rates and; a serious law and order issue.
However, these challenges are more formidable for Secondary Sector that comprises all those industries that manufacture goods than for the two other Sectors - Primary and Tertiary. This sector also faces the profound shortage of skilled manpower for enhanced productivity, which is normally achieved through self-perfection, minor innovations and upgrades.
Industrial Sector in Pakistan is the largest consumer of energy over the last 12 years or more, followed by transport, residential and commercial consumers, agriculture and others. As regards electricity consumption, it has been placed at number two position after Household. Pakistans manufacturing sector had been experiencing double-digit growth from 2000 to 2007. Moreover, large-scale manufacturing was growing from a minimal 1.5% in 1999 to a record 19.9% in 2004-05 and averaged 8.8% by end of 2007. Unfortunately, however, the situation has been quite different since then.
Historic evidence suggests that manufacturing promotes economic development. We have been consistently underscoring the need for reinventing a strategy particularly in relation to state-owned large-scale units that have become a huge burden on the countrys exchequer because of their inefficiency over a period of time.
The malfunctioning of these sick units has taken them to a position where government failures have been found to be more pervasive and severe than market failures. These need to be entrusted into the care of highly professional people - through setting up of autonomous boards of directors, free from any political pressure and influence or sold - without any further loss of time. After all, it is not the governments business to be in business.
This brings to mind Prof David S Landes observations about the events that preceded the Industrial Revolution. In his The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor, the Harvard economics historian argues that the Industrial Revolution, which ushered in the modern world, was to a significant degree a break-away from government-run businesses. He explains:
The state of the seventeenth and eighteenth centuries was incapable of planning development nationally or allocating resources efficiently. The state promoted monopoly, when nothing could have been more harmful for long-run development. State assistance was more often than not an encouragement to laxity and a cover for incompetence. With some notable exceptions, privileged enterprises were sloppily managed and required repeated transfusions of royal capital. Often they turned out an inferior product that could be disposed of only to captive customers, like army regiments.
The sooner this is done, the better. Not only will this paradigm shift bring to an end the curse of bailout packages by the government but manufacturing will be poised to become more competitive and skill-oriented. In our case in particular, subsequent governments have been captured by vested interests. Industrial policy has therefore only supported rent-seeking by the elite, thereby distorting the efficient allocation of resources by market forces at the same time. Hence, the need for a new approach to strengthen the industrial base with a view to providing overall support to the countrys economic structure. What is needed is a sustained and coordinated effort for recovery.