Improving industrial productivity

The draft industrial policy, prepared by a special task force and unveiled at meeting in Islamabad recently, points out that the industrial sector's share in our GDP is only 19 percent, and, accordingly, its share in the employment market is just as unimpressive. Its poor performance is also evident from the fact that over a 33-year period, between 1968 and 2001, industrial value-addition increased by only 7 percent as against 40 percent in South Korea, 27 percent in Malaysia, and 17 percent in Thailand.
The country is also far behind its regional competitors. This comes out from the task force's calculation that Pakistan will need nine percent increase in investments over the next 20 years period, 11.5 percent in ten years, and 16 percent in five years in order to catch up with other countries of the region.
As it is, investments, both local and foreign, have remained shy. What accounts for this situation, apart from the reasons associated with political instability and law and order problems, are prohibitive costs of the factors of production and marketing, cumbersome legal procedures as well as labour laws, and the workforce's poor education and professional skills.
The costs of energy, the life-blood of industrial activity anywhere, happen to be among the highest in the world while the quality of service is a lot less than satisfactory.
The task force has rightly suggested that the prices of energy should be reduced for the industrial sector through budgetary subsidies so as to ease off some of its excessive burden. It has also pointed out that the country's transportation system, including trucking, ports and the railways, is so bad that its inefficiency alone costs as much as Rs 320 billion annually, which comes to about nine percent of the GDP.
Then there is the problem of exorbitant port handling charges. They are much higher than those charged for similar services in the neighbouring countries. Hence, it is plain that while the transportation system must undergo drastic overhaul and modernisation, the port handling charges should also be brought down in line with the regional rates.
The task force has also made the sensible recommendation that small value commercial disputes should be disposed of speedily, and towards that end cases involving upto Rs 10 million should be settled through sessions courts.
Like we have been repeatedly urging the government through these columns, the task force says that small and medium enterprises (SMEs) need to be encouraged, and that the government should help them by further relaxing loan conditions for them.
Being labour intensive, as opposed to the technology intensive nature of big industries, they have the potential to create a lot of employment opportunities for both skilled and unskilled labour. Besides, since entrepreneurs in this sector bring to their work their diverse experiences and interests, they can help address a major problem that the draft policy mentions ie, much of the industrial activity is concentrated in just one sector: textiles.
It also suggests that the labour laws may be consolidated and brought down from their present number of 29 to six only, and that changes in labour related legislation should allow for coverage of common medical treatments by health insurance. The need to observe labour laws, in conformity with ILO requirements, cannot be overemphasised.
However, it is also important that they should not hinder economic activity, especially in small and medium enterprises. A case in point is the present threshold worker number for the applicability of these laws, which, more often than not, makes these enterprises unsustainable. It is advisable to move up this threshold number from the present dozen or so workers to a hundred.
The draft policy also laments that the workers are poorly trained, which raises the cost of doing business for investors. It hardly needs saying that better educated workers enhance both the quality and efficiency levels of the industrial sector.
As a matter of fact, even in the highly developed countries, such as the US, improving the educational levels of workers is a constant governmental concern. Unfortunately, this basic requirement has remained much neglected here. The government must undertake urgent and serious efforts to raise functional literacy figures, and also to impart education that focuses on skill training in accordance with the market needs.
It is evident from the mushroom growth of all sorts of private educational institutions - many of which offer substandard instruction - that governmental efforts in this important field are grossly insufficient. One hopes that the many good recommendations included in the task force's "industrialisation strategy" will lead to necessary changes and measures, creating an atmosphere that is conducive to industrial activity.