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Pakistan Culturing Incentives for Industry

Industry leaders expect government to come out in next few weeks with a salvage package to stop industry from a collapse. "It is imminent’’, the President of Karachi Chamber of Commerce and Industry, Majyd Aziz said as according to him,, the government will take some relief measures before announcing the next elections and putting in place a caretaker set-up.

Amin Bandukda, the Chairman of SITE Association of Industry too shares this perception and expects a quick initiative from the government. Except for automobile, cement and construction all other segments of industry are begging for relief. The automobile that depends on 35 to 45 per cent imported kit of equipment and parts in semi knock down condition and cement and construction industry are somewhat flourishing because of government policy to give them liberal bank loans.

“The conventional manufacturing industry is in distress’’ a senior businessman in Lahore who heads one of the top business houses of Pakistan with stakes in cement, textiles, banking, insurance and tractors said. He said the services industry is thriving and mentioned telecom, banking, insurance, leasing, retail and wholesale trade, transport and construction as examples. These industries are booming because of the government measures.

Cement, he said is one conventional industry that is under distress because the government has levied Rs 750 excise duty on a ton plus 15 per cent sales tax. Excise, he said is normally levied when government wants to discourage consumption and tobacco and alcohol are such items. ``But there is no sense in levying excise on cement’’ he argued in the light of the government’s policy to encourage construction.

He said that cement demand has increased somewhat but it does not match the capacity expansion and heavy investment involved in the projects. The financial burden is killing cement industry and it needs some immediate relief. Fawad Ejaz from the leather industry also eagerly awaits promulgation of a promised relief package for his industry. ``We had several meetings with the commerce minister and chairman Export Promotion Bureau (or Trade Development Authority?) in last few months’’ Fawad said, disclosing that relief packages for long and short- term measures have been agreed upon between the leather industry and the government.

After observing a persisting decline in exports, virtually across the board, since July this year, the prime minister, the commerce minister and senior government functionaries held several meetings in October, November and December with business leaders in which strategies were discussed to check this fall. ``Obviously, the production cost of industry was the central theme’’, said a local business leader. In this context, the focus was on utility tariff, financial cost, labour charges and other levies.

There is now almost an all-round consensus that the industry is in a distress as it has suffered a lot and the 2007 outlook is bleak and the government should do something to give relief by way of bringing down production cost. ``The government cannot afford to have closed industries and army of unemployed in the cities at the time of elections’’ Majyd Aziz argued .He is convinced that stage is set for putting in place a salvage package. This cannot be done by any caretaker government.

“The growth in large-scale manufacturing remained below the annual target during FY 06, for the first time during last four years’’, reported the State Bank of Pakistan’s annual report for the year 05-06 released on December 2, 2006. In fact, the government projected only 13 per cent growth target for LSM in 05-06 as against 15.6

per cent a year earlier in recognition of (i) capacity constraints faced by some industries (ii)

impact of rise in oil prices and (iii) continued monetary tightening. No wonder than the LSM showed only 10.7 per cent growth in the year 05-06.

What is the magnitude of stress under which the industry is operating is best illustrated by virtually having a look across the board decline in the industrial exports. Not only this, the national industry is now losing ground to foreign goods in the domestic market.

The situation has reached a stage where at least two top shoe-making companies are said to be getting their products from China for sale through their domestic outlets’ network to local consumers. Reason: cost of production is high as compared to China. ``Reputed Indian companies too have their manufacturing facilities in China for sale of their products in India’’ is the only argument that is offered by one of the leaders of leather industry who attribute this phenomenon to business globalisation from which Pakistan or India cannot remain insulated. But this arrangement of keeping the business afloat by importing products from China for sale in Pakistan has rendered a big number of employees jobless. The number goes into thousands as a big part of leather goods and leather garment industry is in informal sector where employed labour is not registered and the growing unemployment remains unreported. So is the case with garment and knitwear units which are largely in informal sectors.

Owners have managed to recover some of their investment by disposing off their machines, buildings and land but the labour is not finding any alternate employment. Industry sources say there are reports that about 400 knitwear and readymade garment units, leather garment factories, small manufacturing facilities of sport goods, surgical instruments and a host of other factories that have pulled down shutters. A casual glance over July to November 06 figures reveal declining export trend in textiles, carpets, sport goods, tanned leather, leather garments, footwear, surgical goods, cutlery, onyx, chemicals and pharmaceuticals, engineering goods, gems, jewellery, furniture and handicrafts. Along with this export decline has come the flood of imported goods in domestic market which has literally given a crippling blow to the industry that now puts at stake the investment in billions of rupees and hefty bank loans and also an army of unemployed in Karachi, Lahore, Faisalabad, Multan and other big cities of Pakistan.

"If not now, when will government come with a rescue package?", asks a businessman

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