Daily Times

The deepening energy crunch is hitting industrial output badly, and has been singled out as the key culprit. Is this not a wake up call for the government and all stakeholders?

At the same time, high interest rates and costly credit is seen as the second most serious problem that has hit industry.

Woefully, the output of the large-scale manufacturing (LSM) industry declined in 2010. “It has resulted in a 200 basis points reduction in the GDP growth last year,” Sultan Chawala, President of Federation of Pakistan Chambers of Commerce and Industry (FPCC&I) says.

State Bank of Pakistan (SBP) projects GDP at 2.0-3.0 percent for the current FY2011 — down from 4.1 percent in FY2010, and 6.5 in the last decade. SBP says LSM growth in July-October FY2011 was down to 2.07 percent. SBP also reports that textiles, the country’s biggest industry, the largest employer and accounting for more than 65 percent of overall exports, recorded a 10.2 percent decline in output in the first four months, July-October of FY2011.

Mr Chawala, unveiling FPCC&I’s industrial survey ‘Review of Pakistan’s Large Scale Manufacturing Sector — Diagnosis and the Way Forward’, said, “If energy was provided without breaks to the industries, the GDP growth would have been 200 basis points higher than it was in FY2010.” “As a mater of fact, Pakistan achieved 4.1 percent growth in the GDP in 2010,” he said.

Everyone agrees: energy, especially electricity, is the villain of Pakistan’s industrial production. The total generation of electricity, using all available resources, stands at 10,000-11,000 MW (megawatts) against a nationwide demand of 14,500 MW a day. The shortfall is causing “a serious setback to the industrial sector and the industrialisation process, as well as the national economy”, according to FPCC&I. In fact, the energy crisis, poor government policies, reduced productivity, the global financial crisis and uneven foreign demand for Pakistani products has translated into a situation which Chawala says has led “Pakistan to experience a de-industrialisation process since 1988.”

Mr Chawala points out that the installed capacity of power generation in the country is 19,000 MW, “which is not being tapped due to the existence of a complicated circular debt in the energy sector”. A number of oil- and gas-based power generation projects have been installed in the country. Most of them have to obtain oil on credit from Pakistan State Oil, as they do not make enough cash because of power theft, transmission losses due to old distribution network, and non-payment of electricity bills by large industrial-business consumers, and even government departments. The circular debt is estimated to have ballooned to Rs 275 billion by now.

Across the country, industry has voiced other complaints too, as the survey points out. The survey says, “There is an anti-industrialisation bias in the macro-policy stance which all the past and present governments have adopted since the signing of the first major structural adjustment programme with the International Monetary Fund in 1988.” This bias is “most evident in the monetary policy stance which is strangulating industrial investment while failing to contain inflationary pressure”.

“The LSM sector has been badly affected during the last four years, owing to high cost of credit and higher interest rate regime in Pakistan, while the government is designing anti-growth and anti-investment policies for the last six years. After the energy crisis, the high interest rate regime is the second biggest setback to industrial growth in the country,” Mr Chawala said.

FPCC&I calls for devising “growth-oriented policies”. “Crafting such a national industrialisation strategy requires close cooperation between business and business universities.” It also recommends forming a National Business Education Board by the FPCC&I.

Karachi Chamber of Commerce and Industry (KCC&I), the country’s biggest chamber and grouping of business and industry with 7,000 members separately terms the present trade and industrial conditions in Pakistan as “the worst in the history of he country”, fearing that “if timely remedial measures are not taken, the situation will get out of control”.

Mr Talat Mahmood, senior vice-president of KCC&I, this week unveiled a separate report of the chamber. It was prepared on the basis of information compiled by the federal ministry of industries and production. The KCC&I report says, “The energy crisis, bad law and order situation, extortion of money from businesses by armed groups, and increase in the cost of production has led to closure of at least one industrial unit in the country’s commercial hub of Karachi daily.” “An average of 316 industrial units are closed every year, for the last several years. The average figure of industrial units closed per month is 26, leading to unemployment of an average 500 persons a unit.”

He says, “The deteriorating conditions of business and industry can be gauged from the fact that, until recently, Pakistani banks offered up to 70 percent credit financing to the textile sector, but it has now been reduced to 25 percent.” Mahmood attributes this decline to “bad law and order situation, and daily collection of extortion money by various gangs patronised by all political parties”.

Ironically, the victims of such extortion gangs have provided to the police “even the cellular phone number of the extortionists”. “The police did reach these extortionists, but political patronage and pressure prevented the police from acting against the gangsters,” Mahmood said.

As businesses and industries are closing down and production ebbing away, is the ball not in the court of the present government now? A wake-up call!

The writer is an Islamabad-based journalist and former Director General of APP