TC May-Jun 2022 Issue

TRADE CHRONICLE
State of the manufacturing sector
By Mansoor Ahmad
New employment opportunities
are mostly created by the
manufacturing sector. In
Pakistan, the sector is not growing.
This is the main reason for widespread
unemployment.
The daily wage workers and those
employed in small/ micro industries
enjoy almost no growth in their
careers. Workers in large and medium
industries alone have a chance to
move up in their careers from machine
helpers to operators; even go on
to become supervisors. They have
permanent jobs. They are rewarded as
and when they improve their skills and
become more productive. They work
for eight hours a day and are eligible
for overtime if they must work extra
hours. They are entitled to yearly and
casual leaves.
The manufacturing sector is a part of the
industrial sector that includes mining
and quarrying, manufacturing, power
and gas production and construction.
The share of manufacturing is the
largest among these four. A decade
ago, the share of the manufacturing
sector in our GDP was 14.51 percent, of
which LSM accounted for 12.2 percent
and small-scale manufacturing for
1.25 percent.
In 2018, the share of manufacturing
declined to 13.02 percent, of which
LSM share was 10.29 percent and smallscale
manufacturing was 1.52 percent.
By 2021, the share of manufacturing
had come down to 12.52 percent.
The share of LSM was 9.54 percent
and small-scale manufacturing 1.68
percent.
Our governments have been
manipulating the statistics. The
manufacturing sector is not in a good
shape. The growth that we show in any
period relates to the production that
was recorded during the corresponding
period the previous year. When
production of cars, for instance, was
completely stalled for some months
during the Covid-19 closures, growth
in the corresponding months next year
was 50-100 percent.
That does not mean that the car
sector is flourishing. The fact is that
production even in the ‘high-growth
months’ was lower than the production
recorded 14 years ago in
2007-08. We have not added
to the capacity in most of
the large-scale manufacturing
sector in the last three decades.
The cement sector is the only exception
where the capacity has increased sixfold.
Basic textile is another subsector
where new investment has been made.
But then more than 120 spinning mills
have been closed over the last decade
due to obsolescence of technology.
The automobile sector has also
enhanced its capacity through the
entry of new global brands. Still, we
are producing fewer cars than were
produced in 2007-08. The high-end
car production has started overtaking
the small car segment. The foreign
exchange consumed on high-end cars
is more than double that used on the
1000 cc or smaller engine cars.
When growth slows, growth in largescale
manufacturing goes down. It can
even record negative growth. When
growth picks up, the LSM growth picks
up, too. The see-saw movement has
been going on for the last 30 years with
almost the same capacity.
We often talk about the plight of the
SMEs. The SMEs are the suppliers
of components and services to the
LSM. They operate on low margins.
In times of growth, the existing SMEs
flourish as supplies to LSM increase.
When the chips are down in LSM the
SME supplies reduce and, in some
cases, the volume of orders is so low
that they operate in red. If the gloom
prolongs, even well-established SMEs
close down. Take, for instance, the fate
of dozens of vendors of tractors that
have closed shop as tractor production
dwindled.
The expansion in the mediumsized
apparel industries has been
impressive in the last two years. These
entrepreneurs mostly started with
low resources but with hard work and
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May - Jun - 2022
dedication have gradually scaled up.
They are not served well by the banks.
The apparel manufacturers continue
to reinvest what they earn to build
capacity.
At the same time, they provide inhouse
training to their workers to make
up for shortage of skilled apparel staff.
The apparel exporters are the largest
providers of quality skilled jobs in
Pakistan. Unfortunately, the spinners
and weavers that have huge capital
have ignored the apparel sector for
long. They have now started investing
in this sector after seeing small apparel
exporters overtake them in textile
exports.
Currently, the top four exporters from
Pakistan belong to the apparel sector
(readymade garments and knitwear).
Ten years ago, none of them was among
the top 25 exporters. If the moneyed
basic textile tycoons shed their
lethargy, we may see robust growth in
apparel exports and job creation.
Among the large-scale manufacturing
sector, the cement units and sugar
mills are monopolised and protected
sectors. The number of cement units is
almost the same as in 1990 when all of
these were in the public sector. In the
last 32 years hardly an entrepreneur or
two have established new units.
The 24-25 units manage the prices
by manipulating production. They
have expanded the production
capacity manifold. The three leading
manufacturers have almost half of
the total capacity. Sugar mills are
mostly operated by political families
having representation in the national
and provincial assemblies. There is
a complete ban on establishing new
sugar mills, still many mills have
established new units hundreds of
miles away from their original setup
under the garb of balancing and
modernisation.
Only one such expansion was declared
illegal by the courts when the political
family was in power. Sugarcane, a
tropical crop, consumes a lot of water.
Even the World Bank has advised the
government to stop growing sugarcane
on a large scale. But its cultivation area
continues to grow and has encroached
on the cotton cultivation area.
The cotton crop needs much less
water and is the basic raw material for
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