Investment climate better in Punjab



Province gets high domestic investment; textile sector remains unsatisfactory

Wednesday, December 26, 2007
By Mansoor Ahmad

LAHORE: The investment climate remained relatively better in Punjab compared with other provinces during 2007 due to lesser terrorist activities but was far below the hype created by the provincial government.

The growth in the industrial sector of Punjab was in line with the growth registered nationally. The province, however, did not receive any appreciable foreign direct investment again in line with the national trend. Most of the FDI during 2007 went to the telecommunications and financial sectors either in Sindh or Islamabad. Punjab, however, attracted largest domestic investment particularly in the textile sector.

The Punjab government announced establishment of numerous industrial estates in the province during the past five years. These included industrial estates at Gujranwala, Sialkot, Faisalabad, Multan, Sundar and industrial zones on both sides of the motorway at various locations.

Timely completion of these estates would have created enormous industrial activity but except for Sundar and to some extent part of Multan Industrial Estate there was not much progress on other projects. Proposed garment cities in Faisalabad and Lahore are on papers only.

Sundar has become partially operative but progress after change of its board has been much slow. While work on the Faisalabad Industrial Estate which the Punjab government claims to be the largest in the country and Sundar started at the same time, infrastructure at the latter has almost been laid but there has virtually been no progress at the former.

The Punjab government also claims to have generated 5.8 million jobs during four years at a rate of 1.45 million jobs per annum. However, the claim belies logic as the main provider of jobs in the industrial sector has been textile, in which jobs have declined due to automation in the spinning and fabric sub-sectors. Many jobs were lost due to closure of many small garment and apparel factories which generate largest number of jobs.

The year under review was marred by below par performance by the textile sector, the main provider of industrial employment in the province. Many smaller garment and knitwear units were closed during the period rendering thousands of workers jobless. Garment and apparel exports from the province, however, rose as big units showed growth and efficiency to cover up production loss due to closure of smaller units.

There was realisation among entrepreneurs that the smaller garment units would have to merge with larger ones to achieve economies of scale. Many larger units acquired services of redundant skilled labour of the closed units and bought their state-of-the-art stitching machines to increase production capacities.

Similarly, all spinning units with less than 25,000 spindles remained on their toes. However, the spinners are reluctant to merge with larger units. Most of them do not have resources to increase capacity. Some units which somehow increased their spindles are now on the revival path as Pakistani yarn has gradually become competitive due to 16 per cent rise in the value of Indian rupee.

Bed sheet exports suffered the most during the current calendar year despite five per cent research and development support provided by the government on its exports. China and Bangladesh emerged as the main competitors in that field. Many large-width weaving machines were operating below capacity due to pressure on bedwear exports.

The sugar industry claimed to have suffered losses although retail prices of the sweetener in Pakistan never fell below Rs30 per kg which was almost double the global white sugar rate of Rs16.50 per kg. The failure of the government to allow 20 per cent mixing of ethanol produced by sugar millers with petrol deprived the industry of assured sale of a product which could have eased pressure on sugar prices. The sugar industry claims to have suffered losses this year, but it is disputed by many economic experts.

The auto-vending industry of the province was disappointed over continued import of deleted parts by automobile manufacturers. The vendors increased their capacities in anticipation of getting larger orders as car production in the country reached around 200,000 units. The only car plant in the province failed to live up to expectations and suffered a decline in production at a time when production in the car industry was on the rise.

The tractor industry, however, continued to show robust growth as the two main tractor plants in the province produced over 55,000 units during the year under review. A franchise agreement barred the manufacturers from exporting tractors but some distributors did manage to venture into that field on their own.

Punjab continued to dominate the production of motorcycles. Out of over half a million units produced in the country during 2007, almost 85 per cent were produced in the province. The prices of motorcycles either remained stable or declined slightly due to competition and improvement in efficiency.

The home appliance industry showed mixed trends. After four years of sustained growth, television manufacturers in the province recorded a decline of 20 per cent in production.

They alleged the fall in production was due to flawed government policies which encouraged smuggling of second-hand computer monitors, used as television sets, from the US.

The production of window air conditioners virtually stopped in the province but assembling of split units gathered pace. The prices of split air conditioners stabilised during 2007 after three years of sustained decline.

Two major multinational beverage manufacturers in the province eliminated local soft drink producers from the market by keeping the prices of their brands low throughout the year. Their production increased by a little over 10 per cent this year.

Plastic products’ manufacturers were generally content with the policies formulated by the federal government. The industry lost the toy market to the Chinese but its production of other plastic products like plastic canes, buckets, pet bottles, etc continued to grow.

The steel re-rolling mills operated at optimum capacity due to increased construction activities in the province as well as regular export of steel products to Afghanistan. The rates of steel products hit the peak due to increase in global steel prices.

Like the past seven years, the SME sector was deprived of credit in 2007. The light engineering sector suffered badly in that regard. The production of surgical instruments and cutlery showed a decline evident from lower exports. The sports’ goods industry remained under pressure as it lacked finances to upgrade its machinery. Hand-knotted carpet production fell appreciably this year as export orders dried out.

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