Manufacturing in decline

For the economic growth and development, the economists revealed that the manufacturing has been considered as the main engine. They have said that productivity is higher in the manufacturing sector than in the agricultural sector. Manufacturing is also assumed to have more potential for productivity growth than other sectors. The transfer of resources from low productivity sectors like traditional agriculture or informal services to high productivity and dynamic sectors like manufacturing (i.e., industrialization) offers a structural change bonus. This is a temporary effect on the growth rate, i.e. it lasts as long as the share of manufacturing is growing. Similarly, the transfer of resources from manufacturing to services may offer a structural change burden if many service activities indeed have little potential for productivity rise.

Furthermore, it also plays a vital role in economic development of Pakistan. According to the Ministry of Finance, the contribution of manufacturing in Pakistan’s GDP is hovering approximately the 13.5-13.8 percent for almost decade, while for the FY2019 it declined to 13.0 percent. The performance of major crops, power slippages, global commodity price shocks, and contraction in demand of domestic consumer goods hindered the growth of manufacturing sector. Statistics also showed that the Large Scale Manufacturing (LSM) in Pakistan has 78 percent share in manufacturing and 10.2 percent in GDP whereas Small Scale Manufacturing accounts for 2.0 percent in GDP. LSM growth during July-March FY 2019 fell to 2.93 percent as against to 6.33 percent in the corresponding period last year. On Year-on-Year (YoY), LSM growth recorded sharp fall of 10.63 percent in March 2019 as against a rise of 4.70 percent in March 2018.

The Government of Pakistan plans high hopes on the industrial development. However, the industry in the country has not proven to be the driver of economic growth and higher productivity-oriented employment. The uneven economic growth patterns have had adverse impact on favorable outcomes for the growth of industry. Industry adds the highest value addition in the production processes, yet its share of total employment in Pakistan is lowest at around 20 percent. It is also said that the industrial development is critical to boost exports and to help plug the current account deficit. The fiscal year 2019 started with 7.4 percent growth mostly contributed by Electronics 95.6 percent, Non metallic minerals product 17.9 percent (Cement 18.0 percent) and Automobiles 22.1 percent (Jeeps & Cars 36.1 percent, Trucks 33.1 percent and Buses 54.3 percent). However, it fell by 2.1 percent in August 2018 on account of dismal performance recorded in Non metallic mineral products which fell by 4.1 percent (Cement declined by 4.0 percent), Automobiles fell by 13.9 percent (LCVs -15.9 percent, Tractors -4.8 percent and Cars -15.9 percent) and Electronics -32.5 percent. However, it marginally enhanced in September 2018 by 1.2 percent. This improvement was on account of Non metallic mineral products by 8.9 percent (Cement 8.4 percent). In October 2018, it stood to 6.7 percent on account of recovery recorded in Non metallic mineral product by 22.2 percent (22.3 percent growth in Cement), Automobiles 13.8 percent (LCVs 8.7 percent, Tractors 26.6 percent and motor cycles 5.4 percent), Fertilizer 14.5 percent and Electronics 24.1 percent.

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In November 2018, LSM recorded a sharp dip of 6.1 percent because of fall in Food, Beverages and Tobacco growth by -8.9 percent, Textile -0.2 percent and Paper & Board -27.0 percent. The ministry officials also recorded that a slight recovery of 0.8 percent recorded in December 2018. However, steep increase witnessed in January 2019 by 24.9 percent owing to phenomenal improvement of 208.1 percent in electronics, Paper & Board 23.8 percent and Food, Beverages & Tobacco 76.2 percent because of Sugar production increased by 183 percent. The impact of sugar however, moderated to 2.0 percent and -27.0 percent in February and March 2019. Furthermore, the performance of textile sector remained under stress during the period as it fell by 0.3 percent against meager growth of 0.5 percent during the corresponding period previous year. The Food Beverages and Tobacco recorded a fall of 4.7 percent on account of fall in sugar 13.3 percent. During last few years, sugar industry outburst with impressive growth on the back of increased sugarcane crop in Pakistan. However, in FY 2019 the progress stalled in line with reduction in crop.

The other sectors registered fell during the period are Tea blended 4.0 percent and soft drinks 4.2 percent which overshadowed the growth of cigarettes production. The production of Iron and Steel shrank due to dismal performance of billets/ingots which grew by -24.7 percent whereas H/C.R. sheets/strips/coils/plates slightly inched up to 3.1 percent. Pakistan is facing challenges because of increase in competitive situations so the industry has to be enhanced to compete with foreign competitors.