A. GROWTH, DISTRIBUTION AND POVERTY
Chapter 3
Manufacturing, Mining and Investment Policies

Manufacturing is the second largest sector of the economy accounting for 17 percent of the Gross Domestic Product (GDP). Its growth performance in general and large-scale manufacturing in particular, has been lackluster at best in the 1990’s. After growing at an average rate of 8.2 percent in the 1980’s, the growth of large-scale manufacturing slowed to an average of 4.7 percent in the first half and further to 2.5 percent in the second half of the 1990s. During the first 9 months (July-March) of the current fiscal year, overall manufacturing has grown by 1.6 percent as against 4.7 percent of the corresponding period of the last year.

Overall manufacturing consists of large and small-scale manufacturing. The performance of large-scale manufacturing when viewed in terms of statistics, has been weak during July-March 1999-2000. As against 2.7 percent growth of comparable period of last year the large-scale manufacturing has registered an almost zero growth. Is this the whole truth? Is this the real performance of the sector? The answer is far from truth.

The true performance of large-scale manufacturing has been over shadowed by a massive decline in sugar production. As a result of the decline in sugarcane production by 16 percent, sugar production was lower by 24 percent. With a relatively larger weight of sugar in the overall quantum index of manufacturing, the otherwise impressive and broad- based performance of large-scale manufacturing was overshadowed. Excluding sugar the large-scale manufacturing has registered an impressive growth of 6.4 percent in the first 9 months of the current fiscal year. A compression of like-to-like is reported in Table 3.1, which indicates that the performance of large-scale manufacturing excluding sugar, has been by far, the best during the last five years.

Source: Economic Adviser Wing, Finance Division

This Table also provides an idea as to how the sugar production has played havoc with industrial growth in terms of statistics on both sides. For example, the large-scale manufacturing grew by 7.4 percent in 1997-98 but without sugar, the growth was zero. In other words, the growth in large-scale manufacturing in 1997-98 was entirely sugar driven. Similarly, the large-scale manufacturing grew by 2.75 percent in 1995-96 but without sugar the growth performance further improved to 6.1 percent. As shown in Fig-2, the large-scale manufacturing, on point-to-point basis continued to perform well prior to the beginning of the sugar-crushing season around December 1999. As soon as the adverse impact of sugar started filtering into the overall statistics, the performance of large-scale manufacturing got distorted.

Performance of Large-Scale Manufacturing (LSM)
The group-wise analysis as reported in Table 3.1, indicates that the performance of two out of 11 major groups exhibited substantial decline. These include food, beverages & tobacco group, which depicted a decline of 18.2 percent and automobile group by 19.2 percent. The major items, which depicted a negative growth in food, beverages and tobacco group, include sugar (24.0 percent), cooking oil (6.2 percent), tea blended (8.4 percent), cigarettes (11.2 percent); jeeps & cars (23.5 percent), light commercial vehicles (43.2 percent) and motor cycles/ scooters (3.8 percent) in automobile group.

The six major groups that exhibited tremendous increase in production include textile & apparel group (12.1 percent); paper & board group (14.1 percent); chemicals, rubber & plastic group (7.0 percent); basic metal industries group (13.1 percent); and metal products; machinery and equipment group (15.7 percent). The major items that depicted positive growth include cotton yarn (9.3 percent), cotton cloth (15.1 percent) and cotton ginned (27.1 percent) in textile & apparel group; footwear (18.0 percent) and sole leather (16.9 percent) in leather group; liquids/ syrup (6.8 percent), caustic soda (17.7 percent), nitrogenous fertilizer (6.8 percent), phosphatic fertilizer (33.4 percent), flakes & detergents (30.7 percent) and Cosmetics (39.5 percent) in chemicals, rubber & plastics group; paper & board (14.1 percent) in paper group; steel products (13.5 percent) in basic metal group, and diesel engine (24.1 percent), tractors (53.9 percent), wheat thrashers (182.6 percent), refrigerators (8.4 percent) and T.V sets (8.3 percent) in metal products, machinery and equipment group.
The production performance of selected items are given in Table 3.2 (See next).

Overview of Some important Industries of Large-Scale Manufacturing

Textile Industry
The cotton and cotton textile industry are backbone of Pakistan’s economy. It continues to enjoy the status of the largest industry and commands comparative advantages in resource utilization. It accommodates largest number of employment to industrial labour force (38 percent) and largest source of foreign exchange earnings (60 percent). It accounts for 27 percent of value addition in the manufacturing sector.

Source: Federal Bureau of Statistics

The textile sector bounced back after five years of stagnation because of bumper cotton crop and lower lint cotton prices. There is a marked revival of the closed capacity as evident from Table 3.3. (See next)
Cotton crop recorded second highest production of the decade at 11.2 million bales, which helped in exploring new markets beside conventional markets for cotton based products. The increase in exports exerted pressure on local supplies and consequently the prices of cotton yarn went up in the local market. The low market prices have created an environment conducive for re-investment in BMR of the existing units and expansion of the capacity but this also endangered abundant future supply by the growers. Sensing the intricacy of the situation, the government has announced a "Cotton Policy" to ensure the availability of cotton in the future by stabilizing the lint cotton prices.

Source: Textile Commissioner Organization, Federal Bureau of Statistics

The government at the one hand allowed the textile mills and cotton exporters to purchase cotton from ginneries under free market mechanism and on the other hand safe-guarded the interest of the grower by imposing import duty @ 15 as well as Trading Corporation was being asked to play a secondary role to stabilize the prices of the cotton. For the next season the minimum support price of phutti has been fixed at Rs.725 per 40 Kgs. and the TCP will continue to play the role of secondary player. The profile of various components of the textile industry are given below:

Performance of Ancillary Textile Industry

A. Cotton Spinning Sector
The spinning sector of textile is one of the most important sector. At present, it is comprised of 442 textile mills in the country (50 composite units and 392 spinning units) with 8442 Million spindles and 145796 rotors installed, out of this, 6790 million spindles and 67542 rotors have worked. The capacity utilization increased to 80.4 percent in spindles and 46.3 percent in rotors.

The production of cotton yarn increased to 1255.0 thousand tonnes in July-March 1999-2000 as against 1145.6 thousand tonnes in July-March 1998-99, thereby, registering a growth of 9.5 percent. The export of cotton yarn also witnessed a hefty increase of 22.6 percent during July-March 1999-2000 by moving to 3.7 million tonnes this year from 3.0 million tonnes in the corresponding period last year. But in terms of value the increase was only 13.9 percent due to 7.1 percent fall in the unit value in the international market. The textile sector is preparing itself for imminent competition and trying to expand conventional market for textile products. The cost of cotton constitutes 75 percent of the total cost of yarn production and lower lint cotton prices helped in reviving of yarn production. This has enhanced the competitiveness of the spinning sector against the cheaper suppliers of yarn from Central Asia, China and India.

B. Weaving & Made-ups Sector
The pattern of weaving sector and made-up sub-sectors i.e hosiery, garments, towels, canvas and bedwear is different from that of spinning sector. There are three different sub-sectors in weaving viz. integrated, independent weaving units, and power looms units. The addition of the power-loom sector has modernized the textile industry and registered a phenomenal growth in last few years. However, the problem of the power loom sector revolve mainly around the poor technology, scarcity of quality yarn and lack of institutional financing for its development from formal sector. Hence, the sector is producing comparatively low value added gray cloth of mostly inferior quality. The installed and capacity worked in the sector are given in the Table 3.4.

Source: Textile Commissioner Organisation.

The government is considering the problems being faced by the textile industry and the new cotton policy is likely to be followed by a textile policy in the near future. The new textile policy is likely to address the problems of the weaving sector like assessment of the credit facilities and facilitative support to diversify the products, especially to cater the needs of the high value added sector like garment industry in the country. The performance of the industry has been influenced by the lower price of yarn and increase in its production. The industry is picking-up and the trend is likely to persist in the coming months. The production of cotton cloth in the mill sector has increased by 15.1 percent during July- March 1999-2000 while non-mill sector registered a growth of 1.9 percent in the same period. The export of cotton cloth is also increased by 18.9 percent in July-March 1999-2000. The performance of the sub-sectors is evaluated below:

a) Hosiery Industry. There are about 10,000 knitting machines working in the country with approximately 60 percent capacity utilization. There is greater reliance on the development of this industry as there is substantial value addition in the form of knitwear. This sector not only taking care of domestic demand, but also earn badly needed foreign exchange. It has earned US $ 512 million in the form of value of exports for knitwear during July-March 1999-2000 as compared to US $ 431 million during the same period last year, showing an increase of 18.8 percent. The exports in terms of quantity increased even at rapid pace and registered an increase of 23.3 percent, and stood at 95,362 thousand dozens during July-March 1999-Textile 2000 as compared to 77,338 thousand dozens of knitwear in the comparable period of last year.

b) Readymade Garments. The garment industry provides highest value addition in the textile sector. This sector is distributed in small, medium and large-scale units, most of them, having 50 machine and below. The sector is attracting considerable investment in the organised sector. The industry enjoys facilities of duty free imports of machinery and income tax exemption. The sub-sector is facing multi-dimensional problems like high value addition in competing countries and inelasticity of the sector in shifting the burden of increased or decreased prices of yarn, cotton cloth or other inputs to the end user. The sub-sector witnessed an increase in quantity exported by 9.8 percent, the value of exports for the sector, however, increased by 15.2 percent during July-March 1999-2000 over the comparable period last year, by moving to US$ 559.6 million from US$ 485.8 million owing to soaring unit value in the international market.

c) Towel industry. The industry is comprised of about 6500 towel looms in the country in both organised and unorganised sector and is mainly an export based industry. The growth in its exports in recent past has enabled enormous expansion of the sub-sector. The export of towels increased by 3.6 percent in quantity terms but fetched 3.9 percent lower value during July-March 1999-2000 due to international market environments and competitive pressures.

d) Tarpaulin & Canvas. The production capacity of this highest raw cotton-consuming sector is 100 million sq. meters. Its exports increased by impressive 43.5 percent in terms of value and by 44.0 percent in terms of quantity. The sector is mainly export based and 90 percent of its production is exported.

C. Filament Yarn Manufacturing Industry
The synthetic filament yarn manufacturing industry picked up momentum in mid-1980`s in anticipation to rising demand in the international markets and the private sector was asked to enhance its role. At present nearly 25 units are engaged in manufacturing of three kinds of filament yarn, namely Acetate Rayon yarn (one unit with capacity to manufacture 3 thousand tonnes), nylon filament yarn ( 3 units with installed capacity of 2 thousand tonnes) and polyester filament yarn (21 units with installed capacity of 95 thousand tonnes). The total installed capacity of all these units is 100 thousand tonnes.