WHY IS THE GOVERNMENT FAILING THE LOCAL MANUFACTURERS?Muhammad Shahid
Imagine countries that drive economic policy towards foreign direct investment and industrialization, while at the same time crippling incumbent and high potential local industries by putting them at a disadvantage to imports. Unfortunately, in Pakistan that is a reality for some local industries. In fact, Pakistan’s wires and cable industry faces severe challenges owing to inconsistent Government policy.
MYTH vs. REALITY:
Myth: Government policy is aligned to boost and create opportunities for local businesses.
Reality: The local cable industry is being suppressed by current policies. Imports of wires and cable have more than doubled from USD 56 million to USD 124 million in the span of two years. This is an outcome of so-called measures taken to ‘facilitate’ FDI and CPEC projects through special exemptions, granted exclusively to importers, which are otherwise not available to local manufacturers.
Today CPEC, Greenfield, Power Generation and Transmission projects get special exemptions from sales tax and duty on imported wires and cable. Owing to which importing the products is cheaper than buying its locally manufactured counterpart. Local manufacturers, on the other hand, are subjected to sales tax and duty on raw materials (whether they supply to projects with exemptions or not). The Government has created an imbalance that is giving imports between 15% – 20% cost advantage over local cables.
To the Industry’s dismay, the recently passed Finance Supplementary (Second Amendment) Act 2019, carried sweeping exemptions for all “Greenfield Projects”. This by default, incentivizes any new industrial project to opt for importing cables and thus resulting in a retrogressive impact on our industry.
CASE FOR SAFEGUARDING LOCAL INDUSTRY:
According to an estimate, the local wires and cable industry employs over 3,000 households and generates a combined revenue of over Rs 40 billion. Unfavorable policies adopted by the Government have only resulted in declining profits and an overall slowdown in demand through increasing imports. Signs of a decline in the growth of large-scale manufacturing, especially in the construction sector, are evident.
While I understand the Government’s agenda for harboring industrialization and bringing in new industry, should it be at the expense of a pre-existing developed industry?
Other benefits of developing local industry are:
1. Creation of jobs, development of higher level of skills.
2. Innovation and transfer of knowledge in industry
3. Self-reliance and saving on FOREX by fulfilling our needs through local goods
4. Enhancing “Made in Pakistan” by incentivizing local products to compete internationally with world class quality
At a time when Pakistan needs maximum support in building its electrical infrastructure, its policies are set out to destroy rather than protect or nurture the local industry. Successive Governments have failed to document the shadow economy that continues to affect the manufacturing sector via rampant counterfeits, smuggled goods and the unorganized sector. The local industry’s sheer resilience have kept it going until now. The All Pakistan Cables & Conductors Manufacturer’s Association (APCCMA) has met all key policy makers on issues crippling the industry but the Government’s patronage remains much awaited.
THINK GLOBAL, ANYONE?
Our country’s engineering base has huge potential and the cable industry has a role to play in it. With industry friendly policies, backed by a suitable economic environment, the wire and cable industry can become a major contributor to exports for Pakistan. Our policy makers need to learn from Turkey where supportive government policies have resulted in making Turkey the 5th largest cable exporter in the world.
Considering the numerous socio-economic challenges, which local manufacturers encounter, an encouraging response from the policy makers should have been part of the Government’s Vision 2020. The Government’s recent decision to tap CPEC opportunities by establishing a business forum is a welcome sign. It still requires a measurable and transparent action plan. Above all, it needs a buy-in from those local manufacturers who remain at a clear disadvantage.
The domestic cable industry is keen to work with all relevant departments within the government to create a level playing field for itself thereby creating import substitution and also to generate revenue through exports. After all, isn’t a reduction in the current account deficit a burning priority in terms of the government’s mandate?