LAHORE – National Industrial Policy (NIP) 2011 envisions Pakistan as a factory for the world rather than a shop. It recommends a complete revamping of the industrial setup and determines a sustained manufacturing growth target of at least eight percent per annum leading to doubling manufacturing output in the next ten years.
The official draft of the “National Industrial Policy 2011 – Implementation Framework” made available to Pakistan Today shows that the policy document has recommended expansion of currently stagnant industrial employment from current 13 percent of labour force to at least 20 percent in the next ten years.
The policy paper underlines the need to increase manufacturing value addition (MVA) by more than 100 percent, a sharp increase in exports of medium and high technology manufactures to 10 percent from the current 1.5 percent and diversification from traditional resource based/low technology enterprise to medium and high technology enterprise. National Industrial Policy 2011 recommends pragmatic shift in Pakistan’s energy consumption pattern, which currently stands in contrast to almost all industrial economies with domestic use of electricity (46.6 percent) equaling the combined use by industry (12.1 percent), agriculture (27.1 percent) and commerce (7.4 percent). I
t indicates that this energy mix will change with industrialisation and industrial consumption will increase manifold. The policy document points out that Pakistan’s energy mix is also skewed heavily towards the more expensive sources of energy with more than 64 percent from thermal sources against 33 percent from hydroelectricity.
The official document advocates that it is imperative to address energy issues along with prioritisation of industrial usage of energy. It underscores that the government has to prioritise provision of energy to manufacturing installations over other users in the next two to three years. Current energy tariffs need to be replaced with a cascading structure with industry paying the lowest tariff and domestic consumers paying the highest.
Because of the greater share of domestic consumers, the benefits given to industry and commerce can be substantial. It indicates that it is the National Electric Power Regulatory Authority’s (NEPRA) responsibility to bring such a tariff regime into effect immediately. Commenting on the primary and input industries, the policy points out that Pakistan possesses large deposits of iron ore, but, unfortunately, the potential of this natural resource has not been fully utilised, which has resulted in that on the one hand the country is forced to import increased quantities of steel at international prices, while on the other hand competitiveness of the downstream manufacturing is being negatively affected.
The policy paper suggests a number of measures, including revamping of Pakistan Steel Mills and establishment of metallurgy institutes. In addition, National Industrial Policy 2011 – Implementation Framework has also proposed the establishment of an Industrial Development Board (IDP) which is to launch a comprehensive program to reform the steel sector within six months. The policy paper points out that currently, chemical related imports total nearly $4.0 billion per annum given that almost all manufacturing enterprises are reliant on imported and basic raw materials.
The document suggests that the government has to facilitate the establishment of a petrochemical complex near all major port, as a private-public partnership. It will involve setting up a Naphtha cracking facility for the production of olefins (monomers, polymers and intermediate chemicals). The policy restricts imports by suggesting the development of indigenous capabilities. It underscores that Pakistan’s manufacturing shows poor diversification into medium and high technology goods.
This has resulted from years of unrestrained import of electronic and other hi-tech products, which tends to favour smuggling over local manufacture. It suggests two-prong strategy to address this problem. First, the Industrial Development Board will devise a list of selected products whose import will be made conditional on the presence of a component of technology transfer in the transaction. The IDB working with the Ministry of Commerce and Trade Development Authority of Pakistan (TDAP) over the next three years will implement this programme. Secondly, a sustained effort will be made for internal technology transfer from the innovative and productive organisations to those which are lagging behind.
The intention is to raise competence levels across the entire economic sector drawing specially on technologies and skills developed in the private sector as well as strategic organisations. The policy recommends that the government over the next five years will support the value added industry through a two-tier export tariff regime. Under such a program, in a given period exports within the quota will be allowed zero rated or a lower (in quota) export tax, while exports in excess of the quota levels will be charged higher (out of quota) export tax. These quotas will be revised on an annual basis by assessing the capacity requirements of the value-added industry.
The value added industry will be given a period of five years to meet certain targets for the quota support to continue. It also encourages universal compliance with international or national standards to promote fair competition in the domestic market and creating presence in export markets. It underlines the need to put strict checks on the import of products that do not meet the quality, safety or other standards that the industry has agreed on. Any firm found to be importing products that do not meet IDB’s requirements will be penalised heavily. In addition, it recommends strengthening of the Pakistan Standards and Quality Control Authority (PSQCA) and the National Physical and Standards Laboratory (NPSL).
National Industrial Policy 2011 – Implementation Framework observes that the government is a major buyer of manufactured goods and it is a common practice for governments to provide preferential treatment to local companies in tenders. In the past, the government of Pakistan made a conscious decision to accord preference to local producers of engineered goods, but has rarely observed this rule over the years. It stresses that the government will have to enforce SRO 827(1)/2001 strictly to give preference to local firms in all government tenders without prejudice to quality and safety benchmarks.
