Industrial Policy of Pakistan

The present policy follows the tried and tested policy of indigenous, broad-based industrialization to attain prosperity. This policy seeks to turn Pakistan into a factory for the world rather than a shop.
Industrialization is a long-term process and requires consistency and continuity of policies. No industrial policy will be successfully implemented unless the basic inputs of affordable energy, physical and electronic connectivity and infrastructure, skilled and productive labor enabling macroeconomic environment and a friendly regulatory regime are in place.
Page 1

Over the next 10 years, our goal is to achieve

Sustained growth in manufacturing of at least 8% per annum leading to a doubling of manufacturing output in ten years. India has achieved 6% LSM growth this year. Expansion of the currently stagnant industrial employment from the current 13% of labour force to at least 20%. Accounting for employment elasticity this means an addition of 4 million workers to the industrial workforce, who will need to possess different and higher skills to succeed in the global competitive environment.
Page 2

 Radical increase in Pakistans manufacturing addition (MVA) by more than 100%.

value

Diversification from traditional resource based /low technology enterprise to medium & high technology enterprise.
A sharp increase in exports of medium and high technology manufactures to 10 % from the current 1.5%
Page 3

1. Structure of Industry in Pakistan and its export potential

Pakistan ranks fifty-fifth worldwide in factory output.

Pakistan's industrial sector accounts for about 24% of GDP. Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 66% of the merchandise exports and almost 40% of the employed labour force.
Page 4

Other major industries include cement, fertilizer, automobile, edible oil, sugar, steel, tobacco, chemicals, light engineering, defense production, food processing, ship manufacturing and ship breaking industry. Government policies aim to diversify the country's industrial base and bolster export industries.
Page 5

2. The Performance of Large Scale Industry in Pakistan Challenges & Issues

Page 6

PAKISTAN TEXTILE INDUSTRY

Textiles is the premier industry & backbone of Pakistans Economy: Major Agrarian industrial sector. Generates about 55.6 % of exports Constitutes 32.6 % of Manufacturing Industry Employs 40 % of countrys working force in manufacturing sector Contributes 7.4% to the total GDP Drives Banking, Shipping ,Transport ,Insurance,
Machinery, Dyes/Chemicals ,Printing/Packaging & allied sectors.

Total Investment in Textile $ 7.5 Billion (1999-2010)

Page 8

PAKISTAN TEXTILE SECTOR

The Market The textile and clothing industry has been the main driver of Pakistans exports for the past 50 years in terms of foreign currency earnings and job creation. 75% to 80% of total cotton and synthetic production is exported in the form of yarn, fabric, readymade garments, bed wear & made ups.

Pakistan is the fourth largest producer of cotton and third largest user of cotton.
The sectors contribution to total exports has averaged nearly 60% during the last six years and declined to approximately 52% during FY2009. During July October 2009, the sector benefitted from recovery in retails sales in advanced economies and increased price differential in local and global yarn prices. Investment of about USD7.5 billion has been made in the textile industry during the last ten years (1999-2009).
Page 9

PAKISTAN TEXTILE INDUSTRY

STRENGTHS

Ample availability of cheap labour.

Good markets for products. Large domestic market. Industry Supportive Government Policies. Free Import of cottons is Allowed (which is used for development of special fabrics with yarn counts from 40s to 120s Yarn dyed fabrics & high quality blends & counts is increasing. dobby/jacquard Bed Linen-House hold products shirts & blouses. Volumes of yarn with synthetic fibers in various

Page 10

PAKISTAN TEXTILE INDUSTRY

WEAKNESSES
Low productivity resulting in high labour costs. Limited skills development facilities, including management training businesses are locally-owned (i.e. no foreign investments as in other countries, where foreign partners bring technical and market expertise). Value addition is low and low unit prices are realized over dependence on foreign agents and little contact with final customers. Limited marketing know-how, especially to break into new markets very limited experience in generating new products. Pakistans image continues to be that of a low quality, low price, non consistent and unreliable supplier. Average quality of products and lack of brand names

Page 11

TEXTILE POLICY 2009-14

Textiles Investment Support Fund (TISF) is established under the ambit of the policy. Measures proposed for financing from the TISF include; Export refinance available at 5%. Long term loans will be converted on the pricing applicable to LTTF. scheme, together with a grace period of one year on both existing and converted facilities, without the facility of refinancing.

To settle the past claims under R&D scheme of 2007-08, allocation of PKR5.4 billion for the purpose by GoP.
Page 12

TEXTILE POLICY 2009-14

GoP will contribute part of the investment financing or part of the investment cost through the Technology Upgradation Fund.

The policy will focus on certain sub-sector issues from fibre to garments including ginning, spinning, weaving, knitting, processing, fashion designs, handloom and handicrafts, carpets, technical textiles etc.

Page 13

TEXTILE POLICY 2009-14

The policy offers duty drawbacks of between 1% and 3% for a two-year period for value added textile exports. All textile machinery imports will be zero-rated to encourage new investments. Import duty on raw material, sub components and components used in local manufacturing of textile plants and machinery, has been reduced to zero percent.
Page 14

GOVT INITIATIVES

Federal Textile Board

Contamination free cotton program.

Textile City Garment Cities (Lahore-Faisalabad-Karachi). Compliant Labour laws. Textile Skill Development Board. Textile Training Institute Management Board. Tariff rationalization.
Page 15

GOVT INITIATIVES

Increased market access through PTAs and FTAs.

Removal of sales tax on textile chain

R&D support during 2005-8( 6% to garment, 5% home textiles and 3% on dyed printed fabrics). National Textile Strategy Committee. Textile Policy Initiatives (Infrastructure, Skills Development, Technology Upgradation, Supply of Raw Material). Ginning Institute.
Page 16

TEXTILE MACHINERY IMPORTS

Page 17

EXPORT OF PAKISTAN TEXTILES

US $ Billion

Page 18 SOURCE: C.S.O./ E P B

GLOBAL TEXTILE SCENEARIO

Global View
PER CAPITA CONSUMPTION
(kgs. of textile fibres per capita)

PER CAPITA TEXTILE CONSUMPTION

INDIA PAKISTAN CHINA DEVELOPING COUNTRIES AVERAGE JAPAN USA DEVELOPED COUNTRIES AVERAGE GLOBAL AVERAGE

2,8 4 5,5 4,5 8,5 21 17,7 6,8 0 5 10 15 20 25

Page 20

World Textile & Clothing Trade (US$.billion)

900 800 700 600 500 400
311 356.42 331 334 453 458 850

Total
675

300
213

200 100 0 1985 1990 1995 1998 1999 2000 2004 2005 2010 2015
Page 21

105

What ails Pakistans Textile sector

The Industry is unable to absorb and pass on the rising cost of production.

Products are basic in nature, low value added and thus fetching low prices.
The machinery installed being old relative to our competitors, hence electricity intensive, less productive and carry higher maintenance cost. Increased wastage of inputs adding to the cost. Low productivity of labour. Low return on capital. Due to low returns and better tax treatment in non-industrial sectors, Pakistani entrepreneurs have been investing in non productive sectors.
Page 22

What ails Pakistans Textile sector

Low Level of skills. Insignificant expenditure on innovation, product development & R&D. Pakistans export houses lack capacity to meet bulk orders.

Inability to meet requirements of consumers in terms of fashion and design.

Uncompetitive ness in terms of adherence to contracted quality and delivery schedule. Due to higher investment competing countries enjoy better economies of scale.
Page 23

THE FUTURE VISION

Competing on price is no longer effective in gaining share in the global market.

Instead

Technological Innovations and Branding strategies are future directions.

Page 24

FUTURE COURSE
To compete manufacturers will have to take urgent steps to minimize costs. Eliminate wastages at all stages of supply chain.

Improve productivity levels.

Shift to value addition and differentiated products. Market proximity will become an increasingly valuable competitive advantage as customers demand better quality of service, time lines and reliability of delivery.
Page 25

FUTURE COURSE
Government has to negotiate for Market Access and preferential terms. Trade Agreement (Bilateral, Multilateral, Regional, Free Trade) will gain more importance and hence needs more focus and professional approach. Investment in modern technology (Competitiveness) Investment cost for BMR and additional capacity should be at low mark up rate.
Page 26

THE WAY FORWARD: CHALLENGES TO BE ADDRESSED

1. Assist the Industry to sustain its existing market shares 2. Synergise all policy initiatives to support the Industry to develop its competitiveness in the changing global environment 3. Focus on Short Term Strategies with result oriented approaches to help companies progress 4. Promotion of the Value Added products. This Sector has the possibility to create more than 1 million additional jobs more than any other sector

Page 27

Automotive Industry
Total auto sales in 1HFY2010 increased by 16.37% to 61,021 units from 52,435 units in the same period of last year. The auto industry was operating at 37% of its installed capacity of 273,000 units per annum in FY2009 and it is expected that 20% YoY growth in sales in FY2010 can easily be met through higher production by assemblers utilizing the existing capacity.
Page 28

Automotive Industry
Pakistan has the second highest number of CNG powered vehicles in the world with more than 1.55 million cars and passenger buses, constituting 24% of total; vehicles in the country. Investment in the automotive sector stood at US$70.2 million in July 08 April 09. Despite recessionary phase Indus Motor Company and Honda Atlas Cars launched new models for their key products, Corolla and City in the local market.

Page 29

Automotive Industry
Car sales are related to the interest rate regime functional in Pakistan especially in the small-low and economy segments, whilst purchases in the small-high segment (1300cc and above) are dependent on rising income level and improved living standards. 2011-12 Inspite of increase in price, there is 20% increase in the sales of the vehicle in Pakistan

Page 30

Energy (Power, Oil & Gas)

The energy industry is regulated by the Policy for Power generation Projects 2002, Policy for Development of Renewable Energy for Power Generation 2006 and Petroleum Exploration & Production Policy 2009. Customs duty at the rate of 5% applicable on import of plant, machinery & equipment not manufactured locally for power generation projects whilst zero-percent customs duty applies on plant, machinery and spares imported by power generation projects under nuclear and renewable energy sources like solar, wind, micro-hydel bio-energy, ocean, waste-to-energy, hydrogen cell etc.
Page 31

Energy (Power, Oil & Gas)

For power projects above 50MW one-window support to be provided at the federal level. For projects below or up to 50MW support to be provided at the respective provincial level. Royalty will be payable at the rate of 12.5% of the value of petroleum at the field gate. Local petroleum companies are encouraged to establish joint ventures with foreign concerns.

Import of equipment related to the petroleum & refining sectors allowed on concessionary rates.
The lube industry has been deregulated.
Page 32

Fertilizer Industry
There are 10 fertilizer units (6 in the public sector and 4 in the private sector) in the country, having an installed capacity of 4.3 Million Tonnes (1.7 Million Tonnes in the public sector and 2.6 Million Tonnes is the private sector). Total production of fertilizers in 2001-02 was 5 million tonnes.

Page 33

Cement Industry of Pakistan

Cement is one of the major industries of Pakistan. Cement sector contributes 0.76 percent to GDP while it maintains a weight of 4.41 percent in the overall manufacturing. Pakistan Cement Industry has huge potential for export of cement to neighboring countries like India, U.A.E, Afghanistan, Iraq & Russian States. The country at present has 29 cement plants with an installed capacity of producing around 39 million tones of cement. There has been a robust growth of cement demand seen both in domestic and exports market during the last decade.
Page 34

Cement Sector Over View

There are 29 cement production units in the country. Up to May 2007, the total installed cement production capacity is 36.841 million tones. By the end of June2011, the installed cement production capacity has touched the level of 49.579million tones. Due to political instability and lack of allocation of funds for public sector development program, cement industry of Pakistan was in the recession phase had registered an average growth rate of 2.96% for the period from 1990 to2002. For the period from 2003 to 2007 cement industry of Pakistan had registered an average growth rate of 20%. The boost in cement sector is because of the rising construction activity in the country, reconstruction activity in Afghanistan and increasing development expenditure by the government.
Page 35

Cement Exports
Pakistan is ranked 5th in the worlds cement exports after a huge increase of 47 percent in exports during last fiscal year. India has become one of our major market of cement export by land route but due to some Non-Tariff barriers we could not encash its true potential. Pakistan could achieve the mark of 13 to 14 million tonnes exports by the end of the fiscal year keeping in view Indian market which has once again started importing cement from Pakistan.
Page 36

Export of Cement & Clinker

Cement Financial Afghanistan India Via Land Via Sea & Land Years
Other Countries Via Sea Clinker Other Countries Via Sea Total Exports %age Incr/(Decr) Export Breakup North Zone South Zone

Quantity in Metric Tons 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
6 months Page 37

Quantity in Metric Tons 390,973 1,106,127 908,690 283,436 200,169 1,118,293 1,565,170 1,505,159 3,213,494 7,716,620 10,752,486 10,657,235 9,426,112 4,458,381 137.02% 39.96% -3.83% 113.50% 140.13% 39.34% -0.89% -11.55% -4.58% 1,088,218 1,516,370 1,409,492 1,929,938 5,111,607 6,989,136 6,960,854 6,686,824 3,282,402 30,075 48,800 95,667 1,283,556 2,605,013 3,763,351 3,696,382 2,739,284 1,175,979

1,118,293 1,407,900 1,413,994 1,725,526 2,777,826 3,148,306 4,013,670 4,725,165 2,501,165

786,672 634,455 722,967 590,104 350,059

157,270 91,165 1,096,995 3,045,995 6,061,035 5,637,163 3,910,675 1,607,157

MAIN PLAYERS
COMPANY NAME
1 AL ABBAS CEMENT 2 ATTOCK CEMENT

SYMBOLS
AACIL ACPL

COMPANY NAME
10 FECTO CEMENT 11 GHARIBWAL CEMENT

SYMBOLS
FECTC GWCL

3 BESTWAY CEMENT
4 CHERAL CEMENT 5 DADABHOY CEMENT

BWCL
CHCC DBCI

12 JAVEDAN CEMENT
13 KOHAT CEMENT 14 LUCKY CEMENT

JVDC
KOHC LUCK

6 DEWAN CEMENT
7 D.G.KHAN CEMENT 8 DANTO CEMENT

DCL
DGKC DNCC

15 MAPEL LEAF CEMENT

16 PINOEER CEMENT 17 THATTA CEMENT

MLCF
PIOC THCCL

9 FUJI CEMENT
Page 38

FCCL

PERFORMANCE OF CEMENT INDUSTRY

The Financial Year 2010-2011 was not fruit full for the cement industry of Pakistan. Sluggish demand in the local market, increased competition in the international markets and a fall in profit margins marked the highlights of the financial year. In addition to this, disruption of distribution channels due to floods and increase in raw material (coal) costs further added to the cost of the cement manufacturers.
Page 39

PERFORMANCE OF CEMENT INDUSTRY

The demand for cement remained stagnant in the local market due to inadequate public spending and negligible private sector spending because of lack of generic economic growth. The government cut down on its Public Sector Development Program (PSDP) by 77 per cent during the financial year which has affected some of the ongoing Mega projects.
Page 40

PERFORMANCE OF CEMENT INDUSTRY

The lesser demand forced players in the industry to severe price competition to sell a cement bag for as low as Rs235 although, later on the manufacturers disciplined their prices which reached the Rs380 per bag mark. During the FY 2011, the domestic dispatches fell to 22 M Tonnes from 23.551 M Tonnes in the previous year, marking a 6.9 per cent decrease.

Page 41

PERFORMANCE OF CEMENT INDUSTRY

After experiencing years of growth the cement industry had to face a tough year in the international market. In the past cement has been exported to Afghanistan, India, Sri Lanka, China and Africa. However, in the outgoing year there was some increased competition from the Middle East and the cement industry was hit with a fall in cement exports. The cement exports fell by 11.55 per cent from 10,657,235 M Tonnes to 9,426,112 M Tonnes.

Page 42

CHEMICAL INDUSTRY

There are 12 chemical factories in the country producing, soda ash, sulphuric acid, caustic soda, chlorine gas and other chemicals. The contribution of the chemical industry towards GNP is only 3%. This industry is not fulfilling domestic requirements, so a large amount of foreign exchange is spent on the import of different chemicals every year.
Page 43

Engineering Industry
There are 4 heavy Engineering Industries in public sector

(1) (2) (3 (4) (5)

Heavy Mechanical Complex, Taxila Heavy Foundry Project, Taxila Pakistan Machine Tools Factory, Landhi Pakistan Steel Mills, Karachi. Pakistan Ordinance Factory Wah (Defense Production)

(6) Karachi Shipyard & Engineering Works Karachi

Page 44

3.

Weakening of Large Scale Manufacturing Sector

1.A key weakness of the Pakistani Economy is traceable to the nonavailability and high price of energy. Also, Pakistans energy mix is skewed heavily towards the most expensive sources of energy with more than 64% from thermal versus 33% from hydel.

Page 45

While coal has negligible contribution. Hence, it is imperative to invest in energy generation with more use of coal (imported initially, until local resources become available), hydel, and imported gas. In addition, Pakistans energy consumption stands in contrast to almost all industrial economies with domestic use of electricity 46.6%.
Page 46

The Composition of our Energy Consumption

Page 47

As Pakistan industrializes, this mix will change with industrial energy consumption going up manifold. The Government over the next 2-3 years will prioritize provision of energy to manufacturing installations over other users.

As per cabinet decision, Industry is Second priority after residential consumers, followed by Commercial IPPs and CNG Stations.
Page 48

2. The state will encourage investments in improving business processes and technologies by fostering strategic alliances with foreign entities. This intervention will include the provision of matching grants for purposes of diversification and brand development / acquisition. The Trade Policy has announced Government support for opening of Export Marketing Offices abroad, buying franchises and equitation of brands
Page 49

3. Over the next five years, the Government will reform the steel sector and extend full support to develop indigenous metallurgical capabilities. While the capacity of Pakistan Steel Mills will be increased substantially in the next ten years and more metallurgy institutes will be set up in national universities, foreign investment in the sector will be encouraged based initially upon imported iron ore, with a transition towards exploitation of the large deposits of iron ore in the country.
Page 50

Top 10 Crude Steel Production (million tonnes)

Rank Country / Region 2007 2008 2009 2010

1 2 3 4 5 6 7 8 9 10 11 12
Page 51

WORLD CHINA EUROPEAN UNION JAPAN UNITED STATES RUSSIA INDIA SOUTH KOREA GERMANY UKRAINE BRAZIL TURKEY PAKISTAN

1,351.3 494.9 209.7 120.2 98.1 72.4 53.5 51.5 48.6 42.8 33.8 25.8 4.3

1,326.5 500.3 198.0 118.7 91.4 68.5 57.8 53.6 45.8 37.3 33.7 26.8 4.3

1,219.7 573.6 139.1 87.5 58.2 60.0 62.8 48.6 32.7 29.9 26.5 25.3 4.3

1,413.6 626.7 172.9 109.6 80.6 67.0 66.8 58.5 43.8 33.6 32.8 29.0 4.3

Some Mega projects on the way

4.The government will facilitate the establishment of a Petrochemical Complex near a major port, or refinery as a privatepublic partnership. It will involve setting up a Naphtha cracking facility for the production of Olefins (Monomers, Polymers and Intermediate Chemicals) and b) Aromatic Petrochemical Complex linked with new refineries.
Page 52

4. Prospect of Chinese Entrepreneurship in Industrial Joint Ventures

Page 53

1. The Silk route/Karakoram Highway connects China and Pakistan with what must be the most harrowing trail of asphalt on earth. From Kashgar to Islamabad, the road stretches 1260 kilometers, and pierces the territory of at least five ethnic groups. The highway was begun in the late 1960s. China provided most of the engineering know- how, building bridges to span. On the Pakistan side of the border alone, more than 400 lost their lives.
Page 54

2. 330MW Chashma-2 operational

Nuclear

Power

Plant

becomes

Pakistans third nuclear electric power plant became operational, pumping another 330MW into the national grid in a bid to help meet countrys growing energy demand and cut down the shortfall. The generation of additional 330 MW electricity would provide immediate relief to a section of consumers, adding that two more power plants C-3 and C-4 already under construction at this site would help in paving the way for PAEC to meet the government assigned target of 8800 MW by the Year 2030.
Page 55

 Pakistan has a small nuclear power program, with 725 MWe capacity, but plans to increase this substantially. The countrys first Canadian pressurized heavy water reactor (PHWR) at Karachi KANUPP, with a gross capacity of 137 MWe is generating net 125 MWe and is under international safeguards. The second unit is Chashma-1 (CHASNUPP-1) in Punjab, a 325 MWe (300 MWe net) 2-loop pressurized water reactor (PWR) has been supplied by Chinas CNNC under safeguards. The main part of the plant was designed by Shanghai Nuclear Engineering Research and Design Institute (SNERDI) and it started operations in May 2000. It also has a design life of 40 years.
Page 56

Completion of Chashma-2 three months ahead of the scheduled time was a reward for the joint efforts of Chinese and Pakistani teams, the benefits of which will go directly to the people of Pakistan. It is an illustrious example of the Pakistan-China cooperation in the field of nuclear science and technology. Completion of this project takes to even greater heights the long and time-tested friendship between the two countries
Page 57

Work on the Chashma-3 and Chashma-4 reactors with 300 MWe each is also under way and would nearly double this capacity, adding another 600 megawatts to the grid. According to the International Atomic Energy Agency, there are 443 nuclear power reactions in operation, with a total installed capacity of over 375 GW(e) around the world.

Page 58

3. A Joint Venture to manufacture Electronic Appliances in Pakistan Pakistans Ruba Group and Chinas Chong Hong Group have formed a joint venture to produce electronic appliances including TV sets, refrigerators, LCDs and air conditioners in Pakistan. The project has investment of $11 million, followed by additional investment of $100 million.
Page 59

4. Pak China Investment Company Limited (PCICL) PCICL is a DFI formed under the initiatives taken by Government of Pakistan and Peoples Republic of China for promotion of Trade, Investment and Economic Growth of Pakistan. The company was incorporated in July 2007 with an Authorized Capital of USD 200 Million and was formally launched in December 2007. The company is a joint venture in which equity is equally contributed by Government of Pakistan and China Development Bank (one of the largest State Owned banks of Peoples Republic of China).
Page 60

Pak China Investment Company Limited in view of its inherent strengths and mandate aims to become a hub for investment activity and add value to sectors like Industry, Agriculture, Services, Information & Technology, Manufacturing, Real Estate and Infrastructure etc, for which we offer conventional and innovative solutions to Investors and Projects through a full range of Investment Banking services.

Page 61

5. PRODUCTION OF DEFENCE EQUIPMENT Pakistan's Al Khalid Tank, widely considered one of the most competent Main Battle Tanks (MBTs) in the global arms market, has received an update, according to Grande Strategy sources. This new version of Al-Khalid is said to be ready for production, although orders are yet to be placed for production to begin. The Al Khalid II is said to have a new armor that has been tested to defeat all known 120mm and 125mm rounds. This "special" armor is a major technological breakthrough for Pakistan. The tank has received a new transmission and revised electronic turret control

Page 62

A Joint Venture to manufacture JF-17 Thunder Jets Pakistan Aeronautical Complex (PAC) and Chengdu Aircraft Industries Corporation (CAC) of China, has successfully manufactured JF-17 Thunder Jets for Pakistan Airforce having advance technology of US F-16.
First flight Status Number built Program cost Unit cost
Page 63

25 August 2003 Two Squadrons Operational with the Pakistan Air Force as of 18 February 2010 Prototypes: 6 Production: ~34 US$500 million Block 1: US$1520 million Block 2: US$2025 million

Pakistan, China set-off joint venture to build Missile Boats Pakistan and China have embarked on a joint venture for the construction of two missile carrier boats in the Chinese port city of Tianjin. Under the joint venture signed between Pakistan Navy and China Shipbuilding and Offshore International Company, two boats capable of carrying missiles would be manufactured simultaneously in Pakistan and China.

The boat would be equipped with the latest weapons. Their sensors would be an important addition to the fleet of Pakistan Navy. The second boat would be built at Karachi Shipyard and Engineering Works. Page 64

Other Joint Ventures

Gwadar Port Thar Coal

Shahrah-e-Karakoram
China Mobile - Zong Investment of $2 Billion in Telecom Sector of Pakistan

Pakistan has entered into various joint ventures with China for the production of new cotton seeds and colour cotton in Pakistan. Pakistan is also acquiring Chinese expertise for small water reserves for irrigation purposes.
Page 65