THE industrial growth has slowed down to an average 6.9 per cent in the first five months of the current fiscal against annual projected target of 10.5 per cent, plummeting to a meagre 4.74 per cent in November. The figures for December and January have not been compiled as yet, but the worst energy crisis and strikes have dampened the chances of an accelerated growth in the last two months.

The industrial growth has gone down over the last three years to 8.8 per cent in 2006-07 from 19.9 per cent in 2004-05 owing to capacity constraints and closure of many units as a result of high cost of doing business. And not much capacity expansion has been witnessed during the last eight years.

The slower industrial growth has also affected the export proceeds; there are no trade surpluses and achieving the export target of $19.2 billion by end June 2008 is pretty difficult. On the other hand, the import bill will cross the figure of $35 billion this year.

The import of commodities at $20.48 billion during July-January is up by 18.9 per cent from $17.224 billion, while exports have grown by 5.95 per cent to $10.152 billion against $9.582 billion last year.

In seven months, trade deficit has surged by 35.15 per cent to $10.327 billion against $7.641 billion over the same period last year. Economists estimate that the trade deficit would easily cross the highest ever $15 billion mark.

Analysts said the steady dip in growth would also affect its industries’ contribution to the GDP, which would make it difficult for the economic managers to achieve the GDP growth rate target. The GDP rate of growth is worked out in May. It would be very difficult for growth to recover in the next three months to reach closer to the target.

As there is no effective industrial policy in the country except some product-specific policies, industries vulnerable to cheaper imports may close down. And also there is no effective policy or facilities for encouraging small industries to diversify the narrow industrial base or to encourage regional development. The China and East Asian economies heavily relied on small industries development for economic growth.

A draft industrial policy was announced by former minister for industries Jahangir Khan Tareen, only to be put in a cold storage. The ministry is looking after the interests of highly protected auto manufacturers and some othe industries catering to domestic consumers. The industries-specific policies only protect profit margins of special interest.

An analytical report of Asian Development Bank (ADB) — a note on Competitiveness and Structural Transformation in Pakistan- advises the policymakers to develop a new industrial policy, which should ensure ‘strategic collaboration’ between public and private sectors with a view to effectively compete in the international export market.

This strategic collaboration between the two sectors, the bank believes, is an important tool to increase exports and achieve the objectives of higher productivity. The share of the “ top 10” in total exports has decreased significantly in the last two decades, though highly concentrated in textiles.

The weighted average of the per capita GDP of the countries importing Pakistan’s “top 10” category has declined significantly indicating that the country is stuck in exports. And the income level of Pakistan’s exports is at the same level it was two decades ago.

The ADB report also said that Pakistan‘s structural transformation had been slower than those of other Asian countries. The bank called for sector-specific reforms to foster competition and transform the economy. This requires a dose of good public policy as the market alone will not be able do it.

Pakistan is a service economy from the point of view of its output structure, but an agricultural economy from the point of view of its employment structure. Intra-sectoral labour productivity growth has contributed substantially more than reallocation of labour from agriculture into the other two sectors to overall labour productivity growth.

The latter factor, in fact, plays a minor role accounting for overall labour productivity growth. Reallocation of labour from agriculture into services has been much more important than from agriculture into industry.

Pakistan, the bank report said, suffered from falling labour absorption as the absorption capacity of the service sector is not enough to compensate the falling capacity of agriculture and the stagnation of industry.

Although Pakistan’s manufacturing share is not low, given its income per capita, trade ratio in GDP, and population, the share of this sector in total output has been stagnant since the 1970s. This contrasts with what has occurred in Indonesia, Malaysia, and Thailand, for example, which have seen their shares increase.

The manufacturing sector, it said, was heavily concentrated in food and beverages and textiles. Together, they account for close to half of the sector’s value-addition. The level of technology of Pakistan’s manufacturing sector is relatively low compared to that of other countries in Asia.

Moreover, the share of manufacturing value-added accounted for by high-technology products is low and has remained stagnant during the last 40 years. Pakistan’s level of labour productivity has increased very slowly since the 1970s. There is still plenty of room for catch-up with the developed world.