Development CHAPTER 11. Industrial
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1 S indh Strategy 102 CHAPTER 11 Industrial
2 I ndustrial development is not just limited to the manufacturing and service sectors. Agriculture, fisheries, and natural and mineral resources are also key components of industry in any developing economy. Pakistan»s main industry relies on the production of agricultural outputs such as wheat, rice, and cotton. This is complemented by a number of textile, pharmaceutical, and consumer goods industries that make use of Pakistan»s multifarious resource base. BACKGROUND Sindh»s process of industrialization began with the creation of planned industrial estates and the development of an engineering base. The Sindh Industrial Trading Estate (SITE) was the first industrial estate to be established in Karachi in 1947 and it was meant to serve as the industrial hub of the country. Today it contains about industries and provides employment to over people. Agricultural and mineral resources form the backbone of the formal industrial sector in Sindh with agro-industries and industries in the oil and gas sector. The informal sector is led by small-scale manufacturing units based on indigenous or indigenized technologies, which produce consumer products; these account for 50 percent of the industrial production in Sindh. Sindh S trategy 103 Sindh»s industries encompass agricultural, horticultural, and livestock production and processing of products; textiles; tanning; pharmaceuticals; minerals; cement; salt; sugar; cotton; coal; china clay; oil and gas production as well as the steel and automobile industries. However, inadequate infrastructures have stifled the growth of the industrial sector in Sindh over the past few decades. Industrial production in the province peaked in the mid-1990s, but has since declined indicating a reduction in industrial activity.
3 Manufacturing: Industrial Production and Employment SELECTED UNIT FACTORIES PRODUCTION EMPLOYMENT INDUSTRIES COVERED (in nos.) VEGETABLE GHEE «000 MT SUGAR -do CEMENT -do FERTILIZER (UREA) -do PETROLEUM PRODUCTS ML COTTON YARN «000 MT COTTON CLOTH m 2 (million) 117 CIGARETTES Nos. (million) VEGETABLE GHEE «000 MT SUGAR -do CEMENT -do FERTILIZER (UREA) -do PETROLEUM PRODUCTS ML COTTON YARN «000 MT COTTON CLOTH m 2 (million) 100 CIGARETTES Nos. (million) INDEX OF INDUSTRIAL PRODUCTION (Base: = 100) VALUE OF AVERAGE DAILY INDUSTRIES NOS. PRODUCTION EMPLOYMENT IN BILLION RS. (in «000) TOTAL S indh Strategy 104 TEXTILE CEMENT FERTILIZER GHEE REFINED SUGAR TOBACCO (cigarettes) AUTOMOBILES PETROLEUM REFINING INDUSTRIAL CHEMICALS OTHER CHEMICAL PRODUCTS PHARMACEUTICALS OTHERS Source: Sindh at a Glance, Bureau of Statistics, GoS
4 Sindh S trategy IUCN Pakistan Sindh hosts 70 percent of Pakistan»s industry The GoS is currently considering an exemption on property taxes for newly developed industries in order to boost the industrialization process. Also, it has announced a grant of Rs.500 million for development work in the SITE area, which will be spent on construction, repair of roads, improvement of sewers and other civic facilities. In order to respond to rising inflation, the government recently decided to allow the industrial sector to produce its own power, which should reduce the cost of inputs as well as ease pressure on power utilities. To deal with the problem of bureaucracy, the Department of Industries, GoS has notified only six agencies to be responsible for inspection instead of the previous 22 agencies. The Government has adopted a very liberal policy for industrialization in the province and no NOC/Permission is required for setting up an industrial unit except for the following:- Federal/Provincial Arms and Ammunition Security Printing, Currency and Mint High Explosives Radio Active Substances and Alcoholic Beverages An extensive industrial infrastructure has been set-up through-out the province. There are seven large size and 18 small industrial estates in nearly each District of the province. Four small industrial estates namely Small and Cottage Industrial estate super highway by pass Karachi, small and cottage industrial estate Hawksbay, Karachi, small and cottage industrial estate Bin Qasim, Karachi and SIE for power looms, Hyderabad During the current financial year , an amount of Rs.572 million has been allocated for the development schemes related to the industries sector:- Investment Climate Investment facilitation boards at provincial and federal government levels have been set-up to monitor, facilitate and assist foreign investors for their investment initiatives. For overseas Pakistanis and international investors, schemes are being chalked out to help and facilitate investment from abroad to set-up new industrial ventures and preference will be given to foreign investors for allotment of land in and outside the industrial estates. PCOI has been established with the main purpose of accelerating the processes attracting over-seas investment from abroad 105
5 SR.NO./ NAME OF THE SCHEME ALLOCATION A.D.P (RS. In MILLION) ON-GOING SCHEMES OF INDUSTRIES SECTOR 1/84 Small Industrial Estate, Karachi /85 Extension of S.I.E., Hyderabad /86 Extension of S.I.E., Sukkur /87 Small Industrial Estate, Ghotki /88 Small Industrial Estate, Mithi /89 Small Handicrafts Display Centre, Islamabad NEW SCHEMES 7/90 Small Industrial Estate, Naushero Feroz /91 Up-gradation of 9 S.I.Es., (Thatta, Sanghar Dadu, Hala, Badin, Nawabshah, Rohri and I.P. Sehwan, Mirpurkhas) Total: S.I.T.E. Limited NEW SCHEME 9/92 Improvement of infrastructure facilities In 5 estates SITE Limited (Karachi, Nooriabad, kotri, Hyderabad and Sukkur) Total SITE Ltd. : Total Industries Sector: S indh Strategy 106 by identifying feasible projects in potential sectors and these steps have shows marked improvement in the over-all flow of investment that has come into the province of Sindh. On account of problems of multiplicity of taxes and unorganized inspections by various government departments/agencies, the following steps have been taken for the establishment of: One Window Facility Three taxes, property tax, professional tax and cotton fee are being collected by the Excise and Taxation Department from the industrialists. Betterment tax, surcharge and additional surcharge, however, were abolished in This facility is to be introduced in North Karachi, Federal B Area and Korangi with the support of respective trade associations. ISSUES Industrialization has had to face many challenges, including the entry of smuggled goods from other provinces, the production of low quality products by an increasingly aggressive informal sector, and the growth of the underground economy. In an effort to promote development in Sindh, 24 large and small industrial complexes were established in different parts of the province. However, this policy failed as the infrastructure facilities in these areas were insufficient and substandard, and could not cater to the demands of the industry.
6 Inadequate Infrastructure The federal government has failed to provide adequate infrastructure such as the establishment of an internationally competitive engineering industry to develop technology locally to build plants and equipment. This would help to decrease establishment costs as well as costs related to operation and maintenance. As the province had no capacity to build capital and intermediary goods, it has had to import them to keep industrial units functional. For industries to adopt technological innovations, they require large financial inputs, which have been obtained through foreign loans in the past. This practice has increased the debt burden as well and has led to the unsustainable nature of industrialization. The road density in Sindh is also inadequate to support the transportation of farm produce to industrial units or to facilitate the transportation of minerals from their sites to the processing destinations. High Costs of Production High import duties, high cargo handling charges at the ports, increased red tape, lengthy delays in shipment release, and increasing costs of imported items are discouraging industrial development. Karachi Port, for example, has one of the highest shipping and handling charges in the region. Similarly, excessive charges are also levied on the import of raw materials and machinery in certain industries like packaging, food production, and plastics manufacturing. This ultimately leads to high consumer and market prices, contributes to rapid inflation and overpricing of products, and affects the quality of life of low-income groups. Surveys of the quality of industrial wastewater, gaseous emissions, and solid waste discharged into the environment, have indicated that there is a dire need to implement pollution-control technologies in the industrial sector. This issue has been sidelined because industrialists argue that this would raise the cost of production, affecting output, which is already uncompetitive. This is a particularly pressing issue for industries like the textile, tanning, and chemical processing units in SITE, because they discharge liquid effluents that exceed allowable limits, leading to environmental degradation of land and water resources. Sindh S trategy 107 IUCN Pakistan Principals of industrial ecology need to be promoted
7 S indh Strategy 108 Political and Economic Instability The political instability within the country and the ensuing inconsistency of government policies are fundamental factors that discourage industrialization. This is a major problem in Sindh as it currently plays host to almost 70 percent of Pakistan»s industry. Of late however, industrialists have moved from Sindh to Punjab because better incentives are provided in terms of lower land prices, taxes, and tariffs. The cost of registering companies is also higher in Sindh so industrialists prefer to set up new industries in Punjab. There is also less interference from the bureaucracy in Punjab. Hence people in Sindh are opting for trading, real estate businesses, and the capital market as opposed to establishing industries. PROPOSED INTERVENTIONS Infrastructural The government needs to review its support to industries through increased support for the development of an engineering base, greater incentives in the establishment of industries as well as a review of the high cargo handling charges at Karachi port as they increase the industrial cost of production and discourage exports. There must be more effort to add value to local products by making technology available and accessible. Devolving the power of governing the affairs of industrial estates to either an autonomous industrial estate authority or an industrial estate association must also be explored. This association should then be responsible for providing all forms of industrial infrastructure, including those related to pollution control. Supporting Actions Reinvesting the revenue collected in upgrading the infrastructure of the industrial estate concerned. Developing an engineering base so that equipment can be manufactured in Pakistan rather than imported from abroad. Ensuring that the cost of power remains feasible, such as the cement industry, which is deteriorating due to the excessively high price of furnace oil and increased power costs. Establishing separate industrial estates for Small and Medium Enterprises (SMEs). Establishing industrial estates and new businesses outside urban areas to quell the influx of people to urban areas. Environmental Protection There is a need to focus on environmental issues such as pollution, hazardous waste, and health and safety of workers. More studies in this field could help contribute to greater enforceable legislation to ensure industry compliance, particularly with environmental regulations. Principles of industrial ecology must be understood and applied in new industries, and should be promoted within existing industries. The siting of hazardous industries should not be allowed in residential areas and the existing ones should be relocated from these areas. High tech industries as well as those which produce less pollution and are more environmentally friendly should be promoted. Undertaking analysis of energy production processes and application of stricter environmental codes of conduct are also necessary requirements in addition to developing hazardous waste management and disposal systems. Combined Effluent Treatment Plants (CETP) must be installed in all industrial estates in Sindh. Industrial associations (e.g. SITE) and the various Chambers of Commerce and Industry should be engaged in the initiative. Supporting Actions Promoting greater interaction of industrialists with the Sindh Small Industries Corporation (SSIC). Finance, pollution control, and infrastructure
8 development should also be incorporated within the SSIC»s mandate. Developing incentive mechanisms to promote less polluting industries. Promoting industrial units that are related to the local ecology, such as consumer items and agro-based industries in rural areas. Educating industrialists on environmental and social compliances for audits that are now required by most foreign companies. Annual environmental and social reporting should be made mandatory. Social and environmental compliance should be made mandatory with the granting of licenses and permission for new industry. Providing greater support to the Cleaner Production Program (CPP) in Sindh. The CPP focuses on ways to apply cleaner production technologies to the industrial sector in a cost-effective manner. Including pollution charges in the cost of products. Environmental baseline surveys of all major industrial sites should essentially be carried out on a priority basis to obtain authentic information on various pollution levels, waste disposal practices, air emissions, generation of hazardous waste etc. This would assist in the preparation of environmental management plans for the implementation of NEQS. A No-Objection Certificate (NOC) from the relevant EPA, approving the EIA of the project, should be a mandatory requirement for all new projects. Provision of utilities or the approval of construction plans of new industries should be subject to this NOC. Business Incentives Political will and stability are imperative for sustainable industrial development. Provincial infrastructure should be developed and incentives should be provided. The sales tax generated from this sector should be given to the respective provincial governments for reinvestment. Industries should also be facilitated to focus on cheapest production and export ƒ and enhancing the economies of scale. In this regard a Facilitation Centre for export-based industries may be established. The one-window operation should not only apply to establishing an industry, but should be a continuous process that facilitates the operation of the industry. Since the quota regime has ended, international business can be lost if operations are not made more efficient. Supporting Actions Upgrading the informal sector; relocate its productive units into planned estates and finance their advancement through SME development schemes. Ensuring quality assurance by making ISO certification mandatory for all units, including those in the informal sector. Ensuring quality assurance by providing financial incentives (e.g. tax relief) to industry for getting their businesses ISO certified. External Alliances In order to capitalize on the growing interest in foreign investment, the industrial sector in the province must create linkages with international private sector firms. These linkages do not only have to be in the areas of production and manufacturing but should also focus on the provision of infrastructure, the import of machinery, and the acquisition of technology i.e. education and training for higher productivity levels. Sindh S trategy 109
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