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November 16, 2017

Non-textile LSM sectors post double-digit growth


November 16, 2017


LAHORE: Healthy growth registered by Large Scale Manufacturing Sector (LSM) without significant contribution from basic textiles (that has highest weight in LSM index) depicts that Pakistan’s economy is becoming less textile centric.

The data released for the first two months of this fiscal reveals that LSM growth was 11.8 percent. The data for September and October is still awaited. The weight of textiles yarn and fabric in LSM is over 20 percent. Its growth during first two months of this fiscal was less than one percent.

This shows that other sectors with lower weights in the index grew at much higher pace to register a double digit growth. The sectors that grew above 30 percent during July and August 2017 include iron and steel products, none metallic mineral products and automobiles. Pharmaceuticals, paper and board, wood products, and engineering goods posted double digit growth.

During the Pakistan Peoples’ Party (PPP) era, LSM growth was led by the textile sector, but the growth was very low. During the past four years, LSM growth is being led by non-textile sectors and the pace of growth has been very high being 5.6 percent in 2016-17.

The growth in LSM during the past four years has been accomplished more from the re-activation of idle capacities than new investments. If the current pace of growth in non-textile sector continued, many sectors will have to go for capacity expansion.

Automobile sector for instance is now operating at its optimum capacity in passenger car segment. The demand for cars is increasing at a rapid pace and further supplies would not be possible without new investments.

Capacity enhancement in non-textile sectors would enable many industries to achieve economies of scales and launch their products in global markets. A tractor manufacturer has already started exporting its units to many destinations.

Pharmaceutical companies are getting approval for their products in developed economies and are on the export path. Home electronics too command some markets in the Middle East. Exports of light engineering products have started increasing.

The emergence of the non-textile LSM sector as the main engine of industrial growth is a good omen for our economy. We badly need product diversification instead of depending solely on textiles to increase our exports.

This calls for a more broad-based export policy that facilitates all promising sectors instead of being textile-centric. The failure of our export policy is evident from the fact that we have not been able to even maintain our share in the five exporting sectors facilitated by successive governments.

Even in textiles we have been gradually losing our share. In 1997-98 our share in textile and clothing in the global market was two percent that has now declined to 1.5 percent ($12 billion out of global textile and clothing trade of over $800 billion). The decline is sharper in leather, sports goods, and surgical instruments.

We need to find market for the cars, motorcycles and tractors that are produced in the country. We need more registration of generic medicines in developed economies to boost our pharmaceutical exports.

Our auto-parts manufacturers should be facilitated to find new markets in Africa and Central Asia. Cement manufacturers should be facilitated to increase exports through land and sea routes.

Currently we do not have any policy to facilitate these potential export industries. The new export policy should focus on lowering the cost of production in all sectors instead of providing subsidies to a few sectors. It is high time to benefit from surge in productivity in non-textile LSM sectors.

Textile exports started almost two decades after independence from a low level, when state started supporting the sector. Non-textile industries now need more prudent support. Their export potential is much higher than textiles.

It is worth noting that Software exports are growing on the strength of the entrepreneurial spirit of the IT players without any government support. This in fact is a knowledge-based activity that does not require as much capital as talent.




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