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September 22, 2019

SMEs, best bet for economy in the face of stagnant LSM


September 22, 2019

LAHORE: Investors find no economics in establishing manufacturing units in Pakistan, absence of long-term policies is one reason and decisive implementation of announced policies, as pointed by International Monetary Fund (IMF) as well, is the other reason.

For the last three years the Chinese for instance have been exploring possibility of relocating their textile units in Pakistan, urging the government to announce a long-term textile policy and provide them with ‘plug and play’ facility in apparel parks in the vicinity of large cities.

Some Chinese firms have in fact taken over some medium-sized apparel units In Lahore to experiment the viability of production under current government policies.

A case in point is former Irfan Textiles, a knitwear unit, which a Chinese investor took over and renamed it as Challenge Textiles. To their surprise they found exporting knitwear from this unit viable. They are in fact producing knitted garments from blended fabrics (fabric produced from yarn made by blending manmade fiber with cotton). They are exporting the garments produced in the facility and are looking to expand it. One interesting point in this regard is that this textile exporting unit getting electricity and imported gas at prevailing rates applied to non-exporting industries.

The concessional tariff to textile exporters is available to only those units that are registered with recognised textile trade bodies. The viability of this unit would further boost if it gets energy and power at rates given to other textile exporters of Pakistan. Pakistani authorities could take clue from this example and facilitate such textile exporting units with same facilities that are provided to members of textile associations. Its further success would enable the government to showcase the company to other foreign investors. By the way this company has asked the Punjab government to provide around 50 acres of industrial land for a composite textile unit where they want to produce accessories, knitted fabrics and garments.

It goes without saying the government would have to bring down the cost of doing business, stabilise the rupee rate, and bring down bank markup substantially to attract both foreign and domestic investment. A more serious problem is the availability industrial land inside or around big cities. It has been established that investors particularly small and medium entrepreneurs prefer to operate within the vicinity of large cities. This is because they can access the best facilitation and communication services in large cities. It is easier for the workers to commute daily from their homes inside the city to their factories located within or in the vicinity of these cities.

The plots in industrial estates in new big cities are all sold out. The vacant chunks of land are very costly and out of reach of small and medium industries. The small and medium enterprises are the largest providers of jobs in the industrial sector. They produce parts and components for the larger manufacturing units. The ratio averages 70 jobs in small industries to 30 in large-scale manufacturing.

There is an urgent need to create industrial space for small and medium enterprises preferably inside or on the outskirts of the city -the nearer the better.

It is very unfortunate that we tend to convert the industrial land of closed units as real estate for large housing builders. There are many instances in cities like Karachi and Lahore where the industrial lands have been purchased by builders and converted into housing colonies.

One glaring example is that of Ittefaq Foundry in the Kot Lakhpat Estate (now Quaid-e-Azam Industrial Estate) that was auctioned by the banks and purchased by a builder who is constructing a residential colony on the industrial estate.

There is still over 450 acres of vacant land in the same industrial estate that belongs to Pakistan Engineering Company Limited (PECO). This sick unit is in the privatisation list. It will meet the same fate as of Ittifaq land and end up as residential colony. Sources privy to a recent meeting of the prime minister with his industrial promotion team say someone suggested that instead of privatisation the PECO land should be utilised for building a cottage and small industries park in the heart of industrial estate. This will create over 100,000 jobs in the SME sector. The authorities would have to design the park carefully and make provision for the residence of the small and medium owners on the second floor.

The workforce in small and cottage units mainly comes from the family. The owner would save time and money by operating inside the industrial estate and saving labour cost by engaging his own family first before employing outsiders. The Prime Minister, according to the sources approved the proposal. Similar lands inside other cities should also be identified and converted into thriving clusters of small industries.

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