Manufacturing sector’s growth declined for third consecutive year mainly due to energy, capacity and input constraints
By M Farhan Zaheer
KARACHI: Growth in manufacturing sector of country has declined for the third consecutive year and posted a sixth year low growth rate in the fiscal year 2007-08. Most of the decline was seen in the Large Scale Manufacturing (LSM) while Small Scale Manufacturing (SSM) decelerated nominally, Annual Report of State Bank of Pakistan (SBP) for fiscal year 2007-08 revealed.
SBP report says poor performance of LSM in year FY07-08 has been owing to the structural weaknesses in the economy.
Top three impediments that hit the manufacturing sector are energy constraints, capacity constraints and input constraints.
Undoubtedly, the foremost concern is the present energy crisis that has seriously stifled the manufacturing activities in the country. In fact, growth in energy supply could not keep pace with the rising demand due to sharp increase in manufacturing activities in recent years.
Energy deprivation not only makes a high industrial growth in the long-term unsustainable, but it also increases the import burden on the economy.
Long power outages hit the industries which obviously affect production targets and similarly, this disturbed export targets of all export based industries.
Input cost had been increasing throughout the fiscal year in which high oil and power costs played a big role.
The domestic industrial sector muddled through a mix of major economic, political and structural setbacks throughout FY07-08. While the aggregate demand had already seen some relative moderation in the preceding year, rising fuel and commodity prices and intensifying energy shortages in the country further obstructed FY07-08 industrial activities.
Sectors that rely more on agro-based inputs observe quite a volatile growth pattern. Specifically, the four year low cotton harvest in FY07-08 was the sharpest blow not only to textiles growth but for the entire LSM growth during the year.
The above assessment stems from the fact that 80 percent of textile production is export based and the 60 percent growth in textile exports of Pakistan is explained by domestic cotton production.