Machinery manufacturing must rise

In the last fiscal year ended June 2021, the country dished out $2.065 billion for importing mobile phones. But it imported textile machinery worth only $592 million.

This comparison should not be misconstrued as an attempt to belittle the importance of smartphones in economic progress. These phones are undoubtedly playing a key role in boosting domestic e-commerce and e-banking as well as in facilitating exports of IT-enabled services.

However, the question is why Pakistan still has to spend a lot of foreign exchange on the import of cellphones? Why the country isn’t able to manufacture these phones domestically, and even export them?

Policymakers in Islamabad answer these questions with the news that Pakistan has recently shipped a few thousand sets of locally manufactured smartphones to the UAE. They don’t tell why it took the country so long to do this.

Nevertheless, the export of locally manufactured phones with foreign collaboration is a welcome move.

What is even more encouraging is that between January and July this year, Pakistan’s local production of cellphones (12.27 million units) exceeded the number of imported sets (8.29 million), according to the Pakistan Mobile Phone Manufacturers Association.

One hopes that this pace of domestic production of cellphones will be sustained and it will ultimately lead to a reduction in the import of these phones.

The comparison of cellphone imports with those of textile machinery should also not be mistaken as an indirect suggestion that more of foreign exchange must be spent on machinery imports.

The purpose of this comparison is to show how little importance is being attached to the import of capital goods. Pakistan has a long way to go to rise from the ranks of a semi-industrial to an industrial country.

This means the country must continue to invest heavily in industrial inputs, particularly in capital goods and machinery.

Replacing old machinery

Economic development of a country depends hugely on industrial development. And, industrial output surplus cannot be created – nor its quality can be improved up to global standards – unless industries are provided with the latest equipment and machinery.

From textile to food manufacturing to engineering to cement and fertiliser production to surgical goods and sport goods production to consumer durable manufacturing to construction, there are many areas of Pakistan industries that need partial or full replacement of old machinery, or installation of new plants.

Delays in meeting this requirement only prevent the industries from becoming internationally competitive.

The increasing requirement for tools, machinery and engineering products can be met with a combination of increased domestic production and imports.

This means Pakistan’s engineering industry needs full support of the government and more aggressive participation of the private sector.

Sadly, this is not happening on a grand scale. There are two proxies to have an idea about it: First, growth in the domestic output of engineering and second, exports of engineering products.

In FY21, the engineering sector’s output showed an annualised decline of 15.4%, according to the Pakistan Bureau of Statistics, despite the fact that the overall large-scale manufacturing (LSM) rebounded strongly due to a low base effect of FY20.

It is quite depressing to note that the 15.4% decline was preceded by an even larger decline of 18.7% in FY20 when the overall LSM sector’s output had declined by 10.2% due to the Covid-19 pandemic.

From now onwards, the focus must be on revival of the local engineering industry. This will help meet some of the needs of industrial tools, equipment, machinery and plants with domestic resources, thus freeing up resources for the import of machinery to boost overall industrial production and exports of intermediate goods and industrial inputs.

Engineering product exports

With due attention paid to the engineering industry, even exports of engineering products can be increased substantially. In FY21, Pakistan earned just $226 million through the export of engineering products.

This amount was higher by 30% from $173 million earned in FY20, which is a healthy development. But for a country like Pakistan whose engineering industry took off way back in the 1960s, the export of engineering products should be much larger.

Pakistan can quickly boost overall production of engineering products in the short run by producing more of the agricultural machinery.

Chinese are eager to help the country in this area. The government can set up public-private partnerships with Chinese firms or facilitate Pakistani companies in producing the agricultural machinery through joint ventures with Chinese companies, or in collaboration with any other country.

The current state of agricultural machinery manufacturing is quite pathetic. In the agricultural machinery sub-sector of LSM, there are only three listed items – chaff cutters, sugarcane machines and wheat thrashers, which speaks volumes about it.

It is true that a lot of agricultural tools and implements are produced in the SME sector and its products are not included in the LSM statistics. But one indicator of the overall low output of agricultural machinery manufacturing is that Pakistan continues to spend heavily on imports of agricultural machinery.

Such imports consume a little less than $100 million a year, but mechanisation in agriculture remains a far cry.

The Pakistan Tehreek-e-Insaf (PTI) government’s flagship housing project is bound to increase the demand for construction machinery. Currently, large construction machinery is routinely imported by the construction contractors and rented out to the builders undertaking construction projects.

Construction and mining machinery imports cost Pakistan no less than $140 million a year.

The country must explore possibilities of attracting foreign investment in the area of construction and mining machinery manufacturing as well.

In the short term, this may not reduce the import bill. But in the medium to long term, it will surely cut imports besides creating employment and providing a solid base to the domestic construction industry.