ISLAMABAD, 2 September — Pakistan still struggling to come out of a stagnation has now tied its growth hopes to domestic and foreign investment in hi-tech, engineering, energy, IT and value addition.
These, besides minerals, small and medium enterprises (SMEs) and farming, are the areas receiving priority financing in an attempt to attract domestic and foreign entrepreneurs to invest here, aiming at a quantitative jump in exports. Domestic and foreign financial, technology, skill development and education are being geared to help achieve these goals. Several new initiatives have just been announced in the field of development a range of modern sectors and to arrange substantial financing facilities to make them move.
These include launching of a 10-year “Engineering Vision,” IT development, speeding up prospecting and utilization of mineral resources including precious and semi-precious stones, exploration and development of oil and natural gas, and value addition in key, export-oriented industries like textiles.
In order to finance this big endeavor, the government has decided to launch an Ex-Im Bank, besides providing substantial assistance from Science and Technology Development Fund (STDF), the Export Development Fund, concessional credits by the State Bank of Pakistan (SBP) the central bank that are disbursed through commercial banks, as well as low-interest Export Finance Facility that is being operated through lines of forex credits provided by Manila-based Asian Development Bank. All these resources put together will total several billion dollars although an exact numbers are still to be finalized. “This, put together, will be a very substantial amount, although much more resources and share is expected to be mobilized by the domestic and foreign entrepreneurs,” a senior official of the Ministry of Finance (MoF) stresses.
SBP officials, too, confirm that “ not only such a big financial mobilization will be required, but we are bullish on achieving these goals.”
Let us look at the Engineering Vision (EV), first. It is projected to have $10 billion to $12 billion investment over a 10- year span. It will create employment opportunities for two million people. The engineering goods exports will rise by 10 to 12 percent, up from the present level of 3 percent of the country’s overall exports. Even in its early years, EV is projected to increase engineering products exports by $2 billion, according to what Abdul Razzak Dawood, minister for commerce and industry, says as “a low road scenario”, and by $5 billion in “a high road situation.” It is amazing how Pakistan lagged behind in a field in which it excelled even before the subcontinent was freed in 1947.
Lahore had the distinction of operating the massive Railway Workshop complex that fed most of British India. Soon afterward private entrepreneur C.M. Latif from Batala in India, established the Lahore-based Batala Engineering Company (BECO) that produced and exported huge machines, in cooperation with foreign technical partnership, including that of Siemens of Germany. The neglect of the sector is illustrated by the fact that Pakistan’s current total annual export of engineering products is $271 million, while the global trade in engineering goods is $6 trillion.
Pakistan has been producing and exporting, surgical goods, fans, autoparts, heavy engineering, heavy electricals, ceramics, molds and dyes, steel, consumer durables and electricals, besides a range of new products. Although the country’s key products were farm-based, but their total annual exports were only $6 billion, compared to the global trade of $300 billion.
The government, in order to propel producers and exporters of engineering products has, to begin with, provided Rs.2.5 billion to establish 25 centers of common facilities and support centers each of which will cost Rs.100 million. An additional Rs.2.0 billion or $35 million will be provided to the private sector out of the Technology Development Fund, operated by the Ministry of Science and Technology. The money will be available to the engineering sector companies on a matching grant basis.
The government will also ensure that in all official, domestic private and public sector tendering a major portion, if not 100 percent, products are procured from the domestic engineering industry.
In order to promote exports, including engineering goods, Pakistan also has announced launching of its Ex-Im Bank. IT will offer state credits for producing and exporting capital goods and new products. In order to qualify for its concessional financing, it will be essential that the product has a minimum of 30 percent domestically produced plant and equipment content.
President Pervez Musharraf has directed that all tenders should have a 30 percent local component of plant and machinery for public and private sector projects including those relating to energy, electricity, water and power. He also has asked the public and private sector managements that existing arrangements with their foreign partners should be renegotiated in order to boost exports particularly of Pakistan-produced autos, tractors, motorcycles, heavy electricals and engineering equipment. It will also help the existing installed capacity for these products to be fully used. In order to ensure electricity supplies to engineering industries, the president has asked that 2,000 mw power should be reserved for this sector.
The SBP will provide sufficient concessional export financing and credit to Ex-Im Bank, and to other commercial banks for disbursement.
Dawood says in order to promote all domestic products and engineering goods, “the main thrust of our plan is to change the mindset of the whole government machinery to support procurement of engineering products, and to award contracts to local companies.”
The measures to expand the heavy industry and promote exports have two objectives: To increase the content of industrial goods to 25 percent of the overall exports, and to raise the contribution of engineering products to 30 percent in the overall industrial production. At the same time, Pakistan is focusing its attention on development of key segments of IT industry.
The ongoing projects that are being expanded, and new initiatives are under way, cover areas like human resource development, infrastructure. software industry, hardware, Internet, IT promotion and awareness, IT usage, and legislation to promote interests of all IT stakeholders. In order to do so, an IT Action Plan has been prepared that is linked to IT & Telecommunication development.
“In order to develop the market, the government will set up a Venture Capital Fund (VCF). The fund will be channeled initially into the existing IT companies to boost their export marketing capability and software development effort, “ says the policy document of the Board of Investment (BoI).
