The Engineering Development Board had been restructured recently with induction of private sector and enhanced role in development of the engineering sector of Pakistan. Engineering goods account for 63% of the world trade (US $3,700 billion) and there is a large potential for export of products from this sector.
We have to speed up the momentum of engineering manufacturing sector in the country in order to continue Pakistan's share in world exports of engineering goods. It is embarrassing to inform the readers that Pakistan's engineering sector could contribute only $329 million in exports last year.
The Engineering Development Board, therefore, is being re-positioned to go beyond its traditional role of provider of tariff comfort to businesses who prefer to consider the local Pakistani market as their captive domain. Serious endeavour is needed to prepare our engineering sector for global competition and promote export of engineering sub-sectors and services. Large scale manufacturing companies in the engineering sector lack export strategies as well as export department.
While Japan, Korea and Malaysia rely on their large scale companies to spearhead the export push, in Pakistan this being conveniently left to the SME sector. Policy makers and economic mangers need to look at this deficiency and bring the prowess of the large scale manufacturing sector into play for a quantum jump in export of engineering goods and services.
The government is facilitating engineering industry to have foreign exposure by augmenting training and marketing inputs. The performance of SMEs needs improvement so that this sector could face global competition and produce value added goods for export.
Engineering goods and services sector plays a pivotal role in the development of the national economy, as it provides the necessary tools, equipment, machinery, etc to undertake value addition in almost every segment of the economy. Talk of textile sector, or be it agriculture or industrial sectors whether it is chemical industry or sugar industry, steel or construction industry, economic activities owe largely to engineering know-how and technology development.
Statistics reveal that the nations which realised the pivotal role of engineering industry in the sustained economic growth and accordingly invested to strengthen it are now far ahead of others in all respects as compared to those nations who failed to do so.
The Newly Industrialised Countries (NICs) progressed rapidly when their output of high value added items increased after 80's with the development of strong engineering base, enabling them to capture a relatively large share of world exports, improve balance of payment position and create large scale employment. The leading industrialised nations ie USA, Canada, Germany, Japan, UK, and France have derived their economic and military strength from their well-developed and broad-based engineering industry.
Pakistan has a fairly large and developed base of engineering industry. This important industrial segment covers above 4000 registered units, with total fixed assets of about Rs 180 billion and providing employment opportunities for over 1.2 million workforce.
The contribution of engineering sector to GDP is around 3% while exports of engineering goods are above 3% of total exports. The local manufacturing facilities coupled with technological developments made during last several years have helped the country achieve progressively higher indigenization levels in industrial sector, substitute imports, expand export base and save/earn the much-needed foreign exchange.
The indigenization played a pivotal role in promoting manufacturing activities in the country, followed by technology transfers and investment inflow, resulting in the enhancement of national wealth, large scale employment generation and poverty reduction.
The approximate levels of indigenization achieved so far are 56-70% for cars, 81-87% for motorcycles, 55-88% for tractors, 44-67% for trucks/ buses, 82-89% for three-wheelers, 75-100% for domestic appliances, 80-100% for electrical capital goods, 78% for sugar plants, 75% for boilers & pressure vessels, 100% for transmission towers, 65% for tea leaves processing, and 40% for cement plants.
The higher level of indigenization has helped in bringing down the local production cost significantly compared to prevalent international prices. Thus the economy of the county saved millions of dollars on this account alone. In case of sugar plants, indigenization led to cost reduction and foreign exchange saving of around 10 billion.
Examples can be cited here of machinery developed by Millat Tractors limited for machining of engine blocks and addition of an automated production line by Engineering Allwin for manufacturing of pistons for automobiles. A comparison of price of locally assembled Massey Ferguson tractor with the landed cost of same make and model reveals huge savings due to local manufacturing of components.
The policies adopted by President Pervez Musharraf's government have brought about a paradigm shift in promoting value addition in the industrial sector especially in engineering industry.
The engineering industry has witnessed a remarkable broad-based improvement during 2002-03 to 2004-05, with strong participation from all major engineering sectors. Specifically, the automobile sector, steel, ceramics, surgical & cutlery, consumer durables, and electric fan sectors have recorded double digit growth during this period. This significant growth recovery has been instrumental to enhance the manufacturing share in GDP from 17.7% in FY 2002 to 18.4% in FY 2003 and is likely to push it further to 19.0% this year.
The automotive sector is the fore-runner amongst the engineering sectors which have staged an impressive growth.
With the addition of fourteen new entrants, there are now 32 automobile units in assembling automobiles, supported by over 1000 vendors engaged in manufacturing auto parts. According to auto industry resources, OEMs & vendors, during the last 3 years, have invested around US $200-250 million and plan to investment additional around $300 million in the next two years.
The auto industry of Pakistan which is currently producing more than 100,000 cars is expected to produce 500,000 cars to cater the growing domestic demand. Presently the car market is growing at a rate of 31%. The production of motorcycle is also projected to increase to 900,000 by year 2007-8 against current 391,318.
This is a healthy sign for the economy as with the increase in car and motorcycle production several other sectors of the economy will also grow thus contributing at a larger scale to the GDP, increased employment generation, income, investment etc Direct employment in the auto industry is also projected to go up to 190,000 by 2006 from the existing 116,500 as the production expands.
The time is ripe also for re-thinking the component manufacturing industry in the global perspective. New units can now be set up to become part of the global supply chain for automotive assemblies, household goods, office equipment, agricultural machinery etc.
Auto-parts manufacturing sector needs to look at itself as a component manufacturing sector in order to justify the large capital outlays needed for exporting globally and succeeding at it.
It is now time for the large scale Pakistani business houses in the engineering goods manufacturing sector to do the following:
1. Establish their own Pakistani logos and promote these globally.
2. Make strong export departments and establish worldwide distribution channels.
3. Establish assembly operations in surrounding countries.
4. Establish large scale components manufacturing plants in Pakistan to supply the global demand for cast, forged, sheet metal, plastic components and sub-assemblies.
(The writer is Vice-Chairman and Chief Executive Officer EDB.)
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