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Old base or revised, April year-on-year or 10-months year-on-year, Large Scale Manufacturing (LSM) has continued the steady run. Without being exceptional, the 10 percent year-on-year growth for 10MFY22 continues to outline the breadth of industrial activity improvement. Indices, both cumulative and monthly have been recorded at highest-ever levels. There is not much to complain. Not yet, at least.

Based on the old base of 2005-06, the LSM growth has remained a progressively steady trend throughout 10MFY22 – growing at near 7 percent year-on-year. More than three-fourth of the 123 items recorded in the revised LSM methodology, have shown year-on-year growth. This has progressively increased over the year – up from just over 55 percent items posting growth at the start of second quarter.

As expected, April’s LSM growth is spearheaded by sugar production. Recall that sugar crushing in 2020 had been forced earlier than usual, which meant towards the tail-end, the numbers dried. The 2021-2022 sugar crushing season started around usual time, aided by record sugarcane production – leading to 39 percent year-on-year growth in refined sugar output. April’s growth is much higher – at 332 percent year-on-year. Despite less than 1 percent share in season’s total sugar output, with the second highest weight in food index behind wheat, it contributes the most to overall LSM index for the month.

On the apparel side, garment exports with a sizeable 6 percent weight in LSM grew over 100 percent year-on-year. Garment exports more than doubled year-on-year to 6.3 million dozen pieces in April 2022. The value of exports went up by only 43 percent year-on-year, which once again exposes the overly simplified and flawed methodology adopted in the revised LSM tabulation.

For May 2022, the garment sector is likely to lead the LSM charge, as just released export numbers show readymade garment export quantities up by a massive 159 percent year-on-year. The export value is up 65 percent. The unit value is down from $8 a piece to a little over $5 per piece. Another matter how the entire readymade garment export quantities should fall under LSM – when there clearly are various cottage industries involved.

Same goes for footballs and furniture, which will show 95 percent and 323 percent year-on-year growth in next month’s LSM. With a combined weight of 0.8 percent – that will be enough to arrest any double digit slide in cement or pharmaceutical. One will gradually get used to of the shortcomings, but it is early days, and the sheer magnitude of change in export quantities is worth mentioning, every month. Things have only started to turn sour post April, and LSM growth may soon face the music. With interest rates at multiyear high, energy tariffs to go up soon, slowdown in global demand (which will also take care of the export quantities) – LSM growth is likely to be checked as soon as Q1 FY23. Last time, Pakistan faced a current account crisis of (almost) similar magnitude – LSM budged. Can it be second time lucky in even tougher circumstances?

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samir sardana Jun 22, 2022 06:58am
LSM in Pakistan,is in 2 classes - PART 1 FUNDAMENTALLY VIABLE AND ECONOMICALLY VIABLE, BUT FUNDAMENTALLY UNVIABLE FUNDAMENTALLY VIABLE - are those with captive and local raw material and captive power or assured low cost power,or some offset gain,like labour intensive (and low cost labour) and export driven So Sugar is a case of captive cane and co-gen power,wheeled via grid or sold to grid.Same for agro industries - which have Biopower or Gasifiers to make power. Then you have textiles - with cotton and FX,and low cost abundant labour In this class,economies of scale,do not matter.dindooohindoo
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samir sardana Jun 22, 2022 06:59am
LSM in Pakistan,is in 2 classes - PART 1 ECONOMICALLY VIABLE BUT FUNDAMENTALLY UNVIABLE All the rest come here.THERE IS NOT & CANNOT BE ECONOMIES OF SCALE,& THERE IS NO INFRA SUPPORT,& COMPETITIVE UTILITIES.THESE ARE SECTORS TO SAVE FX FOR THE GOP - AS THE CIF VALUE OF IMPORTS - WHICH MAY BE CHEAPER TODAY - IS NOT VIABLE AS THERE IS NO USD.EVEN IF USD WAS THERE - ONCE THE LOCAL INDUSTRY IS CLOSED - THE EXPORTERS WILL JACK UP CIF RATES - & THE PKR WILL DEPRECIATE SO MUCH, AS TO MAKE THE TRANSLATED PRICE UNVIABLE - & COLLAPSE THE ENTIRE OIL & GAS PRICING AS PKR WILL COLLAPSE ALSO THESE LSM are used TO CROSS SUBSIDISE THE LT CONSUMER TARRIFF.IF THESE LSM DIE - THE PEOPLE OF PAKISTAN WILL NOT BE ABLE TO PAY FOR POWER,AS THE CAPACITY CHARGES,WILL BALLOON MOST IMPORTANTLY,THESE LSM KEEP PEOPLE OCCUPIED SO GOP HAS TO GROW THE 1ST CLASS,& OPTIMISE THE 2ND CLASS - UNTIL THE CAPACITY CHARGES ON PPAs,ARE WAIVED & SKILLED MANPOWER IS EXPORTED..dindooohindoo
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