Successive policy rate cuts since Jun-24 should send manufacturers in a production spree except demand is fairly absent in a long list of sectors, construction being a major contributor to said list. This is where cement manufacturers start to lobby for a reduction in taxes and duties to boost demand (read: “Of delusions of grandeur”) and real estate developers submit fresh proposals to build 5, 10, or 12 million homes across Pakistan (any of these arbitrary numbers work) for the government to consider. And it very well might. Meanwhile, the cement industry continues to operate at half of its total capacity.
A capacity that has decidedly expanded in recent years in anticipation of a demand boom that materialized some during the Imran Khan era, thanks to the Naya Pakistan Housing Plan, only to vanish as Khan was ousted. The cement industry has experienced quite a substantive shrinking of domestic demand since a fiscal crisis ensued. In FY25, seven months in, the domestic market has contracted by 8 percent year on year; with demand down 22 percent in 7MFY25, compared to the industry’s best in FY21.
Exports have done their part in keeping capacity utilization from dipping below 50 percent, though it is currently at its historic lowest. In fact, without exports, capacity utilization as it stands would have dropped to 42 percent. But at 20 percent of the contribution to the sales mix, exports haven’t grown to their peak. That honor once again goes to FY21. Exports have slid 14 percent compared to that year. Capacity since has grown by over 20 percent, and neither domestic demand nor exports have managed to follow the same velocity.
It’s the usual suspects: a precarious economic environment that has fuelled the lack of confidence of consumers, shrinking wallets and rising expenditure, growing costs of construction that now compete with land prices, if not overtake them in some locations, and reduced public sector spending. Calming inflation and moderate improvements in income will result in a slow demand resurgence. More development spending and cash in the hands of prospective home buyers (which will automatically lead to renewed investor interest) could lead to a more considerable demand revival in construction materials. Or as some are expecting, a Shahbaz-led “package” for the housing market, the only surefire way to resuscitate demand fast but temporarily, reduce taxes for a select privileged few, provide untargeted subsidies that remain a poor use of public finance, and contribute little to the housing supply where it is needed the most. Let the government think it through just this once.
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