Weak performance of agro-based industries pulled down the Large Scale Manufacturing (LSM) growth by 2.3 percent in the first half of this fiscal year. According to State Bank of Pakistan's second quarterly report issued on Friday, most of the industries including fertiliser, cotton yarn, cotton cloth, edible oil, POL, paper and wood, continued to show weak performance in the second quarter as well. Furthermore, the delay in sugarcane crushing this season caused sugar production during November-December 2014 to decline to 1.1 million tons from 1.3 million tons in comparable months of 2013.
As a result, the overall LSM growth fell sharply in H1-FY15, compared to 6.6 percent in the corresponding period of last year. Hence, LSM growth during H1-FY15 improved to 3.45 percent, if we exclude sugar from our sample, the report said. This slowdown in LSM, which is mainly concentrated in agro-based industries, more than offset the strong performance by the construction-related industries and automobiles - both benefited from the softening global prices of key raw materials (eg, coal and iron & steel).
Going forward, the report said that the manufacturing activity is likely to benefit from a steep decline in global oil prices. Though the immediate gain would accrue to manufacturing units, which rely on oil for their energy needs, other firms would save on transportation and distribution expenses. Even with these gains, the LSM is unlikely to achieve the target growth of 7.1 percent for FY15. This is mainly because (1) the continuing gas shortages are hitting industries such as textiles, paper, leather, glass; (2) the production of sugar may fall this year in line with lower production of sugarcane crop; and (3) fertiliser production which recorded a substantial growth of 16.5 percent in FY14 due to improved gas availability, may not repeat this performance in FY15.
More importantly, the manufacturing sector may not experience any major relief in load management, as according to NEPRA report, the power deficit (defined as the difference between peak demand and the generation capability) would remain more than 4,000 MW till 2016-17.
The power sector continued to be burdened by serious issues, such as expensive energy mix, high cost of generation, inefficient power plants, weak distribution infrastructure, growing liquidity constraints (mainly due to line losses and unpaid electricity bill), etc. Recently, the government has approved the Credit Guarantee Scheme for small farmers who do not have any collateral.
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