‘Consistency in policies needed for investors

An interview with Abbas Sajid, chief convener HVACR Society Pakistan

The HVACR Society is the representative body of over 3000 companies that provide heating, ventilation, air conditioning and refrigerating (HVACR) technologies, with members ranging from large multinationals as well as SMEs. The sector has expanded into green technology and renewable solutions for building construction and industries. Ahead of the HVACR annual expo, BR Research sat down with Abbas Sajid who is the chief convener and former president of the society to talk about the industry at large, and the challenges facing it from the policy and governance side to attract investors and boost manufacturing. Abbas is himself a mechanical engineer from NED. Here are edited transcripts of the interview:

BR Research: Tell us first about the training programs the society conducts and how do you do skill mapping?

Abbas Sajid: We conduct training programs every month with a capacity to accommodate 70 participants covering different segments of HVACR. Since we are part of the industry, we can evaluate the changing needs of the market and the skills needed in the sector, which is how we design our programs. There are three-tiers of labor required in the market: engineers, technicians and skilled workers and we have different programs for each. We are closely associated with the American Society of Heating, Refrigerating, Air-Conditioning Engineers (ASHRAE)—we have four ASHRAE chapters in Pakistan—through which we have global experts in various engineering fields coming into the country and offering lectures, full-day training courses as well as participating in our conferences.

BRR: Do you see a lot of engineers interested in this field—and do you have linkages with universities in Pakistan that can connect engineers directly to the industries and companies that will eventually hire them?

AS: Absolutely, and we are banking on it. A major concentration of the society and ASHRAE chapters is on students. We have over 25 student branches in the universities across Pakistan, we provide scholarships, and have internship programs designed to give prospective engineers hands-on experience in the field. The demand for mechanical engineers is always high—at NED alone, 200 mechanical engineers graduate every year, which are all absorbed in the market. Since we have launched these programs with university chapters gaining strength, we are garnering a lot more interest of mechanical or electrical engineering students to seek this field in particular.

BRR: Do you have any estimates of the size of the industry?

AS: The HVACR industry is huge with many segments. For instance, when we are talking about air-conditioning; starting from split units, we go into wide varieties of chilling technology (reciprocating chillers, absorption chillers, screw chillers etc.) into water cooling and air cooling units. Similarly, we have a huge heating industry which may not be as needed in residential areas in Pakistan, but have many industrial and commercial uses (say radiators, boilers etc). The ventilating segment is also widely used in most buildings and houses constructed as well. Aside from these segments, we have associated industries like piping, plumbing, electric work involved. In fact, when we say building services, it includes all these and HVAC solutions that are now part of the industry so housing industry is a huge business avenue for us.

However, there is no study to truly estimate the size of the market—it is large and fragmented. There is also the issue of informality and the parallel economy. We may have figures for manufacturing of AC units (volumetrically about a million units are assembled every year with a growth of 23 percent year on year) but within the sector, manufacturing is pretty insignificant. It is difficult to gauge the industry’s total size because many companies import technology informally. Goods come in containers and are often not documented properly under correct codes. There is no way of knowing what technology is being imported and at what value. There was also the menace of under-invoicing, but that has now been resolved to an extent because of government efforts.

BRR: Which segment is your demand mostly coming from? Can you quote any growth numbers?

AS: Households contribute a small share to the business in terms of revenue even though big brands like Dawlance and Daikin operate in the segment with foreign collaborations and have been investing in local assembles. The projects that we do for industrial units and factories are the big-ticket business.

Since 1983 when we came into the market till now, the industry has grown tremendously. If you look at air conditioning alone, not only has comfort air conditioning become an integral part of households and commercial buildings, the processing industries (pharmaceutical, textiles etc.) have grown significantly with demand for cooling and air conditioning rising simultaneously. There aren’t any industries that don’t require these technologies. A conservative estimate, I would say, for annual growth in industry is 15-20 percent.

BRR: Why do we have such little manufacturing capability? Are you motivated toward “making in Pakistan”, which seems to be an agenda of the new government?

AS: We cannot set up manufacturing plants for many of the products because we do not have the technology here. That can only happen with technology transfer. From the start, the government has had an open import policy instead of focusing on setting up local industries and developing exporting capabilities.

As a business, we are still doing projects using imported technology, which is easy to do but for the growth of the economy, we need to develop and support local industries. Less imports of finished and luxury goods, higher manufacturing and exports are important and will also be beneficial from the balance of payment point of view.

To support local industries, businesses need the physical infrastructure as well as affordable, reliable and uninterrupted gas and electricity. From the cost of doing business perspective, we have to deal with 24-25 different agencies on a daily basis. There should be one-window operations for domestic private sector as well as for foreign investors. Moreover, the government should replace the multitude of taxes with one tax, even if it is higher because there is a huge burden of contacting officials from different government departments for tax purposes. That is also where bribery and corruption occurs when tax officials come into contact with businesses.

We need to be at the level playing field of other emerging countries in terms of business environment. Most importantly, there should be a consistency in government policies to attract domestic and foreign investments.