The state of Punjab’s industries

Pakistan’s bastion of political power and its largest province, Punjab, which has also been ground zero for recent political confrontation, continues to push an industrial reforms and innovation agenda.

Spearheading this push is the focus on Special Economic Zones (SEZs), but following closely are other innovations targeting speciality zones and policies that can help boost high potential sectors.

Industries in Punjab, which range from textile to surgical instruments, make a substantial contribution to Pakistan’s economy. According to government data, there are more than 48,000 industrial units in Punjab, which includes over 39,000 small and cottage industries. 

A big chunk of industries belong to the textile sector. According to data obtained from the Punjab government, there are currently 11,820 textile units functional in Punjab while the number of ginning industries is 6,778. 

But textile is just one part. Some 6,355 units process agricultural raw materials, including food industries. Lahore and the Gujranwala division have the highest number of small and light engineering units while Sialkot district is best in sports and surgical equipment as well as cutlery. Moreover, Punjab also has vast mineral deposits like coal, rock salt, dolomite, gypsum and silica sand.

 The effort to grow industry to non-traditional areas and further strengthen established sectors is ongoing. Profit sat down with Dr Ahmed Javed Qazi, appointed on May 10, 2022 as Secretary of Industries, Commerce Investment & Skills Development Department (ICI&SDD) to understand the size, state, and future of the industries housed in the Punjab. 

‘Catalysts not regulators’

Qazi tells Profit that, with increasing domestic demands and expanding export market access, both regionally and globally, his department’s top priority is to encourage rapid industrialisation and move up the value chain.

Qazi, who stresses he sees his department not as a regulatory body but a catalyst force, believes Punjab offers a complete package for practical economic opportunities and investment as it has an enabling and efficient business environment, including infrastructure, market connectivity, supply of skilled labour, free flow of capital, excellent incentives and a broad-based regulatory regime.

In essence, while the target is big, the plan is quite simple: make Punjab as conducive for investment as is possible.  

 “Obviously, if the environment is not conducive, why would investors come?” Qazi asks, adding that this part of the equation relates to policy. 

Within this, there is another important aspect, which is the continuity of policies – a difficult task in a politically polarised environment, particularly in Punjab, which has been a battleground for the last decade between the Pakistan Muslim League-Nawaz (PML-N) and the Pakistan Tehreek-e-Insaaf (PTI).

“The larger political situation has a profound impact on the national economy and foreign investment… but the good thing is that the legal framework has not been changed by any government, but has been improved,” he says. 

This includes landmark work like the SEZ Act 2012 and incentives such as a waiver of customs duties for investments in SEZs, which are very lucrative to both foreign and local investors.

“Under the Special Economic Zones Act 2012, Punjab has established 10 SEZs to present the province as an internationally competitive industrial landscape to attract FDI via the provision of a facilitative, business-friendly institutional, legal and infrastructural ecosystem. The creation of SEZs promotes ease of doing business, furthering the goals of economic development and poverty alleviation,” he said.

SEZ innovation

There is also innovation beyond simple SEZs. According to Qazi, Punjab is a trailblazer in establishing the first ever private sector SEZ in Lahore and also offers development of Sole Enterprises SEZs by the private sector. 

“Punjab is receiving many applications from investors who want to set up their SEZs. If any enterprise wants to set up its own SEZ by purchasing land, the law gives it opportunities, and it is also given all the privileges that are being given in other SEZs like tax holidays and import waivers, et cetera. If we remain competitive, we will be able to increase investment and industry growth,” he maintains.

Then there is also the aim to develop the national innovation and entrepreneurship ecosystem through world-class technology clusters, Special Technology Zones (STZs), across Pakistan, which are key in the effort to transform human capital into a high-end future workforce. 

A specialised development and regulatory framework of the Special Technology Zones Authority Act, 2021 has already been introduced, which enables meeting the peculiar demands of this high growth sector by offering incentives and operational ease for information technology, research & development, training, hi-tech manufacturing, biotech and other high-end innovation businesses so that they can build a self-sustained smart eco-system. 

“Similarly, we have a Zero Time to Startup (ZTTS) policy which aims to substitute documentation requirements for business start-ups with a robust and forward-looking compliance system, utilising a risk-based inter-agency coordination mechanism to ease enterprise formation,” Qazi says. 

This pioneering policy aims to facilitate new businesses by abolishing licensing requirements or easing grants of necessary permissions in a pre-fixed time period. 

“So if you look at the whole, we are providing a conducive environment to investors and many international companies have invested in Punjab” he states.

The cluster development initiative

Qazi is also big on the development of industrial clusters, which will allow small and medium enterprises (SMEs) to compete more effectively in both the local and global markets. 

Clusters are geographical concentrations of interconnected firms that produce a similar range of goods or services and face similar threats and opportunities. The idea is that firms within a cluster can connect to global value chains by creating strong backward and forward linkages.

He said the Punjab government was working on the development of four clusters, including auto parts, footwear, readymade garments and surgical instruments. Each of these clusters have both tremendous potential and policymakers are identifying areas of improvement and how authorities can help.

Auto parts

 The auto parts sector, which falls within the larger automobile industry, contributes around 2.3% to the country’s Gross Domestic Product. The sales volume is Rs 214 billion and it pays Rs 63 billion in taxes. A huge vendor industry is in place, including around 2,500 units of tier 1, 2 and 3. Around 500 tier 1 units are directly supplying parts to original equipment manufacturers. 

The overall contribution of the auto sector in manufacturing is 22% and there is a potential to increase this figure. The overall auto industry’s paid-up capital is $1.5 billion with a direct workforce of 192,000. More than 80 assemblers have been producing a range of products including, passenger cars, light commercial vehicles, trucks, buses, tractors as well as two- and three-wheelers.  

The government of Pakistan recently approved the Automotive Development Policy to stimulate investment levels to over $4 billion over the next five years, Qazi adds. 

Yet, there remain hurdles despite the promising figures and policies. 

 Qazi says the challenges hampering the competitiveness of the auto industry include low quality of work, lack of compliance with standards, low productivity and sluggish technological adaptation. Due to these reasons, the higher value-added automotive components are being imported with a negative impact on the process of indigenising component production and substituting imports. 

Pakistan’s focus has been on import substitution, hence the export figures pertaining to parts and accessories are meagre: just over $45 million compared to a global market of more than $13 trillion. In order to improve the import substitution and to also penetrate the world market, specific attention needs to be given to the improvement of the existing vendor industry in terms of improved management systems by engaging the international expertise to boost the productivity levels coupled with enhanced corporate social responsibility, Qazi believes.

 Surgical instruments

Unlike the auto parts cluster, the surgical instruments cluster, which belongs to the light engineering industry category, is export oriented and is a specialty of one region: Sialkot. About 99% of the production comes from the city, Qazi says, adding that it contributes to 0.13% of GDP. 

 “The cluster comprises over 3,600 companies including industrial units, vendors and traders, and employs around 100,000 to 150,000 workers. It produces a wide range of surgical and beauty instruments for international producers and brands with a diversified range of designs on their demand. Almost 95% production is export oriented,” Qazi says, adding that it has remained stable over the years. 

Surgical instruments manufactured in Sialkot are highly acknowledged all over the world due to their quality, and advanced countries, such as European states and the United States, are the leading buyers. 

“Outside Sialkot city we are going to build a surgical city for this cluster where they will be provided with a state-of-the-art laboratory and will also overcome the certification issues they face,” Qazi says, commenting on plans to further boost this sector.

Tanneries 

Pakistan tanning industry is well-established and produces high quality finished leather from hides as well as skins. Within this sector, Pakistan produces a wide range of footwear to cater to the needs of a variety of customers – joggers, business executives, mountaineers, foresters, as well as for security personnel such as policemen and soldiers. 

According to Qazi, footwear is a labour-intensive industry employing nearly half a million people directly and indirectly and has high value addition. 

 “In a country like Pakistan, there exists an opportunity to excel in this sector as, due to rising costs of manufacturing units in the developed countries, there is a shift towards low cost regions like Asia where roughly more than 70% of world production is made. There is potential to multiply the volume of exports with the improvement in quality and innovation,” he says.

However, despite being the major raw material producer, Pakistan is unable to tap the world market as its share is below 1% of world footwear exports. 

“The industry has the capabilities and resources to take lead in the world market and it can be achieved by better utilisation of resources, skill-building and promoting allied industries. There are issues like lack of export marketing intelligence, seasonality of demand for leather shoes, wide gap in the designs being followed by the industry and the frequently changing pattern of design in foreign markets, shortage of trained manpower, non-availability of creative designers, technology gap between small and large firms. We are also solving these issues,” he maintained. 

 As an example, he cited a tannery zone in Sialkot which had no electricity, no infrastructure and no chrome recovery units which are now being addressed. “Similarly, in Kasur, we are going to build New Leather City,” he said. 

Moving ahead…

Qazi admits there are problems, but the government is moving to address all of them in a sustainable and speedy manner. 

He said the Punjab government has established 24 industrial estates in the province and many of them have been colonised already, adding that more industrial estates will be created in Gujarat and then in DG Khan and Sargodha. Similarly, small industries are being given chunks in SEZs as well.

“Moreover, we are going to spend money on uplifting the existing industrial estates in remote areas like DG Khan, Taunsa and Bahawalpur,” he concluded.

On the foreign investment front, Qazi said policies were already bearing fruit. He said a delegation from Saudi Arabia had recently visited Punjab and was interested in investing in poultry meat, renewable energy, IT and rice cultivation.

“Growing rice in Saudi Arabia is very difficult and to grow such commodities, Saudi Arabia has allocated funds to partner with countries where rice can be grown. Now, under the partnership, 50% of the crop remains for the country in which it is grown and the remaining 50% goes to Saudi Arabia. A draft policy has been prepared by the Punjab government regarding the allocation of land in this regard, which will soon get approval from the provincial cabinet. This type of investment will not only increase our productivity, but also overcome problems like food security,” he added.