Porous policies won’t hold water

LAHORE: More than a million jobs could be created without investment if the economic policies are fine-tuned and those violating or abetting in violation of rules are made accountable.

There are numerous industrial sectors that are globally competitive both in quality and price, but they are losing even the domestic market to smuggling, under-invoicing, and under-filing of production. All these factors can be nullified with the use of technology. In fact Finance Minister Asad Umar has indicated in his mini-budget speech that smuggling would be curbed through technology. However, it is easier said than done.

It is due to this drawback that we see our ceramic industry operating at 70 percent of its installed capacity. Moreover due to under-invoicing and smuggling the industry is not expanding though it is catering to only 10 percent of the demand in the country.

The industry is not expanding because it cannot compete with unethical imports. Local tile industry has the potential to capture at least 70 percent of the market if smuggling from Iran is checked and realistic import trade price of Chinese tiles is evaluated.

Pakistani products also cannot compete in quality with European tiles that are very expensive and used by high-end consumers. Tile industry currently employees 50,000 workers including those that work at lands from where the sand is extracted. At full potential this industry could create an additional employment of 20,000 workers immediately by operating at full capacity and another 280,000 workers by enhancing capacities.

As far as auto parts industry is concerned, illegal import of used parts has limited the scope of expansion in the domestic industry. Officially, import of used auto parts is banned but the custom officials have the discretion to clear these parts by levying a penalty of 300 percent on import value. This, on paper, looks a tough penalty but if an entire used engine is invoiced at Rs3500 and cleared at 300 percent penalty it encourages the importers to import brand new engines by immersing them in burnt engine oil and removing their tops. This gives the engine a look of used machine. After clearance the engine is washed and the top is fixed. It is then sold as a new machine to consumers.

Other used parts are also imported in the same way at ridiculously low prices.

It is because of this malpractice that the after-market of even Pakistani automobiles is dominated by imported parts. The local auto-vendors have the capability and capacity to produce these parts. They are currently operating in single 8-hour shifts, which can be tripled if the unethical imports are stopped and policy flaws removed.

One glaring flaw is to clear imported auto-components on per kilogram basis that encourages importers to bring in high-tech expensive parts at nominal duty. This also discourages the local vendors to develop these parts. A better and transparent import regime would immediately create 100,000 jobs and many times more in next five years.

Similar discrepancies and malpractices are disturbing numerous domestic industries that include tyre and tube makers that have a potential to increase their production by 40 percent or even more if they work two shifts. The job gain would be over 100,000. The artificial leather sector could also add 50,000 jobs immediately, while as many units that are closed would become operational.

In agriculture, poultry is the most neglected and abused sector of the economy. Despite having a robust poultry industry, Pakistan has allowed import of both processed and raw poultry meat from the countries with which we have signed free trade agreements. The duty on these imports is nominal. Raw poultry meats are risky because of frequent fluctuation in chicken meat rates but processed poultry is being imported in large quantity.

In recent years many high-tech poultry processing plants have become operational. They are eying the Rs400 billion global Halal food markets. Most of them have succeeded in getting their products approved in Gulf countries. However the Pakistani prices are high. There is no duty drawback on poultry exports and all the taxes that poultry exporters pay locally are included in export price.

Moreover the processed poultry import is allowed at nominal duty, while the products that are used to process poultry for ensuring export quality are subjected to 67 percent duty effectively barring the exports.

A rational policy could immediately boost poultry production by 20 percent and increase poultry exports by $2 billion. It will also provide employment to an additional 50,0000 workers.