Chinese products capture market

KARACHI: Electronic products imported from China have captured the domestic market uprooting the local producers.

According to the State Bank’s annual report issued on Monday, the share of locally produced electric fans slipped to just five per cent compared to 60 per cent a few years ago.

“In FY09, locally-manufactured fans catered to over 60 per cent of Pakistan’s domestic fan demand. Today, the share is less than five per cent,” said the report.

Over 80 per cent of these fans are of Chinese origin, and are often very cheap compared to the domestic alternative, it added.

The State Bank said in FY-11, in the case of import-competing industries, most of them performed poorly. Competition
increased in FY11, especially as low priced goods from China (exempted under a Free Trade Agreement) continued to make their way into the local markets.

Industries particularly affected by this influx include rubber, glass, and electric fans. Interestingly, while Pakistan’s fans continue to expand their market share abroad, ‘the home market is rapidly being captured by imports,’ said the SBP report.

The report said others are suffering due to loss of competitiveness. In the export-oriented segment, textile and electric fans were the only noticeable industries which managed to register increases in export volumes; export demand fell for other industries such as pharmaceutical, leather footwear, cement, and soda ash.

“The persistent energy shortfall and resulting underutilization of production capacities is affecting export potential, particularly in the weaving industry.”

In other cases, high transportation costs are rendering exports uncompetitive. This is particularly true for bulky commodities like cement and soda ash with a low value-to-weight ratio.

Although global shipping freights reached a nadir this year, these commodities were still unable to compete in the global
market because high diesel prices significantly added to inland cost of transportation from the factories to ports. In addition to this, there is the inability of Pakistan Railways to provide a relatively cheaper inland transport mode.

The report said some industries are facing a more uneven playing field. In overall terms, economic conditions have not been supportive for industries during the past few years. Continued strain on the fiscal accounts has left little room for supporting intervention, and the desperation to increase revenue generation has only grown.

“As a response, taxation has increased over the past few years particularly amongst industries which are well audited and hence make for easy tax targets (e.g., POL products, cars, cement, and more recently electronics, fertilizers, tractors, and imported raw material),” said the SBP report.

Occasionally, such policies have turned out to be short-sighted, only to be later withdrawn. Prominent cases include imposition of duties on cars and home electronics in FY09 and FY11, respectively, which were abolished only a year later.

While the immediate damage may stop with policy reversal, uncertainty in the business environment serves to make manufacturers risk averse, discouraging investment in the long run.

“In FY11, real investment in the manufacturing sector fell by 32.1 per cent, the lowest in 16 years,” said the report.

Likewise, capital goods production also took a hit, declining by 20.8 per cent, it added.

“The growth outlook is uncertain. With the economy still not on the path of a recovery, new investments initiated during the boom years (2003-2006) are not yielding the returns originally expected,” said the report.

Therefore, these are either being put off, as in the case of steel (Tuwairiqi) and petroleum refining (Byco), or are operating under much uncertainty, as in the case of fertilizer and cement.

“In this scenario, it is difficult to see major investments in the industrial sector in the foreseeable future,” said the SBP.