Strategies

7.5.1 Manufacturing sector accounted for about 9.2% of Balochistan’s GPP in the mid 2000’s – down from 9.4% in 1991. In 2005, manufacturing was the fourth largest sector in the provincial economy behind agriculture (29.3% of GPP), public administration (12.7%), and trade (17.2%). Large scale manufacturing’s share of provincial manufacturing value added (MVA) was about 79% in 2005 up from 70.5% in 1991. The large scale manufacturing sector has grown significantly, more rapidly in recent years than the small sector. Despite this the share of Balochistan ’s large scale manufacturing sector in national MVA has stagnated at about 2% during 2000 to 2009.

The share of the small scale manufacturing sector of Balochistan in national SSM is about 1%.25 25Balochistan; Gross Provincial Product; (2012) World Bank 111 | Balochistan Comprehensive Development Strategy | 2013 -2020 7.5.2 Wholesale and retail trade accounts for roughly a quarter of Balochistan’s GPP. This share has tended to decline marginally over the 2006 to 2011 period. During this period, growth of trade sector value added has fluctuated widely – with a high of 10.3% in 2008 and negative and stagnant growth in 2009 and 2011. Trade sector value added of Balochistan accounts for about 8% of national trade sector value added. 7.5.3 Industry traditionally has been a neglected policy concern and public investment and support to manufacturing – large and small scale and slaughtering – mining, construction and transport sub-sectors have been typically small. There are clusters of manufacturing industry in several locations; Quetta, Jafferabad, Lasbela, etc. However according to the 2006 Census of Manufacturing Industry, the share of Balochistan in the total number of manufacturing industry is extremely small. 7.5.4 In Lasbela, about 201 manufacturing units are in operation in all the estates falling under the jurisdiction of Lasbela Industrial Estate Development Authority (LIEDA).

LIEDA is presently operating 5 estates in Lasbela and of these the two most colonized are the Hub Industrial Estate and Marble City Gaddani. About 36 listed companies of Karachi Stock Exchange are located in Industrial Estate of Lasbela. The production of these industries not only fulfills the domestic demand of these products but also partakes in exports and contributes to foreign exchange. The number of workers employed in factories dropped from 14,789 in 1993-94 to 13,233 in 1996. The 2010 data for labor is 6,88026 . The drop in factory work force is probably on account of greater use of modern technology. Table 7.8: Industry in the Lasbela Industrial Estate Development Authority Estates Established In Operation Under Revival Closed Hub Industrial Estate 226 135 17 74 Winder Industrial Estate 18 8 1 9 Uthal Industrial Estate 5 1 4 Marble City Gaddani 55 55 SIZ Winder 4 2 1 1 Total 308 201 19 88 Source: Gob; LIEDA Brief 7.5.5 Balochistan’s ship-breaking yard at Gaddani is one of the world’s largest ship breaking operations. Gaddani currently has an annual capacity of breaking over a hundred ships of all sizes including super tankers and large cargo ships.

The yard provides considerable amount of steel which is used in other industry. There are 314 plots of which 132 are developed and presently there are 5,000 people employed in the ship breaking industry. 26 District Development Profile Lasbela; 2011 UNICEF, P & D Department Government of Balochistan Table 7.7: Balochistan MVA Growth (at constant factor cost) Years Total MVA Growth 2000/01 11.02 2001/02 23.75 2002/03 14.51 2003/04 21.13 2004/05 24.86 2005/06 19.16 2006/07 7.04 2007/08 6.28 2008/09 -3.45 2009/10 4.5 2010/11 3.5 AV 2001-2006 19.07 AV 2007-2011 4.37 Source World Bank (2012) Vol. II. Table 3 112 | Balochistan Comprehensive Development Strategy | 2013 -2020 7.5.6 The newly developed Gwadar Industrial Estate (GIE) is situated a little outside the Gwadar city along the Mekran Coastal Highway. It comprises of 2,000 industrial plots, of which 1,100 acres have already been allotted. The infrastructure activities are in final stage of completion.

The estate required availability of fresh water which is expected to be made available after the recent approval of water pipeline for Gwadar. GIE’s viability ultimately hinges on the success of Gwadar port. In Quetta, there are a total of 117 industrial units with 29 different types of industry. There are more than 2,500 persons employed in these units.27 7.5.7 The existing enterprises in Balochistan are small and cater to the needs of a small, low income clientele. These trading enterprises are usually family business often relying on formally unpaid labor and with weak links with enterprises along its supply chain. Trade is the second largest recipient of bank credit (after manufacturing outstanding in June 2012). Moreover all trade sector credit is concentrated in Quetta and Jafferabad which accounted for about 95% of outstanding Balochistan’s trade sector bank credit in June 2012. Quetta still accounts for more than half of private sector credit outstanding to Balochistan’s trade sector. Lack of access to finance is a crucial constraint on the growth of the trade sector.

Amongst other barriers, the non-availability of suitable collateral, credit history and use of English language for bank documentation and transactions, are the major ones. All these require adequate redress for improving the credit availability in the province. 7.5.8Strengthening linkages between trading and manufacturing enterprises is important as this can be a source of flow of both finance and technology and lead to the growth of the enterprises. There are very few examples of trading enterprises “graduating” from minor to medium sized levels in Balochistan (starting as one man businesses and developing into a large retailer network) due to weak inter-enterprise vertical and horizontal linkage and absence of a reliable market information system which can allow enterprises to track change in market demand, production technologies etc. Priority Areas 7.5.9Government recognizes that without availability of efficient infrastructure, the manufacturing industries would be unable to take advantage of the natural resource endowments. The experience of Hub Industrial Estate (HIE) shows clearly, that a conscious public investment in infrastructure including water and electricity enabled the HIE to take off.

The physical connectivity with Karachi facilitated supply of the managerial and technical manpower together with technology. LIEDA is already working on Phase II projects for expanding HIE as well as the Marble City. It has planned water supply schemes for additional water as well as for a power project. GoB plans to take up the request for sanctioning of gas for the power project as well as for the industry with the GoP as the gas used in Balochistan is only 2% of the amount produced in the province. Similarly the development of better connectivity in the province especially rail link connecting Gwadar to the 27District Development Profile Quetta; 2011 UNICEF, P & D Department Government of Balochistan Table 7.9: District- Wise Trade Sector Credit in Balochistan June 2012 Vol Rs. ‘000 % Gwadar 2,352 0.15 Jafferabad 610,120 41.46 Kech 19,912 1.35 Khuzdar 9,992 0.68 Killa Abdullah 2 0.00 Lasbela 29 0.00 Loralai 3,362 0.23 Nasirabad 7,637 0.50 Pishin 9,209 0.62 Quetta 776,344 52.76 Sibi 7,221 0.49 Other 24,532 1.66 Total Balochistan 1,470,712 Source: State Bank of Pakistan 2012 113 | Balochistan Comprehensive Development Strategy | 2013 -2020 eastern, western and northern region will provide boost to mineral processing as well as other industry linked with local raw material 7.5.10 For wider growth impacts, industry having backward linkages with raw material within Balochistan must be prioritized.

Further focus should be on creating linkages with markets surrounding Balochistan, in Sindh, Punjab and KPK, and also in gulf area (through facilitating port linkages and cross border facilitation programs). In 2004 there was discussion for setting –up, Pak-Iran Common Border Market for controlling illegal trade and promoting tax harmonization. Iran has been operating common border markets with Turkey, Azerbaijan and Turkmenistan. Common border market projects could be solicited with the Government of Oman in the Gwadar area. 7.5.11 Balochistan’s financial underdevelopment reflected in the absence of institutional finance at the long end of the market (no bank lends long, there are almost no venture capital funds, lease financing arrangements, new bond/ sukook or share market issues anywhere in Balochistan).

In Balochistan the outstanding credit extended to the manufacturing sector as a proportion of total credit outstanding by banks averaged about 15% during 2006 – 2012 (Table 7.10). Weak financial sector is underscored by the absence of the non- banking financial intermediaries (NBFC) sector. The collapse of the DFIs especially that of IDBP and BEL has hit Balochistan’s manufacturing sector harder than any other province. Balochistan’s manufacturing sector is also in need of BMR (balancing, modernization and restructuring) investment today together with green field projects. Table 7.10: Private Sector Credit Outstanding to Manufacturing 2008-2012 (Rs. in billion) Year Private Sector Credit Outstanding to Manufacturing Total Private and Personal Credit Outstanding Percentage 2008 1.59 12.78 12.44 2009 1.69 12.80 13.20 2010 2.19 10.41 21.03 2011 1.44 10.45 13.77 2012 1.74 9.71 17.91 Source: State Bank of Pakistan 2012 7.5.12 The cost of doing business in Balochistan is higher than almost anywhere in Pakistan. Quetta ranks 12th among 13 Pakistan cities on the basis of the overall index constructed by the World Bank.

It is particularly cumbersome, time consuming and expensive to enforce contracts, register property, obtain construction permits and organize trade in the case of Quetta businesses (on the other hand starting a new business and paying taxes is relatively easy in Quetta.) This indicates the need for a major overhaul of the public administrative structure regulating business operations. Clearly there are too many regulatory tiers of authority that can be eliminated or intuitionally subsumed within the system for better business operations in the region. 7.5.13 Industrial strategy must also concentrate on promoting enterprise consolidation and horizontal and vertical linkages. According to the latest census (2011) 90% of the manufacturing enterprises in Balochistan employ less than 4 persons each. Many enterprises are effectively one man family businesses (relying on unpaid labor). Only 13% of Balochistan’s enterprises are in the manufacturing sector (as against 20% in the rest of Pakistan). This also reflects the lower level of provincial economic integration. Manufacturing sector development is also limited by Balochistan’s relatively low level labor participation rate (estimated at 27% in 2011). Moreover labor productivity is lower in Balochistan than any other province, it is just 66% of the average labor productivity of 114 | Balochistan Comprehensive Development Strategy | 2013 -2020 Sindh. This underlines the need for public support for rapid upgrade of both, on the job and off the job employee trainings. Strategy 7.5.14 GoB plans to promote industry which can allow Balochistan to exploit her natural resource potential – fruits, fish, wool, leather, meat, minerals (especially coal and copper) and petroleum refining.

Also the focus is developing value chain in the products that are presently produced in raw form and whose value addition takes place outside Balochistan. Public support (including subsidizations of inputs and services) would thus focus on: i. Facilitating investment partnerships (between public, private and foreign investors) to overcome the constraints in the expansion of industrial growth. For this, GoB would undertake joint ventures with private sector with its equity participation and encourage foreign investors specially investors from the Balochistani expatriates. ii. GoB will create special Equity Funds for supporting manufacturing sector projects that are well integrated with the provincial resource base and can generate growth spread effects within a specified region linked up with a growth pole outside Balochistan and can provide a basis for continuous improvements in the skill level and productivity of the Balochistan labor. Grant of mining exploration and production contracts to major multinationals must also include agreements on processing a certain proportion of the extracted minerals in Balochistan, preferably as near the mining site as practicable. iii. Reviving long term investment for manufacturing through an agreement with SBP for evolving project evaluation and monitoring capability in the Financial Institutions and an associated expansion of long term manufacturing sector financing. Also floatation of bonds on the KSE and the Gulf stock markets by the provincial government for financing mineral processing and petroleum refining projects in Balochistan. iv. Support investments in the infrastructure especially power; water, transportation and storages through prioritization.

LIEDA’s planned investments including those for expanding Industrial estates be supported v. Rehabilitate existing Industrial Estates and establish new Industrial Estates under SEZ Act. vi. Strengthen organizational capability of the Industries & Commerce department in policy and regulatory mechanisms. Revitalize the Balochistan Small Industries Corporation by converting it into a Small Enterprise Development & Finance Institution in partnership with private sector for providing project development and financing support to small enterprise; service industry as well as trading units. Table 7E: Industry & Trade (Rs. in million) Sr. No. Strategy FY1, FY2 FY3, FY4 FY5, FY6, FY7 Total Proposed FA Portion 1 Improving Regulatory Framework for Industrial Growth and Safety 81 50 85 216 164 2 Equity Funds for Investing into Strategic Industry 400 1,000 1,500 2,900 – 3 Improving Infrastructure of Existing Estates and New Estates under SEZ 200 800 400 1,400 – 115 | Balochistan Comprehensive Development Strategy | 2013 -2020 Sr. No. Strategy FY1, FY2 FY3, FY4 FY5, FY6, FY7 Total Proposed FA Portion 4 LIEDA Requirements for Infrastructure and Gaddani Ship Steel & Allied Industrial Park 400 400 200 1,000 – 5 Throw Forward of Existing Schemes 374 – – 374 – Total 1,455 2,250 2,185 5,890 164.