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Big industries output declines for eighth straight month

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  • Pace of contraction sharpens to 11.59% in February.
  • Both domestic and global factors have contributed to this decline. 
  • Decline is a significant concern for country’s economy.

ISLAMABAD: In an alarming development, the large-scale manufacturing (LSM) sector — which accounts for almost one-fifth of the country’s economic growth — contracted for the eighth consecutive month.

The pace of contraction sharpened to 11.59% in February compared to the same month of last year, data released by the Pakistan Bureau of Statistics (PBS) showed.

This decline is a significant concern for the country’s economy because of the LSM sector’s dismal performance, the gross domestic product (GDP) growth will also suffer a significant blow this fiscal year.

Industrial output witnessed a decline of 5.56% in the first eight months (July-February) of the ongoing fiscal year 2022-23 compared to the same period of the last financial year. Over the previous month (January), LSM output went down by 0.5%.

Both domestic and global factors have contributed to this decline, including high energy costs, rupee devaluation, and the government’s tightening of monetary and fiscal policies. These factors have limited imports due to a lack of dollars, contributing to the negative growth of the sector.

The global economic slowdown has added to the woes of industries in Pakistan, with many businesses scaling back operations or reducing operating hours, while others have shut down their plants. Ongoing economic and political instability in Pakistan has also been linked to the decrease in industrial output by independent political economists.

Uncertainty in the country has led to a decrease in investor confidence, resulting in a slowdown in manufacturing activities as well. 

Moreover, the government’s inability to provide a stable and conducive environment for businesses has further worsened the situation, with investors hesitant to make long-term investments in the country. Combined, these factors have contributed to the ongoing nosedive of the LSM sector, which could impact Pakistan’s overall economic growth.

The LSM sector has witnessed a decline in production from August 2022 to February 2023, the breakdown shows:

  • 0.02% decline in August, 
  • 2.7% decline in September, 
  • 7.63% decline in October, 
  • 6.15% drop in November, 
  • 3.51% decrease in December, 
  • 7.9% contraction in January 2023. 
  • 11.59% decline in February

All major and small sectors’ output contracted in February, including textile, food, coke and petroleum products, chemicals, automobile, pharmaceuticals, cement, fertilisers, iron and steel, furniture, leather products, electrical equipment, and non-metallic mineral products.

To combat soaring inflation, which clocked in at 35.4% in March, the State Bank of Pakistan (SBP) raised the discount rate to 21%. Since July 2021 when inflation was at 7%, the bank has raised the rate by threefold or 1,400 basis points, hindering industrial activities by making bank financing more expensive.

In FY22, Pakistan’s LSM sector grew by 11.7% over FY21, aided by rising global demand and favourable government policies to boost GDP growth, with big industries contributing a significant portion to the economy.

According to the PBS data, on a year-on-year basis, in February the following industries showed a significant decline:

  • Textiles — 19.67%, 
  • Pharmaceuticals — 25.47%, 
  • Food — 2.43%, 
  • Garments — 2.99%, 
  • Non-metallic minerals — 1.33%, 
  • Iron and steel — 9.19%, 
  • Chemicals — 14% (of which chemical products output was up 2.96% while fertiliser was down 25%) 
  • Football output — 17.3% 
  • Machinery and equipment output — 28.45%, 
  • Automobiles — 64%, 
  • Computer, electronics, and optical products — 39.7%; 
  • Furniture — 12.7%, 
  • Cement — 3.4%, 
  • Wood products —74.85%, 
  • Tobacco — 10.6%, 
  • Rubber products — 4.88%,
  • Coke and petroleum products — 6.35%, 
  • Leather products — 1.6%, 
  • Other transport equipment output — 31.2%,  
  • Cotton cloth — 17.7%,
  • Cotton yarn by 30.1%

Output during the July-February fiscal year 2022-23 as compared to the same period of FY22 has increased only in wearing apparel (garments) by 35.5%, leather by 3.85%, furniture by 58.45%, and football by 35.8%.

During these eight months of the ongoing fiscal year, the outputs of the following industries declined:

  • Food output — 1.95%, 
  • Beverages — 6.14%, 
  • Tobacco — 20.4%, 
  • Textiles — 14%, 
  • Wood products — 68.65%, 
  • Paper and board — 3.4%, 
  • Coke and petroleum products — 9.4%, 
  • Pharmaceuticals —22.4%, 
  • Rubber products — 7.3%, 
  • Non-metallic mineral products — 9.1%, 
  • Computer, electronics, and optical products — 25%, 
  • Machinery and equipment — 38.6%, 
  • Automobiles — 38.6%. 
  • Cement — 11.8%, 
  • Iron and steel — 3.9% 
  • Fabricated metal — 12.8%

Business

Gold rate declines for second consecutive day

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  • Rate of gold reaches Rs232,800 per tola. 
  • International rate up by $11 per ounce. 
  • The silver price remains unchanged. 

Despite an increase in the international rate, gold’s value declined in Pakistan for the second consecutive day Tuesday.

Data provided by the All Pakistan Sarafa Gems and Jewellers Association (APSGJA) showed the price of gold (24 carats) decreased by Rs1,700 per tola and Rs1,458 per 10 grams to reach Rs232,800 and Rs199,588, respectively.

The gold rate cumulatively lost Rs1,100 per tola last week, and a further Rs1,700 on the opening day this week.

Meanwhile, the international price went up $11 to settle at $1,956 per ounce. 

The safe-haven bullion’s value has remained volatile in the international market recently. However, it bounced back from its lowest level in over two months Tuesday after the US dollar’s value declined from a high and investors remained anxious about negotiations on the US debt ceiling.

If the debt ceiling — which is currently capped at $31.4 trillion — is not raised in the next few days, it would trigger the first-ever US default.

Investors also remained wary about a possible hike in the interest rate, which would negatively affect gold’s value.

Meanwhile, the gold rate has been volatile in Pakistan recently amid continued political and economic uncertainty, high inflation, and currency depreciation. People prefer to buy the yellow metal in such times as a safe investment and a hedge.

The rupee gained Re0.07 or 0.02% against the US dollar in the interbank market Tuesday, closing at Rs285.35, according to State Bank of Pakistan data.

Data shared by the jeweller’s body showed that the rate of silver remained unchanged at Rs2,850 per tola and Rs2,443.41 per 20 grams, respectively. 

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France launching electric car battery factory to dent Chinese dominance

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Under a plan of reindustrialisation by President Emmanuel Macron, France is to inaugurate a factory for manufacturing batteries for electric cars Tuesday in Billy-Berclau — the first of its kind — challenging the Chinese dominance in the industry, according to an AFP report.

Battery industry buildup is a component of the plan by Macron with a clutch of factories set to emerge in the north of the country over the next three years.

The “gigafactory” is owned by Automotive Cells Company, a partnership between French energy giant TotalEnergies, Germany’s Mercedes-Benz and US-European automaker Stellantis, which produces a range of brands including Peugeot, Fiat and Chrysler.

The inauguration will be attended by French Economy Minister Bruno Le Maire and the country’s energy transition and industry ministers along with German and Italian officials.

The heads of Mercedes, Stellantis and TotalEnergies will also be at the event.

The factory is as large as football pitches in which production will commence this summer.

Elected officials and business leaders intend to turn the Hauts-de-France region into “Battery Valley” — the electric car industry’s answer to Silicon Valley.

AESC-Envision — a Sino-Japanese group — is building a plant near the city of Douai which will supply French automaker Renault from early 2025.

French startup Verkor is scheduled to begin production at a facility in Dunkirk from mid-2025 while Taiwan’s ProLogium has also chosen the coastal city for its first European factory, with output to start in 2026.

Competition between US and China

As European Union (EU) has marked a deadline of 2035 to phase out fossil fuel-run cars, the countries are racing to step up the production of batteries and electric vehicles to meet the target of electric vehicles within the deadline.

In recent years, around 50 battery factory projects have been announced in the EU and the French government has set a target of producing two million electric vehicles per year by 2030, as per the economy ministry.

The ministry said that “the ACC plant will supply 500,000 vehicles per year by then.”

China is the world leader in electric car battery production and also dominates the production of the raw materials needed to make them.

Europe also faces stiff competition from the United States, which is heavily subsidising the sector through the Inflation Reduction Act, which includes $370 billion in clean energy incentives.

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Govt mulls slashing duty on mobile phones in budget

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ISLAMABAD: The Federal Board of Revenue (FBR) is mulling options to reduce the duty on mobile phones in the federal budget for the fiscal year 2023-24 — which is expected to be unveiled on June 9 — keeping in view the suggestions of Pakistan Mobile Phone Traders, The News reported Monday.

Previously, the government was obliged to raise the duty on mobile phones by 100% to 150%, and resultantly, only Rs5 billion to Rs10 billion were being deposited in the national exchequer instead of Rs85 billion.

The number of mobile phone users in Pakistan has exceeded 186.9 million. 

In order to cope with the financial crisis of the current financial year, in the new budget, a proposal for a conspicuous reduction in the rates of duties on cellular phones is under consideration, which is about 100% to 150% at present on small and big mobile phones. 

The mobile industry is on the brink of collapse due to an increase in taxes. It not only affected traders but also made the life of millions of people difficult to earn a livelihood.

It has been learnt that a delegation of the Mobile Phones Traders Association has given recommendations to Finance Minister Ishaq Dar and other senior officials. 

The delegation ensured that efforts would be made to include the recommendations in the budget. These proposals and recommendations are being reviewed to make them a part of the new budget.

It has been learnt that a 75% duty was imposed on cellular phones in Pakistan as compared to other countries of the region like Singapore, Bangladesh and Turkey where it is not at that level. That is the reason people are using smartphones without paying duties in connivance with FBR.

The additional 100% to 150% duty on cell phones has made it out of reach of the poor, labourers, daily wagers, students, professionals, the lawyer community, and civil society. 

All Pakistan Mobile Phones Traders Association General Secretary Munir Beg Mirza said that due to the ban on the import of used mobile phones, smuggling has increased to give favour to a few companies. 

Also, people are using smartphones illegally without paying heavy taxes to enjoy all functions of smartphones, which is inflicting a loss on the national kitty.

He said that not only every consumer would pay tax but also the government would get Rs100 billion instead of Rs5 billion on phones if an appropriate duty was imposed in the new financial year.

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