Shifting of Capital & Industries from Pakistan : A Critical Analysis

INTRODUCTION

In Pakistan, the overall economic situation is not encouraging as the opportunities for long term investment are being curtailed. Businessmen and industrialists are not showing interest in long term investment and they have started shifting of their capital outside Pakistan because of energy crisis, law and order situation and uncertain political conditions. Negative balance of trade has affected the local industry and the country is facing shortage of foreign exchange reserves.

Pakistan textile industry is relocating their business to Bangladesh due to better opportunities for profit earning. Bangladesh has offered Pakistan textile manufacturers special incentives and ideal environment for setting up their industries.. In southern Punjab 60,000 workers has lost their jobs due to this crisis. More than 40% of the textile industry and around 200,000 power looms have been shifted to Bangladesh in the last five years, causing unemployment in Pakistan.[1]

In Pakistan the power shortage has damaged the country. Industrial production is declining and the national economy is suffering. There is hardly any improvement in the power supply which is getting out of control. The energy crisis is hitting industry causing unprecedented unemployment and production loss of billions of rupees every day. Negative industrial growth has reduced output, decline in export and revenue collection.

Due to load-shedding of electricity and gas all the sectors have shown negative growth resulted in increase of trade deficit and causing an estimated loss of Rs 230 billion annually, besides depriving about 0.4 million people of jobs. Energy and power crisis have crippled the industry while interest rates and inflation are also increasing and causing serious problems for the industry. Besides this high electricity tariffs have put a negative impact on manufacturing and industrial sector due to high costs of production.[2]

SBP reports that textiles, the country’s biggest industry, the largest employer and accounting for more than 60 percent of overall exports, recorded a 10.2 percent decline in output in the first four months, July-October of FY2011. Besides, load-shedding has badly hit daily-wage workers who are frustrated of starvations and discontinuation of education of their children.[3]

Statement of the Problem

The Government lack of interest in economic reforms coupled with higher electricity tariffs, energy crisis and law & order situation in the country has forced massive capital flight from Pakistan. The business community has started shifting their assets to comparatively more investment protective countries. Shifting of capital and industries from Pakistan is a serious issue which needs immediate attention. If concrete measures are not taken the situation will further deteriorate.

Significance and Scope of the Study

Scope of this study has been restricted to the following areas:

What are the causes of shifting of capital and industries?

What would be the possible consequences?

What could be the remedial measures to control the situation?

Review of Literature

Shifting of capital and industries from Pakistan is very serious issue now a day which has been high lightened in the news papers, articles, and journals and in the electronic media. Major reasons of which are attributed to energy crisis, law and order situation and lack of government interest to introduce economic reforms and to provide incentives to the local industry as well as Foreign Direct Investment (FDI). As per these reports there is an urgent need to stop the continuous flow of capital from Pakistan.

A study conducted in 2009 by the Institute of International Public Policy (IPP) Beacon House University, estimated cost of outages to industry by surveying a sample of 65 industrial units revealed that the estimated cost of load shedding for firms with self generation facility was PKR 74 billion and PKR 83 billion for firms without self generation facility. Therefore the total cost to the industrial sector was estimated at PKR 157 billion, which was 9 % of the total industrial value, added and constituted 7 % loss in production. The total cost of industrial load shedding to the economy was estimated at PKR 210 billion which is 2 % of GDP while the estimated loss of exports was PKR 75 billion. The resultant employment loss was estimated at 300,000 workers.[4]

Method

The methodology analytical coupled with qualitative and quantitative analysis adopted comprised of the three steps.

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