An insight into three sub-sectors of Manufacturing Sector

Engineering Post Report

A robust manufacturing sector promotes domestic production, exports and generates employment, hence stimulating the overall growth of an economy.

In Pakistan, manufacturing sector contributes 12.79 per cent  to Gross Domestic Product (GDP) and employs 16.1 per cent of the country’s labour force.

Manufacturing sector consists of three sub-sectors: Large Scale Manufacturing (LSM), Small Scale Manufacturing (SSM) and Slaughtering. Quantum Index of Manufacturing (QIM) is a measure of LSM  performance  with 70.33 weight in overall LSM  and derived  from the Census of Manufacturing Industries 2005-06. Similarly, Small Scale Manufacturing (SSM) is also based  on the survey conducted in 2006-07. It covers industrial and household units engaged in manufacturing activity having less than ten employees. However, slaughter sub-sector performance is estimated through a methodology which measures  the value addition in output of the sub-sector.

Large Scale Manufacturing (LSM) at 9.73 per cent of GDP dominates the overall manufacturing sector, accounting for 76.1 per cent of the sectoral share followed by Small Scale Manufacturing (SSM) , which accounts for only 2.12 per cent of total GDP and has 16.6 per cent sectoral share. The third component, slaughtering,  accounts for 0.94 of GDP with 7.4 per cent sectoral share.

Year 2020 and Manufacturing Sector

Globally,  2020 has been undeniably the most turbulent year the world over including Pakistan. The outbreak of the pandemic of Corona Virus triggered a widespread global shut down  halting major economic activities that depressed demand and also  disrupted supply chains. Manufacturing sector, being not an exception, was one of the hardest hit segments from COVID-19.

The Federal Government had already adopted stabilization measures in FY2019 i.e. contractionary fiscal/monetary policy and market-based exchange rate, to cure the macroeconomic  imbalances in the country. Nevertheless, external imbalances  were eased but with some short-term repercussions, specifically in the industrial sector. However,FY2020 emerged with some positive notes following the stabilization phase. Negative growth rates were narrowing down. Textile, the highly weighted sector,  had started inching up along with the improvement in chemicals and leather sectors.  Until February 2020, this nascent recovery kept going, according to the information available  from the official sources concerned .

 Nevertheless, this process was suspended  due to the measures  taken to control the spead of COVID-19. The mobility restrictions affected the industry , especiall;y labour-intensive sectors. Moreover, manufacturing sector which is highly dependent on  imported raw material was also adversely affected due to  international  supply chain  disruption  especially in USA and China.  Such a situation,  brought the manufacturing  activities in the country virtually to a standstill , derailing  the entire national economy. Domestic lockdowns further aggravated  the situation.  Stung by the pandemic, LSM plunged to 4.1 per cent in April 2020 registering  its lowest historical  level. This further dragged down  the LSM  and July-June FY 2020 witnessed a steep decline of 9.8 per cent, causing macroeconomic instability in the country.

Out of 15 sub-sectors, only 3 sectors observed  positive growth  during FY 2020. Fertilizer remained somewhat insulated as its demand remained  intact due  to lesser  impact of lockdown on agriculture. Moreover, fertilizer units are mainly in  rural areas  where lockdown restrictions were at ease  to some extent.

Conversely,  textile dipped  by 10.4 per cent during  FY2020. This sector is highly  labour-intensive and most exposed  to COVID-19 lockdowns.

Food Beverages & Tobacco , Automobile, Non-Metallic  Mineral Product and Coke & Petroleum  Products  also decreased by 2.13, 44.5, 2.16, and 20.1  percent respectively.

Thus, adverse effects of COVID-19 pandemic  have been  particularly strong  in manufacturing sector  which also hampered  the  pre-COVID-19  growth trajectory, the sources maintained.