Managing changes in the industrial sector
Saturday, 28 July 2007
Qazi Azad
THE advisory committee on economic affairs, led by Finance Advisor Mirza Azizul Islam, decided last Thursday to send back a proposal for raising the price of urea fertiliser. Instead, it has asked the relevant ministries for placing a comprehensive proposal before the council of advisers for simultaneously raising the prices of fertiliser, gas, oil and power. It means that the possibility of escalation of the official price of urea alongside those of oil, gas and power-all vital industrial inputs, remains there.
Earlier, a tighter monetary policy envisaging an escalated charge of lending was announced. The governor of the central bank advised the private sector entrepreneurs on that occasion to increase their productivity and efficiency to stay competitive under a changed situation. His bank should undertake a study immediately to determine how far his suggestion is realistic. It is alright if the governor intended to send across a message that efforts for changing the structural components of the local industrial sector should begin now to fit with the changing need to pay more for borrowing from the commercial banks and for using oil, gas and power. But time has to be given to local entrepreneurs to adjust in phases with the changes to take place.
Pedalled rickshaws cannot compete with motorized transports. Nor can land transports with aircraft. In order to remain realistic while urging or compelling the local industries through policy instruments to be more competitive, the government should take into cognizance the categories of the local industries.
The determination of the ability of local industries to keep their costs of production competitive on accommodating higher costs of inputs through improvement of operational efficiency is necessary for being sure about their viability. Otherwise, the increased burden of a new set of government policy options may drive many them out of business and the results will be an economic disaster for the nation.
Compelling local industries to become increasingly competitive through policy options works well when the local industrial base and industrial potential of a country are in sufficiently advanced stages. If the local environment is so good that industries which are found to have become non-competitive following a new official policy can be closed down and new and better industries set up immediately as their replacements, then there is no risk with radical policy changes. But a reverse situation is fraught with the grave danger of shrinking the economic activities of the country.
But replacement of suddenly turned non-competitive industries with more efficient new industries requires better entrepreneurial skill and availability of a workforce equipped by training or through experience with appropriate technical skills. If these two are scarce in a society, the availability of money for investment and access to technology are not enough for a switchover to new and better industries. The oil-rich Arab countries and a few African countries have enough money for investment. They can buy advanced technologies for setting up highly competitive industries with their abundant cash. But they are industrially backward, as they do not have enough entrepreneurial skills and a well-trained workforce to conceptualise, plan and push through a major change in their industrial sectors. Whereas, on the other side in Asia, Japan has emerged since long as the second largest industrial super-power of the world with only its abundant water and a little zinc. The entrepreneurial skills of its investors and managers, the farsightedness of its politicians and the hard work of its well-trained manpower have enabled it overturn all odds and achieve what now seems to be a miracle.
Thus, it appears that the feasibility study of a policy as a workable option in advance prior to its adoption and enforcement is as critical as the need for a similar study of a development project proposal. Be more competitive-- is good as a slogan. But it may not be an achievable goal if an industry does not have the capacity or scope to adjust with a new set of challenging circumstances to survive well. Those local industries, which are slow, would become non-entities if these are thrown into a compelling situation for becoming unmanageably competitive like pedalled rickshaws trying to compete with motorized transports. The relatively better industries will lose some of their competitive advantages and may become even non-entities like land transports perishing into dust while trying to match with air transports.
Garment industries, weaving and spinning textile mills, some leather-finishing and footwear industries and loss-incurring jute mills, which are facing closure, dominate the industrial landscape of this country. These industries, alongside raw jute and frozen food, account for about 86 per cent of our export earning. If the earning from the export of vegetables and other non-traditional items, like handicraft and artificial flowers, is added to it, one may find that the export earning from the rest export items may not exceed even 10 per cent of the total.
It is for this reason one may conclude that small and medium industries, which number in thousands, are primarily meeting domestic demand. These are basically helping in avoiding import and saving foreign exchange. If all these industries are actually competing in the home market with marginal advantage with rival foreign products and other industries, which are exporting, are competing with foreign products in the markets abroad with similar slim advantage, then one has to have doubt about their real capacity to become more competitive under the pressure of policy changes.
The relatively small volume of government revenue from income tax from companies and other businesses, which can be taken as a reliable measure of the competitiveness of the local industries, also indicates the above position. The usual logical deduction is that industries that are better competitive earn more and pay higher amounts as income tax. But our situation is not that encouraging.
The enhancement of rates of oil, gas and power, if found not at all avoidable, should be kept as low as possible so that the entrepreneurs can carry on their existing businesses while working for a transition from marginally profitable industries to better ones through a process of replacement in order to remain in business.
Economic policies, tailored to induce industrialization and change the pattern of industries, should undergo periodic adjustment with the global trend. But what the decision makers have to appreciate is that such adjustments, however urgently needed, can never bring about revolutionary changes overnight. Change should be slow to claim no big cost. Compulsion for such changes, mounted with tough policies, will only ignore the historical reality that economic development preceded even the development of economics as a subject and that enterprising men always conceptualised, planned and carried on economic activities on the basis of profit consideration.
They set up industries, organized and reorganized them and trained and retrained their workforce in order to earn profit and survive in their businesses. The local entrepreneurs should get the reasonable time to reorganize them and their activities in order to survive in their businesses.
While framing the proposal for enhancement of prices of urea, oil, gas and power, the ministries concerned may carefully undertake an impact assessment in consultation with relevant experts and business leaders so that recommendations of their proposals are not only comprehensive but also realistic and would create no probability of drastic curtailments of agro-industrial activities in the country.
THE advisory committee on economic affairs, led by Finance Advisor Mirza Azizul Islam, decided last Thursday to send back a proposal for raising the price of urea fertiliser. Instead, it has asked the relevant ministries for placing a comprehensive proposal before the council of advisers for simultaneously raising the prices of fertiliser, gas, oil and power. It means that the possibility of escalation of the official price of urea alongside those of oil, gas and power-all vital industrial inputs, remains there.
Earlier, a tighter monetary policy envisaging an escalated charge of lending was announced. The governor of the central bank advised the private sector entrepreneurs on that occasion to increase their productivity and efficiency to stay competitive under a changed situation. His bank should undertake a study immediately to determine how far his suggestion is realistic. It is alright if the governor intended to send across a message that efforts for changing the structural components of the local industrial sector should begin now to fit with the changing need to pay more for borrowing from the commercial banks and for using oil, gas and power. But time has to be given to local entrepreneurs to adjust in phases with the changes to take place.
Pedalled rickshaws cannot compete with motorized transports. Nor can land transports with aircraft. In order to remain realistic while urging or compelling the local industries through policy instruments to be more competitive, the government should take into cognizance the categories of the local industries.
The determination of the ability of local industries to keep their costs of production competitive on accommodating higher costs of inputs through improvement of operational efficiency is necessary for being sure about their viability. Otherwise, the increased burden of a new set of government policy options may drive many them out of business and the results will be an economic disaster for the nation.
Compelling local industries to become increasingly competitive through policy options works well when the local industrial base and industrial potential of a country are in sufficiently advanced stages. If the local environment is so good that industries which are found to have become non-competitive following a new official policy can be closed down and new and better industries set up immediately as their replacements, then there is no risk with radical policy changes. But a reverse situation is fraught with the grave danger of shrinking the economic activities of the country.
But replacement of suddenly turned non-competitive industries with more efficient new industries requires better entrepreneurial skill and availability of a workforce equipped by training or through experience with appropriate technical skills. If these two are scarce in a society, the availability of money for investment and access to technology are not enough for a switchover to new and better industries. The oil-rich Arab countries and a few African countries have enough money for investment. They can buy advanced technologies for setting up highly competitive industries with their abundant cash. But they are industrially backward, as they do not have enough entrepreneurial skills and a well-trained workforce to conceptualise, plan and push through a major change in their industrial sectors. Whereas, on the other side in Asia, Japan has emerged since long as the second largest industrial super-power of the world with only its abundant water and a little zinc. The entrepreneurial skills of its investors and managers, the farsightedness of its politicians and the hard work of its well-trained manpower have enabled it overturn all odds and achieve what now seems to be a miracle.
Thus, it appears that the feasibility study of a policy as a workable option in advance prior to its adoption and enforcement is as critical as the need for a similar study of a development project proposal. Be more competitive-- is good as a slogan. But it may not be an achievable goal if an industry does not have the capacity or scope to adjust with a new set of challenging circumstances to survive well. Those local industries, which are slow, would become non-entities if these are thrown into a compelling situation for becoming unmanageably competitive like pedalled rickshaws trying to compete with motorized transports. The relatively better industries will lose some of their competitive advantages and may become even non-entities like land transports perishing into dust while trying to match with air transports.
Garment industries, weaving and spinning textile mills, some leather-finishing and footwear industries and loss-incurring jute mills, which are facing closure, dominate the industrial landscape of this country. These industries, alongside raw jute and frozen food, account for about 86 per cent of our export earning. If the earning from the export of vegetables and other non-traditional items, like handicraft and artificial flowers, is added to it, one may find that the export earning from the rest export items may not exceed even 10 per cent of the total.
It is for this reason one may conclude that small and medium industries, which number in thousands, are primarily meeting domestic demand. These are basically helping in avoiding import and saving foreign exchange. If all these industries are actually competing in the home market with marginal advantage with rival foreign products and other industries, which are exporting, are competing with foreign products in the markets abroad with similar slim advantage, then one has to have doubt about their real capacity to become more competitive under the pressure of policy changes.
The relatively small volume of government revenue from income tax from companies and other businesses, which can be taken as a reliable measure of the competitiveness of the local industries, also indicates the above position. The usual logical deduction is that industries that are better competitive earn more and pay higher amounts as income tax. But our situation is not that encouraging.
The enhancement of rates of oil, gas and power, if found not at all avoidable, should be kept as low as possible so that the entrepreneurs can carry on their existing businesses while working for a transition from marginally profitable industries to better ones through a process of replacement in order to remain in business.
Economic policies, tailored to induce industrialization and change the pattern of industries, should undergo periodic adjustment with the global trend. But what the decision makers have to appreciate is that such adjustments, however urgently needed, can never bring about revolutionary changes overnight. Change should be slow to claim no big cost. Compulsion for such changes, mounted with tough policies, will only ignore the historical reality that economic development preceded even the development of economics as a subject and that enterprising men always conceptualised, planned and carried on economic activities on the basis of profit consideration.
They set up industries, organized and reorganized them and trained and retrained their workforce in order to earn profit and survive in their businesses. The local entrepreneurs should get the reasonable time to reorganize them and their activities in order to survive in their businesses.
While framing the proposal for enhancement of prices of urea, oil, gas and power, the ministries concerned may carefully undertake an impact assessment in consultation with relevant experts and business leaders so that recommendations of their proposals are not only comprehensive but also realistic and would create no probability of drastic curtailments of agro-industrial activities in the country.