Pakistan is witnessing a decline in manufacturing. According to the Pakistan Bureau of Statistics (PBS) Quantum index data for Large Scale Manufacturing (LSM) businesses, nearly all growth percentages are in red. Cement output decreased by 0.13 percent in FY19 (an increase in exports somewhat offset the decline).
In comparison, steel billet production decreased by 31 percent. Steel billets are used to manufacture long steel products such as rebars, which are primarily employed in the construction industry. Cement and billets fell by 5 percent and 33 percent, respectively, between July and August. Visibly, the need for construction and building supplies has decreased. However, the bells had been rung beforehand; there was previous notice.
China–Pakistan Economic Corridor
Before the PTI government entered office, it was predicted to face a crippling macroeconomic issue. Demand contraction became unavoidable when the incoming government recognized it needed a bailout package from the IMF. In response to the signing of the massive CPEC deal, prior governments invested heavily in the country’s infrastructure and transportation networks. However, the big initiative appears less effective than when it was first revealed. Many new projects have not yet been approved. Public Sector Development Projects (PSDP) costs have been drastically reduced.
Although ongoing initiatives are proceeding as planned, the economy has to move in reverse. However, purchasing power diminishes when the economy is subject to austerity. People reduce their spending and save for the future. Consequently, the construction industry is impacted by lower demand from public sector projects and decreased private sector investments in new commercial and residential buildings. The confidence of investors has been seen to be falling precipitously.
While the economy has been attempting to escape the confines of its twin deficits, another significant development is taking place: the government’s endeavor to document illegal properties. This has brought a new difficulty to the sector. There is added pressure on the market’s dealers, wholesalers, and retailers, who operate almost exclusively informally, to comply with certain regulatory requirements, such as displaying their CNICs for major transactions. This will likely discourage many dealers from entering the home market unless they formalize their operations.
Naya Pakistan Housing Program
It was believed that the commencement of the Naya Pakistan Housing Program in FY20 would provide the construction industry with a much-needed boost as the government proceeds toward constructing some, if not all, of the 5 million dwellings planned for Pakistan. However, the big plan has not yet been implemented because it was delayed. As a result, demand and capacity utilization are deplorable since new anticipated projects, such as the NPHP, have been delayed.
In FY16, major construction sub-sectors, cement and steel, commenced capacity improvements in anticipation of enormous CPEC-led development without considering Pakistan’s sporadic but generally predictable boom-and-bust cycles. Therefore, one might anticipate a recurrence, given that capacity usage will decrease due to a drop in the demand brought on by increased capacity in preparation for this project.
The government is trying to reorganize the real estate industry, facilitating documentation, and stimulating profitable investments. Private sector-led construction demand may likely increase if this is accomplished properly. However, this could take another nine months to result in significant activity. Until then, the construction industry must be tenacious.
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