ECONOMETRIC ANALYSIS

History & Introduction

When Pakistan was created, there existed only a few cement plants. Since
then the growth in the cement industry was slow until 1990 when the
industry was privatized. After 1990, new plants were set up that increased
the total production capacity of the industry.

The cement industry has 29 firms (19 units in the north and 10
units in the south), with the installed production capacity of 44.09
million tons (as of February 2009). The northern region of the
country has an installed production capacity of 35.18 million tons
(80 percent) while the southern region of the country has an
installed production capacity of 8.89 million tons (20 percent); both
regions compete for the domestic market of over 19 million tons.
There are four foreign companies, three armed forces companies
and 16 private companies listed in the stock exchanges.1

The cement industry has played an important part in the socio-economic

development of the country. There has been large amount of investments
of up to $1.5 Billion by the industry to set up the infrastructure required
for cement manufacturing. The industry has created a large number of
jobs and employs over 150,000 people. 2

Performance
The cost of production is high, owing to rising fuel and energy costs; the
domestic demand of cement has dropped by 13.44 per cent in 2009. On
the other hand, cement exports increased by 47.4 per cent. The cement
industry has invested around $6 billion in expanding its capacity from
16.72 million tons in 2002 to 41.76 million tons in 2009. The industry has
contributed Rs30 billion as direct taxes to the exchequer.3

1News Review, “Cement industry has potential to help meet economic challenges:
government support sought for exports”, Government of Pakistan, Ministry of
Investment, May 25, 2009, http://www.pakboi.gov.pk/pdf/Daily%20Economic
%20Activity/May_09/MG_250509.pdf

2 ibid

3 Moayyed Jafri, “Cement industry fears plant closures amid falling prices,” The NEWS,
November 19, 2009, www.thenews.com.pk/daily_detail.asp?id=209218
Pakistan, has exported over 11 million tons in 2009, earning foreign
exchange of about $750 million.4

Exports & International Markets

Pakistan cement factories continue to make significant progress in cement
exports. Now Pakistan is ranked 5th in the world’s cement exports after a
huge increase of 47 percent in exports during last fiscal year. This
increase has been because of high demand of cement in nearby countries
and by capturing new markets such as African countries, Qatar & Iraq.
Pakistan could achieve the mark of 13 to 14 million tonnes exports by the
end of the fiscal year keeping in view Indian market which has once again
started importing cement from Pakistan.5

New avenues for export of cement are opening up for the indigenous
industry as Sri Lanka has recently shown interest to import 30,000 tons
cement from Pakistan every month. If the industry is able to avail the
opportunity offered, it may secure a significant share of Sri Lanka market
by supplying 360,000 tons of cement annually.

In 2007, 130,000 tons cement was exported to India. In 2007, the exports
to Afghanistan, UAE and Iraq touched 2.13 million tons.

Pricing6
Another problem faced earlier by the Industry was the high taxation. The
general sales tax (GST) was 186% higher than India. The impact of this
tax and duty structure resulted in almost 40% increase in the cost of a
cement bag (50 Kg). A bag in India earlier cost Rs. 160 as compared to Rs.
220 in Pakistan. In the budget of 2003-04, a duty cut of 25% was
permitted to the cement sector with assurance from the cartel to pass on
this benefit to the consumers. In 2006, the price of a bag went up to Rs.

4 News Review, “Cement industry has potential to help meet economic challenges:
government support sought for exports”, Government of Pakistan, Ministry of
Investment, May 25, 2009, http://www.pakboi.gov.pk/pdf/Daily%20Economic
%20Activity/May_09/MG_250509.pdf

5 Cement Pakistan, “Pakistan ranked 5th cement exporter in World,”

http://www.cement.com.pk/latest-developments/112-pakistan-5th-cement-exporter.html

6 Mirza Rohail, comment on “Cement Industry,” The Wordpress Blog, comment posted,
February 1, 2009, http://economicpakistan.wordpress.com/2009/02/01/cement-industry/
430 however in 2007 it has stabilized at Rs. 315 per bag. In mid 2008,
cement prices stabilized further at Rs. 220 per bag.

The Government has reduced central excise duty (CED) on cement in the
budget for 2007-08 in order to boost construction activity.

Average industry cost of cement bag/50Kg = Rs.193

Average industry price of cement bag/50Kg = Rs.235

Per Capita Cement Consumption7

Pakistan currently has a per capita consumption of 131kg of cement,
which is comparable to that for India at 135kg per capita but substantially
below the World Average 270kg and the regional average of over 400kg
for peers in Asia and over 600kg in the Middle East.

Cement demand remained stagnated during 90’s owing to lack of

development activities. In 1997, per capita consumption was 73 kg in both
Pakistan and India. By 2005-06, consumption in India rose to become 115
kg/capita whereas ours rose to 117 kg/capita. A comparison of few
countries in 2005:

Bangladesh 50 kg/capita

Pakistan 117 kg/capita

India 115 kg/capita

USA 375 kg/capita

Iran 470 kg/capita

Malaysia 530 kg/capita

EU 560 kg/capita

China 625 kg/capita

UAE 1095 kg/capita

7 ibid
Conclusion
The demand for Pakistani cement remains strong despite the current
global recession.8 Despite the fall in local demand due to slowdown in
construction activities, the cement producers did fairly will because of
high level of exports. High demand in the Afghanistan, The Middle East,
Africa and resumption of exports to India played a major part in the high
level of exports. Major capacities of countries like India and Iran are
expected to come online by year 2010 and onwards which are likely to
convert these countries from dependent importers to potential exporters.

As the global economic slowdown is almost over and many global

economic powers are showing growth due to the economic stimulus
packages given by their governments, the future prospects for the
Pakistani cement industry look bright as future demand will be higher.
Another factor that has raised domestic demand for cement is the
reconstruction work that has started in the Sawat and Malakand Division
after the military operation has ended.

Though the prospect for the cement industry in Pakistan looks bright, the
one factor that can land the whole industry in a quagmire is the rising cost
of production. As there are frequent electricity and gas load shedding, the
plants cannot operate at full production capacity thus loosing revenue.
The weakening value of Rupee against the dollar also increases the cost of
raw material such as coal that is imported for use in the cement plants.
This also means that the competitive price edge that Pakistani cement
exporters would be lost in the international market.

As the following GDP figures show that the growth rate of Pakistan’s
economy has slowed down compared to the past years, the future level of
output must be kept low to avoid piling up of high volume of inventory.

Real GDP growth rate for Pakistan:

2001/02: 3.1%

2002/03: 4.7%

2003/04: 7.5%

2004/05: 9.0%

2005/06: 5.8%

8Nauman Tasleem, “Low prices endanger cement units’ existence,” Daily Times,
November 17, 2009, http://www.dailytimes.com.pk/default.asp?
page=2009%5C11%5C17%5Cstory_17-11-2009_pg5_1
2006/07: 6.8%

2007/08: 5.8%

2008/09: 2.0%

BIBLIOGRAPHY:

Cement Pakistan, “Pakistan ranked 5th cement exporter in World,”

http://www.cement.com.pk/latest-developments/112-pakistan-5th-cement-
exporter.html (accessed on 16 December, 2009)

Jafri, Moayyed. “Cement industry fears plant closures amid falling prices,” The
NEWS, November 19, 2009, www.thenews.com.pk/daily_detail.asp?id=209218
(accessed on 16 December, 2009)

News Review, “Cement industry has potential to help meet economic challenges:
government support sought for exports”, Government of Pakistan, Ministry of
Investment, May 25, 2009, http://www.pakboi.gov.pk/pdf/Daily%20Economic
%20Activity/May_09/MG_250509.pdf (accessed on 15 December, 2009)

Rohail-Mirza Blog, The “Economic Pakistan,”

http://economicpakistan.wordpress.com

Tasleem, Nauman. “Low prices endanger cement units’ existence,” Daily Times,
November 17, 2009, http://www.dailytimes.com.pk/default.asp?
page=2009%5C11%5C17%5Cstory_17-11-2009_pg5_1 (accessed on 15
December, 2009)