PEST analysis of manufacturing in Pakistan - Free Essay Example

PEST ANALYSIS POLITICAL The government of Pakistan plays a pivotal role in regulating cement manufacturing industry. Controls and policies are being formulated to smoothen up business operations and facilitate entrepreneurs to operate effectively and efficiently. However, still there are many tax and other charges imposed on cement producers which makes them non-competitive in international market. Cement manufacturers are liable to pay Corporate Income Tax @34%, Federal Excise Duty (FED) of US$3.8/t, and Sales Tax of 17% of the MRP. In addition to this, the initial allowances on Plant and Machinery are also restricted to 25% together with import taxes on raw materials and capital goods being kept at 5% for cement manufacturers of Pakistan. Duties are also being imposed on basic packaging material i.e. Kraft paper under @15% https://www.globalcement.com/news/itemlist/tag/Pakistan Government has to play an important role in improving trade relations across the globe. The export sales of manufacturers are damaged by worsening bi-lateral relations in international markets and as a result cement manufacturers suffer due to government inefficiency and ill-diplomacy. Recently the government badly failed to persuade India for removal of trade barriers and consequently manufacturers lost a lucrative Indian market. https://www.dailytimes.com.pk/business/02-Mar-2014/budget-proposals-for-2014-15-cement-industry-demands-tax-rationalisation Government assisted policies also help the cement industry flourish. Successful development of Metro Bus system in Lahore has greatly helped cement industry in previous years. Further extension will be an injection to cement industry from the governmentà ¢Ã¢â€š ¬Ã¢â€ž ¢s side. https://www.thenews.com.pk/Todays-News-6-240002-PML-N-government-fulfils-longstanding-dema nd-of-residents Presently largest coastal nuclear power projects are in pipeline to be started shortly this year. https://www.thenewstribe.com/2013/11/26/pakistan-initiates-largest-coastal-nuclear-power-projects-of-62000-mw-electricity/ In addition to this, construction of steel mills in Chiniot will be another gift for the industry by the government. https://tribune.com.pk/story/690593/man-of-steel-shahbaz-signs-chiniot-iron-ore-estimation-agreement/ By now, the government has also motivated the Chinese investors to invest in various construction projects including Gadani Power Project, Dasu Power Generation Project and cement industry development. https://www.thenews.com.pk/Todays-News-13-29098-Pakistan-attracting-foreign-investment-says-Nawaz SOCIAL Due to non-availability and expensive nature of oil and gas coal is used as basic fuel. However, some companies have even progressed to using tire fuel because of its efficient power generation and has lesser TDF metal content as compared to coal. Though this is more environmental friendly but companies will take time to shift to this power source and make themselves more environmentally responsible. https://www.epa.gov/osw/conserve/materials/tires/tdf.htm Cement manufacturing as like other production processes cause environmental pollution.Residents if living in nearby areas get affected by such production processes. Such was the case of dust pollution caused by Kohat Cement Factory that threatened the prosperity of the surrounding villages. https://www.dawn.com/news/1028419/cement-factory-causing-dust-pollution-in-kohat Cement industry provide enormous employment opportunities for Pakistani population. It approximately accounts for 5% of total employed labor force of the country. It employs skilled, unskilled, technical, managerial and engineering professionals for various job roles. Further, it creates business and opportunities for ancillary industries including retailing, distribution, transport etc. https://www.dgtrdt.gov.pk/Research/38th_syndicate_reports/4.pdf ECONOMIC The market structure of cement industry seems to be cartel based and the membersà ¢Ã¢â€š ¬Ã¢â€ž ¢ interests are taken care of by All Pakistan Cement Manufacturers Association (APCMA). However, members of APCMA deny presence of cartel on the grounds of inconsistency in cement prices, capacity utilization and market capitalization. https://tribune.com.pk/story/528875/cement-industry-denies-existence-of-cartel/ Competition Commission of Pakistan (CCP) fined 20 cement manufactures acting and coordinating as a cartel. However, these market producers kept on denying any sort of collusive price arrangements agreed between them. https://www.globalcement.com/news/item/1937-lucky-strike?-changes-in-pakistan%E2%80%99s-cement-industry The international cement market is becoming fiercely competitive as all countries start to protect their balance of payments by imposing trade restrictive measures on cement imports. Depressing economic circumstances and balance of payment concerns worldwide has forced countries to adopt protectionist policies at large. https://www.globalcement.com/news/itemlist/tag/Tax The profitability of cement industry has been badly affected by rising power generation costs. The energy crisis reduces the electricity supply to the industry and therefore many producers are shifting towards self generated power systems. In addition to this, gas tariffs have been increased by 17% resulting in higher power generation costs. https://www.dawn.com/news/1080191/tepid-growth-in-cement-sector Government uses a discriminatory tariff policy by which gas tariffs have been increased by only 17% for captive power plants as compared to compared to 50% increase for industrial consumers. This principal policy distorts completion and provides an undue edge to captive power generation owners. https://www.brecorder.com/brief-recordings/0/1246753/ Survival of small cement manufacturers is very difficult in the market which is dominated by giants. Their market power, pricing controls and collusion pose a dominant t hreat to survival of small scale manufacturers. Especially smaller cement producers are finding it very troublesome to compete against large manufacturers after discriminatory power policy because they are primarily dependent on grid power sources of WAPDA. https://www.globalcement.com/news/itemlist/tag/All%20Pakistan%20Cement%20Manufacturers%20Association Technological All Pakistan Cement Manufacturers Association (APCMA) has entered into an agreement with Lafarge Pakistan Limited to improve and upgrade cement manufacturing units in Pakistan to international health and safety standards. https://www.dawn.com/news/800576/mou-for-safety-in-cement-industry The main concern for the industry is to rationalize their power sources. Investment in Refuse Derived Fuel (RDF) is being done by few companies to secure and streamline their power generation activities. This is a modernized way of power generation through municipal waste. Moreover, waste heat recovery projects are being carried out by many producers in order to reduce their costs. https://www.nation.com.pk/business/11-Mar-2013/debt-servicing-a-major-part-of-cement-industry-cost In addition, the technological advancements are taking place to reduce fuel costs by switching to power generation through alternate sources of energy including pet coke and shredded rubber. https://www.d awn.com/news/1090385/cement-sector-seeks-relief