RESTRICTED

Report No. TO-311b

I This report was prelpared for use within the Bank and its affiliated organizations.1lhey do not accept responsibility for its accuracy or completeness. The report mayriot be published nor may it be quoted as representing their views.

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INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF THE

GUJRANWAIA AND SIALkOT INDUSTRIAL ESTATES

WEST PAKTA TAM

OcitobhPr 24. 19QA

Department of Technical Operations

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Y, Y!k? TT%T " T.-W M~f%YYT'WA T WV- YL'rn,C'vRREsNC Y EQUI'wALEIMIS

1 F'akistan Rupee = US$0. 211 million Rupees = US$2 10, 0001 uS$ = Rs 4.76

JA Th1n'nA TrOAT fVt.' 'TTT'L

ktrrnt±&JF r*.Lj UVI LLun

GUJRANWALA AND SIALKOT INDUSTRIAL ESTATES

TABLE uF CONTENTS Paragraphs

SUIVIMARY Asi-J UCNMUSIONS i

I. INTRO:.DuCTlON 1T- 5

II. DEFINITION ANT) CHARACTER OF SLALL INDUSTRIES 6 - 20Definition and Eligibility for Admission

to Estates 6 - 8Available Data on Small Industries 9 - 10Role of Small Industries 11 - 13Character of Small Industries 14 - 18I'rospects 19 - 20

III. THE SMALL INDIJSTRIES DEVELOPMIENT PROGRAM INTHE SECOND FrVE YEAR PLAN 21 - 39

Program 21 - 27Administrative Organization 28 - 31The Small Industries Division of WPIDC 32 - 33Powers 34 - 36Activities - 1960-61 and 1961-62 37 - 39

IV. THE INDUSTRIAL ESTATE PROGRAM 40 - 47

V. THE PROf-OSED ESTATES AT GUJRANTWALA ANDSIALKOT h8 - 106

Gujranwala 48 - 61a. rh ra-tpsti,s of thei tfr.mn )48 54

b. Site of the Estate 55 - 56c. Fn P+ct:T Plort+s R& Plii,1;nr -7 =A-

Sialkot 62 - 67a. Characteisticsof +the + 62 =6b. Site of the Estate 66c. AUFactor-y IPlots 6 7

Market Prospects 68 - 74Settl-em,en.t on "ovsh a Etes 75 =f A

Criteria for the Selection ofcJUIajJdLLU~ L.J Uli.1 J~ LId~ V. - )1..vccpants of the Estates81-6

Screening Procedures 87 - 93A _ :_t__ o___ _i}_l. I tNAssistance 'LU Esdte Ucuaparivts 7L4 - LV

Foreign Assistance 102 - 106

VI. ECONOMIC JUSTIFICATION 107 - 114

VIIo CAiPITAL REQUIREMENTS FOR PROJECT ANDREuVnER]f Fr(M USERS 115 - i28

Capital Requirements 115 - 119Charges for Plots & Rentable

Community Buildings 120 - 125Credit for Factory Buildings& Nachinery 126 - 127

Credit for Working Capital 128

TABLE OF CONTENTS (Conttd)

VIII. PROPOSE IDA CREDIT 129 - 135Proposed IDA. Credit 129 - 131Channeling of the IDA Credit 132 - 135

ANNEE2u<S

1. AsAsistpnc!e to Sm,-11 Scale Industrv in Indin2. West Pakistan Smdll Industries Corporation, Schemes approved

hy the (C0vrnmnrit ( Q6O-61 nnd 1Q61-A2)3. Industrial Estates Program, Allocation of Funds4, Theb 1West Pakistn+ Indstrial Develonm.ent Corporation5. The Industrial Development Bank of PakistanI6. Tec=--caI A-sstcancew Cost S a Jt,-7. Paldstan Imports in 1959 of Selected Metal Products00 mill,r,Cost 4. th Estte 4aE- -4- anl -r3 alo(J* LIC 4 JL; Ui UAJ. U.~LI.Lt= U:1 u t, U J J.L eIULWCtLJ.. CL.L"U~jZL1L

9. Assumptions for Estimates of Capital Requirements for(zia xac'tUory JDUi:ngU s and Au ftiar± s Workshups aiu

(b) Machinery and Equipment for the Proposed IndustrialE'states at Gujrariwala and Sialkot

VA P

GUJI,7J-J^A TAND TO AI'T IU°rPTRI A °"E('TT TTI A TTrLIAT A AAMTT, c'-r ?.TLTrrm TNTrTTCMnT AT E'C'IfA Mt

In~ rlan±wa.KIi

SUWIVIARY AND CONCLUSIONS

i T-his report is an appraisal of a project to establish two estatesfor primarily small industries at Gujranwala and Sialkot, tl^1o towns loca-ted in north-eastern West Pakistan, near Lahore, for which the Governmentof Pakistan has askesd the International Development Association to provildefinancial assistance.

ii. The proposed estates would each be about 100 acres. Each wouldbe eqaipped with utilities and provide accommodations for 300-350 smallto medium-sized enterprises. The bulk of the capital expenditures onthe estates would be recovered from the occupants. The occupants wouldbe expected to pay for their own factory buildings and the machinery tobe installed, but would be given long-term financing. They would be givenadvice on production techniques, product quality and standards, management,marketing, etc.. and assistance in obtaining credit and raw materials andin marketing their products. The estates have been planned and are to beconstructed by the West Pakistan Industrial Development CorDoration (lPIDC),which is 100% owned by the Government of the Province of West Pakistan.

iii. The proposed estates are among the 26 small industries estatesw^hich. the Governm.ent of Pakistan. plans to set 11p as part of an ambi ti irns

program of assistance to small industries included in the Second Five YearPlan (1960-65). Sm'll industries employ over 80 of +heo in intry and account for over 40% of Pakistan's industrial production.

iv. The bulk of the small industries in Pakistan are rural process-ing vI 1 cr LJfe ±indusL_tr5is UULU a sizeable pJrILtLion man.U± Pacture iJ. Mis

that are produced in highly mechanized establishments in more industrial-ize countes. 5-.e utput of Ihese es haLJK_, UpII-%P hE, b J-

ficantly since Partition (1947). Although most of them use little machinery,muchi of it ousolevUe, and ±Le.LficLenv puuucUV1 mthUoIU, Uth1er is reaon

to believe that with better facilities, technical assistance and accessto credit, they could Decome more efficient ana proitLaUle lt Ls LfUthese enterprises that the estates are intended.

v. The estatles would provide factory space better suited for pro-ductive purposes than is now available. Applicants would be selected forgrowth potential and required to meet specified technical and financialstandards to gain admission to the estates. For these reasons and becausethe occupants would be concentrated around centers of technical adviceand assistance, the government believes that the estates would providethe rnost effective means to assist small enterprises capable of mechaniza-tion and modernization to achieve their potential.

vi. Because of the niportance of selection and technical ad-viceWPIDC would require the assistance of foreign experts, and the proposedIDA credit would include funds for such experts. Foreign assistance isrequired also for the elaboration of the over-all program of assistanceto small industries of which the estatesi program forms a part and itsproper coordination with the program for the over-all development of thecountry. Such assistance would be welcomed by the Pakistan authoritiesresponsible for carrying out the Small Industries' Development Program.it is likely that the Ford Foundation which is providing assistance ofthis type in India iTLll also provide it in Pakistan.

vii. Gujranwala and Sialkot where the proposed estates would be estab-lished are both thriving centers of small industry which have been expand-ing rapidly since Partition. Gujranwala has a heavy concentration of lightengineering and metal working industries. Sialkot is virtually the soleproducer of sports goods (90% of which are exported) and also producescutlery, other metal products and light engineering products.

viii. The sites for the two proposed estates have been selected andabout 100 acres have been bought both at Guiranwala and at Sialkot. Lay-out plans have been prepared and the development of the estates, namelythe installation of basic facilities-has started. The rate at which theestates will be occupied cannot be predicted at present but it seems pro.-bable that it will take a number of years tn fill them. However, if thereis not enough demand from small industries within a reasonable period oftime; IJPTDC would adTit more medium and large-scale enterprises than itnow plans to.

ix. Capital requirements for the factory buildings and machinery-whic would acco"; for about QQC0 of the total ran-.ot be est+m terl reliably

in the absence of information on the type of enterprises that would actu-ally settle on the estates, the size of establishments they would wish toset up at the outset, the proportion that would be going enterprises andthe am1ount of mach"inery such going enterprises would bring wi+h them. Itis estimated very roughly that total capital requirements for the twoestLatues inc-ludting sevince centers th1-ro,ug hih the4,4-, 4-c-4-a assitc

would be given would amount to around Rs 103 million (US$21.7 million).

x, The program must be regarded as experimental. Only one othercountry, India, has an estates' program with the same aims and the samescope as that planned by the Government of Pakistan and its program hasnot been operating iong enough to show clearly whether the resuits soughtcan be achieved. However, there is a reasonable basis for expecting theexperiment to be successful, and the success of small enterprises admittedto the estates should induce others to modernize and thus accelerate in-dustrialization. For this reason, the project seems economically justifi-able,

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xi. The pronect is suitable for an IDA criAi±. of' .Aj60 mmillion- niiivn-lent of which $5.7 nillion would cover about one fourth of the presentlyestim.a+ed f'nit+n re,q ir-..nts of the+ prj -cJt, nnrl m$ 1I1or minn of'

the cost of the foreign technical assistance. It is due to the tentativecharat.cer of the capital+ requ, re ments and the, ffic t'y of dete+ ov'n-ing

over how long a period expenditures would be made that the proposed IDAcr7.t" -W.U be- .JILtd utu tUh IAi l nucatueu d.ItU. HoIU e tIUW:VerL), at a l a t e r AdaUtv

if additional funds are required and are justified, an additional credit,co 'clk be considere(L.

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xii.LLii Uovernment' of Pakistan would see to lt that all addibolocuu.funds, including working capital for the occupants, over and above whatthey themselves could provide, would be made available as required in orderto complete the project.

xiii IJp to the amount of the credit, foreign exchange expenditures,including those for- technical foreign assistance, would be reimbursed irtfull,, plus such part of the local expenditures as would bring total disburse-ment:s up to 50% of $13.0 million, or twice the amount of the credit. Dis-bursements would not be dependent upon the sources of financing for thecapitlal expenditures of the private enterprises, but the part of the creditmade available to them would cover less than their estimated non-equity re-quirements under the project.

xiv. The proposed IDA credit would be granted to the Government ofPakistan on the usual IDA terms; it would pass on the proceeds of thecredit to the Province of West Pakistan on the same terms. These trans.-actions would be covered respectively by a Credit and a Project Agreement.

xvo The Province of West Pakistan would pass on the credit amount toWPIDC; an estimated $1.2 million of the proceeds of the credit would begiven as a grant to cover IDA's contribution to the costs of the technicalassistance facilities and foreign experts connected with the project andthe remaining $5.3 million in the form of a loan, bearing interest of h%per year for a period of 25 years, including a grace period of 5 years.

xvi. 1APIDC would use part of the $5.3 million portion of the credittowards its own expenditures inenirrpri in the development of the two estatesand the construction of a small number of factory buildings of occupantst,h±.a do not- e'hoose t-o r'oncstvir'1t. theb~ir o,.m +bn; the~ bk- To1ld be ch< nne1 1

through the Industrial Development Bank of Pakistan (IDBP) to occupantsof the estates for the concstruction of factory, bUi lding-S nn +.and hecurchasof machinery and equipment. Any loans to estate occupants would be madeavai,-ul l-able for various periods of tme at 7%4 to 72.1! i r pe year.'.Z.L'-J-J'.- .¼4. ± t.., jJ''.. Lt3J. '3. V.AIXt 0-v 1ff V- , I% 12/ t V-. U t.) j-..a..

I. IT,VPPfOlTTTTION

1. The Government of Pakistan has requested a development credit from4th,e Tnterna-tional lDeve-lopment4 Associ;a"ion to c-over part of the- cost nf'U.,C .L LiUV ld UA'.Lt .L' Li V ~L UCL Li.lOU U4.LJL UJL 1tUeV ~± P-lL ,J.I 1 ~ JSS

estab:Lishing two industrial estates for small industries to be located

CLU UUJ La i(JML ILU U Ue LV U.L U.UV UV�.LU L wt" u p~ Ear Lo tie Up , UVL LV ~ UIdi.

2. Thlie estuates wou'ld bue dUeve'lopedu andu operatuedu by the 1.1es PaitIndustrial Development Corporation (IIPIDC) whose present Small IndustriesDiiir-sa the fo3lle -s Pkita Sml Indstie Corporation-- ---. na-IULVL Z$V1.(U[1 kla ULiu 1.UJLIIul I rU LI~6ball OUlid.L.L A.L[IUUZ: LA._Lt:~Z UU.U1jU1d. U±lLo .i. c20

facilities - roads, electricity, water supplies, sewerage, service facili-Lies -throughfl w-iilI -the tecihnical assistance would'U be extuenudeud andu cer-t aLicommon production facilities would be provided oy WPIDC; it would alsoassis-t the occupant:s in obtaLning credit and raw [materia.ls anuu in ltarI'LlUet-ing their^ products.

3. Factory buildings would be constructed by the occupants or attheir request by WPI'DC. mne occupants would in the majority of cases,purchase their own machinery and equipment.

The estates are one feature of a program of assistance to smallindustries in Pakistan's current Five Year Plan. The aim of the programis to improve the efficiency of small enterprises with a view to acceler-ating the process of industrialization and diffusing its benefits morebroadly than would be possible through a program limited to promoting thedevelopment of larger scale enterprises.

The following appraisal of the project is based on informationsupplied by the former West Pakistan Small Industries Corporation, an in-vestigation in the field carried out by members of the Association's staffin Se-ptember/October 1961, and by recent discussions in lashington witha team of the 'iest Pakistan Industrial Development Corporation. The missionalso spent some time visiting small industries estates and technical assist-ance service centers in India, whose Government has for several years beencarryinu- on a nrozram similar in scone to that of the Government of Paci;stali.The reorganization of the administrative structure of authorities respon-sible for the execution of the project and the need for more detailed pre-paration delayed for several months the completion of the appraisal.

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II. DEFINITION AND CHARACTER OF SMALL INDUSTRIES

Definition and EJig:Lbility for Admussion to Estates

6. In West Pakistan "small industries" (i.e. the industries eligiblefor assistance under the small industries program) are defined as thosewhich (a) employ manual labor but use no motive power, or (b) use motivepower but employ no more than 20 workers or have fixed assets of no morethan Rs 100,000 ($2:L.0oo equivalent). This definition is narrower than theone used in East Pakistan where enterprises that use power and employ upto 50 workers and have fixed assets of un to Rs 250,000 ($52,500) are con-sidered "small industries", or in India, where power-using enterprises wiLthfixed assets of up to Rs 5QO,OOO ($L05 OOO) are so rlassed.

7. The West Pakistan definition seems unduly restrictive as a crilte-rion for admission to the estates, since the aim is to admit only enterprisesof at least .m.inim..um economic size. WPIDC has greed, however, that it w-illnot limit admission to the two estates to "small industries"' as presentlydefin-ed, and in fact hopes to attract larger enterprisesa it would alsomake available on the estates all the services independent of the size ofenter;prises. WPIDC has already asked the uovernMment to change its statuteby empowering it to also include assistance to medium scale industries iniLt's az-ti-vities.LZ 3

8. While the presert West Pakistan definition of " small industries"is too restrictive to serve as an appropriate criterion for admission tothe estat,es in one respect, it is too broad in other respects. P-obablywell over half of all "small industries" are rural agricultural processors(raw sugar makers, rice huskers, grain millers, etc.) and anouhier sizeabLefract:ion are cottage-type establishments (e.g. hand-loom weavers). Neitherof those enterprises is expected to settlie on the estates. Admission isexpected to be limited to small enterprises which produce non-traditiona:Litems (e.g. light engineering products) by partially modern methods, operatemainly in and around towns and sell in fairly broad markets both at home andabroad. An exception to this rule would be made with a maximum of 50 verysmall enterprises which do not fit into any of the above categories. Theywill be primarily small repair establishments serving the other enterpriSeson the estates.

Available Data on Small Industries

9. Information about small industries in Pakistan is meager and unl-reliable and does not distinguish between cottage-type and other smallindustries. An attempt has been made by the Small Industries Divisions ofthe Inadustrial Development Corporations in both Wdest and c2ast Pakistan tocollect information from all industrial enterprises on employment, value ofassets, and volumie and value of output and raw r.,aterials consumption. For-merly., such iniorraltion had been supplied only by enterprises registeringunder the Factories Act; that .-ct applies to all enterprises using ilotivepower and employing 20 or muore persons, but it is believed that many enter-prises required to register in fact have not done so.

10 The survey-s are now beingJ evallu2ted. However; it seems optimisticto expect that they will provide a complete and reliable picture of smallindustry iri Pakist-Wn, both bec-ause f the inadequacy of the accountstained and of the reluctance of small entrepreneurs to give information that-ilh+ bepase on to th-e +ax authoritJes -nd er-ble them to estimate more

accurately the earni.ngs and financial position of the small enterprises.TechLiques of colle cting reliable informnation w;ll take some time to devise.

R1o'Le of SmJall 1d1Ust1rle9

_ll Fro such inormation as is ava`ilable, it is possible tuo draw c:ert-ain._L V~r:om uc'tLL IiuIff t_uL d~L~ L-La .IU ±L jU-.Ut 'JUOV 'L 4A

conclusions as to thie role played by small industries in the Pakistan economy.Au the t`Ume of PartLtion in 1947 t lere -was virtually no large scale indu-stry

in Pakistan. Indust;rial production, which it was estimated accounted forabout 7% of gross national product, was accounted for mainly by cottage-typeand other srnall industries There has been a substantial expansion of mediumand large scale industry since Partition. Industrial production now accountsfor ani estimated 14'% of gross national product. Medium and large scaleindustry alone account for an estimated 8%. The share of small industry ingross national product has remained at about 6%, but since Pakistan's grossnational product is estimated to have risen by 25% since Partition, thiswould imply that the output of small industry has risen by 25% in that period.

12. In the period since 1954, however, it is generally believed thatthere has been no increase in the output of small industry. But all smallindustries have not fared alike. The output of cottage-type industries,notably the hand-loom weaving industry, has declined, and this decline hasapparently been offset by an increase in the output of other small industries.The West Pakistan Industrial Development Oorporation estimates that there -

has been an eightfoLd increase in the number of small enterprises in generalengineering in Wzest Pakistan (estimated at about 10,000 at present), thatthe oiiutpit of sports goods and surgical instruments, most of which areproduced by small enterprises, has doubled and that the output of musica:Linstruments, produced entirely by small enterprises, has increased threeand a half times.

13. Although small industries account for less than half of totalmanufacturing output, it is estimated that they employ more than five tinesas man1y workers as 'Large and medium scale industry (2.5 million as againstabout L00OO 0 nmnlo;yed in larap and medium snalh indJstrv)= Thp bulk ofthe emnployment in snall industries is, of course, accounted for by cottage-type iindustries.

Character of Srnall Industries

14. Small industries produce a wide range of itemns, inc-iud.4 manyproduced by large scale enterprises in more highly industrialized countries.Among others, they produce machines and machine parts, machine tools, elec-trical equipment and components, foundry components, rerolled steel products,other metal nroducts, simnle chemical -roducts such as soap pairts and var=nish, construction materials such as bricks, ceramics and glass, sportsfor t-aetc. t, a high degree of skill is requirpadfor the production of miany of these items.

15. Cottage-type industries are characterized by primitive techniquesand npor working conditionn= ut, even t.hp synll industries using nartiallvmodern techniques are backward and labor under grave handicaps. In most ofthe toL.Rns .rhere they operate proper fctor r rpe I i9 Ti ftei. dancd they isniallvset up shop in old residential buildings in slum areas. Their quarters aretoo e-rowdreA fo'r ceff4 p n ne n a as I as- poo f'rom the ponit. of, view

of health and safety. Their machinery is obsolete, and they find it diffi-cuilt to± obtais,n imported spare pars a m. - 1T Theyr know Ii t.t.1 l

about modern techniques or work organization, and tend, uneconomically, toproduce all the parts of their final product inste-d of -pec i a-zi For'

all these reasons, their costs are high and the quality of their products ispoor and uneven.

LI, ' i. -- -!L 4U 4±1 LA- U.UU- I A 4.L 4±e.4~'A 1~16'_. Theuy haEve" lit-le access tuo creditu facilit,ies. Biecause of thlr~

poor debt repayment records, small enterprises are generally unable to borrowfrom commercial bank-s. In an sy1 case, the banks lend only at short termIi againstpledged inventories and for a small percentage of the value of the securityoifered. Medium and long-term loans are available only at high interest ratesfrom money lenders. Until recently, there was no organized system for thehire-purchase of machinery.

17, Lack of credit and of storage space forces most small enterprisesto sell on a day-to-day basis. They have little information about markets.Few of them have adequate arrangements for independent marketing and theyhave so far developed virtually no marketing cooperatives. They are, there-fore, heavily dependent upon middlemen who exploit their weaknesses.

18. Although these handicaps have not prevented small industry fromexpanding, enterprises producing for export, such as the sports goods pro-ducers in Sialkot, have been handicapped in world markets in recent yearsby the uneven and occasionally substandard quality of their products andtheir inadequate marketing arrangements.

Prosp cts

19. Small enterprises play an important role in all economies, even themost highly industrialized, and Pakistan's small industries will certainlycontinue to make a sizeable contribution to the national economy for manyyears to come. That contribution could be greatly increased if their effi-ciency were improved.

20. Improvement is likely to be slow unless the small industries re-ceive substantial assistance. Perhaps the most important contribution wouldbe on the technical level. Large-scale industry in Pakistan has found itnecessary to import foreign know-how and employ foreign personnel to trainits staff and supervise production. Small industries find it difficult todo either. Technical assistance would serve to bring them in contact withmodern technology and management methods. To enable them to make use ofmore advanced techniques. however, small industries must have better quarters,easier access to credit and raw materials, assistance in marketing, etc. Adroiei vp imrTrovement in the position of small enterprises can 'h aehievedlonly through a broad and coordinated program.

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III. THE S14ALL INDUSTRIES DEVELOPIMENT PROGRAMIN THE SECOND FIVE YEAR PLAN

Pro gram

21. The Government of Pakistan initiated a limited program for smallindustrv in the First Five Year Plan (1956-60). The Plan Drovided Rs 86.5million for public expenditures in small industry, to be backed up bynrivatte invP.tment of Rs 118 2 rnillion. Pronis-ions for smqll inrilstrvwere only 6% of the provisions for medium and large-scale industry(R.s 1 mCX 1nillinn) anr. +to+.al lrna lnvet+.mnt+. in czmll indryr (RS 204.7

million) was less t;han 7% of total planned investment in medium and large-scale industry (R 3,010 .million). Actual public expenditure on srallindustry in the First Five Year Plan period fell far short of even themod +. targ+. t +. 4 c no+ ;mn+,+ +r% 1n rn n-m^in+nA +rn rn mrqnf +.hm - 1 iln-gl

million.

22. The Secondl Five Year Plan includes a much more ambiJtious programfor small ir,dust;--, Provisions for public d se,ipulc expenditurezin small industry have been increased almost sixfold to Rs 500 million.-/ad _ b Ls eniVisjagedM tihau anUo1th s 2v0 millionL Will be Uinvested pilVUat,ly

Provisions for small industry are 55% of the Rs 910 million provided formedi-umn and large-scale industry, as against 6% in the FirSt Plan. TotaLplanned investment in small industry (Rs 750 million) is 27% of totalplanned investment in medium and iarge-scale industr (Rs 3,565 million)as against 7% under the First Plan.J/

j The Second Plan introduces the concept of the semi-public sector, byrwrhich is meant Government-sponsored corporations drawing theirfinance from public and private sources, such as the IndustrialI)evelopment Bank of Pakistan (IDBP).

2/ The Plan has been revised. The allocation for public and semipublicexpenditure on small industry has been increased by about 25%. Therevisedl Plan states that there have been no significant increases inphysical1 targets, and attributes the increased allocation mainly toprice increases, but in part also to revisions of earlier roughestimate of the physical voluzre of work involved in the variousprojects. No breakdown of the revised allocation by purpose hasyret been published, and the breakdown given in paragraph 24 belowis derived from the original Plan.

3/ T'otal planned investment in medium and large-scale industry has alsobeen revised upward to Rs 4,508 million (about 25%). Although norevised fiaure for planned private investment in small industry isyret available, the relationship between total planned investment insmall industry and in medium and large industry will probably not bechanged significantly.

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23A The aims of the prograM are set forth as follows:

"(i ) to adapt smaXll industries to nhAnpging teohnoJogical.economic and social conditions;

lii) to stimulate production of implements and equipmentrecpirmied for nar rl tliiro

(i ii +.to nrlr n co +the processi ce gi ndrlcr'inol rale mate riqI

prc)spects;

(vi) to promote speed of modernization by encouraging grolwhOf Small iLncLUi -±J.11 ru-ral a--reas 51e--ally, La iL

pm.t-'c-ular w1lerever markets and resources are available.;

(lrii) to bring about a closer relationship between the small andla-ger industries, through, for exaaiple, trhe production ofspares and accessories or components for large-scale inclustryor through providing facilities for the maintenance anarepair of equipment in use either by large-scale industriesor in other sectors of the economy; and

(vJii) to preserve and proinote traditional arts and craftso0'

246 Of the total planned public and semi-public expenditures ofRs 500 million, Rs 273 million are to be spent in East Pakistan and Rs 227mil:Lion in West Pakistan. The breakdown by type of services is as folloifs:

Nunher of Total Average CostSchemes Cost per Scheme

-Fs Yiillion)

Teclnical and MIanagement Services 184 192 1.04Production Facilities 116 61 0.53

of' which, IndustriaL Estates (24) (36) (1.50)Supply arn Marketing Services 103 133 1.29Credit Services 60 -Other 54

500

25. M4ost of the services would be available to medium-scale as wellas small-scale industry.

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26. The Goverznment is expected to provide As 250 million, in part 2.sa granit. linother Rs 160 rmillioin oL the planned expenditures would be fi-nanced through a revolving fund to be raised by borrowing froni Frivatefinancial institutions as well as from; the pvernmrent and foreigns and aicLagenc:ies 'hese expenditures would include Rs 100 million of the Rs 133million earmarked for supply and marketing services which are expected tobe spent for the purchase of raw materials and equipment and the Rs 60million earmarked for credit services. Information is not available asto the source of the remaining funds required. Foreign exchange require--ments are estimated at about Rs 114 million out of the total of Rs 500million.

27. To date, actual public and semi-public expenditures on smallindustry have been well below planned levels. In the first Pian year(1960-61) only 3% of the Rs 500 million provided for the five-year periodwas spent: although exact figures for the second year of the Plan are no-tavailable, it is known that the spending rate has been significantlyincreased. In west Pakistan (excluding Karachi), 1870 of the total for t'iefive-year period had been spent on June 30, 1962. (See Annex 2).

Administrative Organization

28. To carry out its ambitious program, the Government set up in eachProvince a Small Industries Corporation with primary responsibility fordeveloping small industry, and established a Directorate-General, SmallIndustries (whose head was also Joint Secretary to the Government ofPakistan in the viinistry of Industries) to direct, coordinate and assistthe FErovincial Corporations. Under such an administrative system, thecentral government's tasks were to determine national policies, coordinateactivities and fix priorities of development, arrange for foreign assist-ance, conduct and arrange for training program and for the disseminationof information. In addition the Central Grovernment was responsible for thefollowring commercial activities: credit operations (liaison with financialinstitutions and advice on credit operations), inter-provincial trade,international marketing, foreign and national exhibitions, standardizationand quality controls, and assistance to the Provincial Corporations in thepurchase of equipment, machinery and materials. In actual practice, theCentral Governmentts tasks and responsibilities were carried out by theDirectorate_General, Small Industries, and by the Wiational Small IndustriesCorporation, Karachi (which in addition dealt with all activities concerningsmall industry in the Karachi area).

29. The Directorate took an active part in the preparation of: (a)the Second Five Year Plan for smal1 industries, in cooperation with thePlanning Commission, the Investment Promotion Bureau, other governmentagencies and technical experts; and (b) the Small Industries InvestmentSchedule which sets out the limits for investment in the various branchesof industry. The National Small Industries Corporation, Karachi, was maderespclnsible for promoting exports and assisting small enterprises producingfor exports. It did not attempt to become an exporting agency itself, butits activities aimed at the establishment of export cooneratives and ofinitial contacts be!tween Pakistani manufacturers and foreign buyers.

-8-

30. Tile a,wrX s rat-1-e se-pwas recently ------- r zed.O.4gs±I1t I I1J d Ii.LLIrawdb.Vt OUL,LJup WdV±eiL. Lj ±_. rCJ± 'O *'A

15, 1962, the West Paiistan Industrial Development Corporation (WPIDC)tookover 1-he statff, assets and liab u ivi s of t VUhe West is Smal I-ndUstiesCorporation (WPSIC)j; the National Small Industries Corporation, Karachi,,had similarly been transferred to iArIDC on June 4, 1962. hWPIDC was itse]lfestablished on June 4, 1962, as a successor (for the Province of West Palk-istan only) to the dissolved Pakistan Industrial Development Corporation:;it has an authorized share capital of Rs 10 million, of which Rs 4.5 mi.l-lion fully paid by the Government of the Province of West Pakistan. TheDirectorate-General, Small Industries, was abolished; in the new admin-istrative set-up, tlhe Central Government's responsibilities with respectto small industries will be exercised by the Planning Cell within theMinistry of Industry and the Department of Trade Promotion within the Mini-istry of Commerce (export promotion activities).

31. These organizational changes were undertaken within the frameworkof the general policy of decentralization carried out under the new Consti-tution which came into effect on June 8. 1962. It is questionable whetherthe PLanning Cell of the Central Government will be in a position to pro-vide adeQuate over-all planning for small industries. and gather the in-formation necessary for such planning. When the mission was in Pakistanin October 1961, it felt that the staff of the Directorate-General neededto be strengthened and assisted by foreign experts to collect this inform-ation and elaborate its nlans. It is too early to pass judonent on thesoundness of the recent reorganization.

The Small Industries Division of WPIDC

32. The West Pakistan Small Industries Corporation (WPSIC) has beentransferred as ahnole, and now fotmc +.th .mnll Tndultrsi P Divi sinn ofWPIDC", which will construct and operate the proposed Project. It is hopedthat u-nder aan e-xerienced organ zationr +fhe mef'vi o,nrf the S. mall Tnfi-tries Division will increase. The Chairman and the Chief Development Officerof the Aform.e IAjIPG " u re +he but r -jere hampered hy Iittle

experience in the field, and by an inexperienced staff. Under the new set-up, th,e tlcQ-'1 Inutre Di-4-or -41 be abl +I u + +hen pro neof

other Divisions of WPIDC. This should prove very helpful, particularly

However, up to now, WPIDC has dealt only with large and medium-scale in-Uustries, aiQ 'UJe Corporvati on needUs Le a± st: Vof fLo.LUi t- s onVI'

small industries.

33. As a successor to WPSIC, WPIDC is responsible for planning andcarrying out programs for small industry, including industrial estates,in the West Wing. Its "Small Industries Division" has its headquartersat Lahore, and six regional offices at Peshawar, Rawalpindi, Lahore,Hyderabad, Quetta and Karachi, It has a professional staff of 93, andplans to expand it to nearly 200 as its activities grow.

-9-

Powers

34. With respect to small industries, veiIju inherited the powers ofthe former WPSIC. -It has therefore the authority, among other things topurchase and distribute to Small industries raw materials, machinery andspare parts; to arrange for the marketing of their products and to maintaindepots for the purclhase of these products; and to make or guarantee loansto such industries.

35. The authority of the former WPSIC to make or guarantee loans(includirng loans granted in connection with the hire purchase of buildings,machinery and equipment) was limited in two respects by its ordinance.Unles s specifically authorized by the government, WPSIC had to limit itsloans and guarantees to any individual to a total of Hs 50,000 and to anyother type of borrower to a total of Rs 100,000. These limits could belifted by the g3overnment, but only to Rs 100,000 and Rs 200,000 respectively.Since WPSIC was not originally expected to make or guarantee loans on alarge scale, its Ordinance also required it to limit its loans, guaranteesand subscriptions to the capital of subsidiary companies or corporations toan agregate amount not exceeding 71% of its paid-up capital (which wasRs 0.51 million). On the corporation's recommendation, the limit could belifted to 15X by the government. Towards the end of 1961, lo4PSIC requestedthe government to amend the articles of its ordinance dealing with theselimits on loans and guarantees; although the legislation was not formallyamended as requested, an executive order of the government gave permissionto WPSIC to disregard the limits.

36. It is at nresent not clear whether the limits applv, and if soto what extent, to the credit operations of WPIDC with respect to SmallTnduistries. Moreover, WPIC-)G took over the powers and rights of the formerPakistan Industrial Development Corporation, which had no power to makeor g,uarantee loans. The matter needs furfther clarification; one of theconditions of effectiveness of the IDA credit would be the enactment oflegislation granting to WAPIDP adequate powers to rpke or gurantee loans.Ae-trijitiei - QAOn6A1 :nri 1QA1_A9

-- - - - - - _ ,- -, _ _

37. Schems ap rod htihe + 1-,b= (rvwr. ion and nmounts

actually spent in 1960-61 and 1961-62 are shown in Annex 2. In 1960-61,budget provision a..ote to Rs 5.75 -million,bt snce the fo-mer l.PSIC

Li '.1 V ..LO..t¼1110 atU'.JLIJAJOLh ~~~~~J'.J ~~LO 1 * I *d JJL.&..L.&4..AJ**, IJLAVWV OJ...L1L,pLU Li*fL3 *'.S J. ¼1

was established only slightly before the beginning of the Plan Period (July196), it acua expenditures aamoue to only is 1.05 milin Ofh.

amount, Rs 0.93 million was spent for projects prepared and sponsored byt%-he rdirector 0of Indstie whic trnsere --- resp4o-ns -- 4-- ---- ;14ibilitiJes for them toWPSIC on January 1, 1961. Expenditures on schemes developed by theCorporation itself amounted to only P.s 0.12 million.

- 10 -

38. In 1J961-62, budget provisions amounted to Rs 9.56 million andactual expenditures reached Rs 8.00 million. About 60% of the expenditureswere for the purclhase of the land for seven industrial estates at Peshawar,Gujrat, Gujranwala, Sialkot, Larkana, Sukkur and Quetta, and the initialdevelopment of four of them (Peshawar, Gujrat, Gujranwala and Sialkot)For 1962-L963, the Government has sanctioned expenditures of Rs 10.53million, about half of which also for production facilities.

39. In addition to the Government - approved schemes, WPSIC carriedon commercial act-ivities. It entered into an agreement with theHabib Bank Limited (the largest private commercial bank in Pakistan) underwhich the latter arranged for and financed the import of raw materials onbehalf of the Corporation. Up to December 31, 1961 raw materials valuedat Rs 4.7 million were imported under this agreement; they were resold forRs 5.5 million, leaving to the Corporation a net profit of Rs 430 thousand.

- -I -

TI1 TUHE' TThMTTTMDTAT WqTATS DDr)CP(AM.1. V " JlijJ JJ'LU J .. Lf.L i. fl.JJ k

40.n O h s5J ernulo ea,rkdfr 1ls n s,pulce-n14%J . V0± UL'± ±1.5 )~IJV IIILIILL.LJ.UII U dLiIIdLLS.U IOU. PULj..LU d.IIU. 0t:JIJLL-."J.L.LL, JJ~

tures on small industries in the Second Five Year Plan, Rs 36 millionUP$ o mi."ion equiva ent) or 7% Of the total were a±±ocateU -Lor 4I irdU-trial estates. Foreign exchange requirements for these industrial estatas(excluding the investments to be made by their occupants which are inclu-ded in planned private expenditures) are estimated at Rs 4.8 million ($1.0million). Six industrial estates, three in each wing of the country,were to have been set up in the first year of the Plan (1960-1961) but thescheduled start was delayed because preparatory work took more time thanwas expected and because adequate foreign exchange which is required main-ly for machinery was not available (another factor for the delay in thecase of W4est Pakistan is the fact that WPSIC was established only shortlybefore the beginning of the Plan period).

41. By the end of the first year of the Plan, however, work had beenbegun on five estates, one in West Pakistan (Gujrat) and four in East Pak-istan (Comi.lla, Barisal, Rajshahi and Pabna). In October 1961, when themission was in Pakistan, plans for four more estates in the West wing(Gujranwala, Sialkot, Bahawalpur and Sukkur) and eight more in the Eastwing (Dinajpur, Feni, Jessore, Rangpur, Sylhet, Chandpur, Cox's Bazaar andKushtia) had either been approved by the Government or were being consid-ered by it. In addition, three more estates in W4est Pakistan and fourmore in East Pakistan were under active consideration. At present devel-opmernt work has started on seven estates in W,1est Pakistan, and the landfor the remaining estate included in the program has been bought. In EastPakistan two more estates are under consideration.

L2_ The small industries estates that it is planned to establish inPakistan are larger on the averahe than those in India. This should reEultin lclwer overheads and make it possihle to operate pwithout granting subhi-dies or with smaller subsidies than are granted in India.

43. Revised but; still rather rough estimates indicate that the totalcost of establis ihing al the estates in the sizes now contemplated- mig;htbe more than twice the original allocation of Rs 36 million. (See Anney:

3). However, igseemslklththesaesc 'I be ful^eeoe~~ ~ 4 4 ~ ~ m,1 ~41-1- xr+1,',-4 +I1-,- -++o -o ,,- 0,4 -,s-' 1-r AnTr& r_,A

and occupied within the present Plan period. Moreover, part of the allo--ation fLor o4ther proA-c4tion fac-iie coul -- A usdfr nutr-stts

44. Besides the 24 estates included in the program, two small estatesfor artisans have been constructed, one near Karachi and the other nearLahore. Funds for the construction of these estates would come from sourcesothie3 Ljiari urc Rs Sso mirlion provided for urie 2 estates.

4_15. Responsibiiity for the development and operation oI the estates

- 12 -

rests with the Small Industries Divisions of the Provincial IndustrialDevelopment Corporation (See Annex 4). Preliminary plans developed bythe Central Government, still subject to revision, envisages that three--auart;ers of the cost of developing the estates would be covered initiallyby loans from the Central Government to the Provincial Governments, andthat the latter would cover the balance. However, all expenditures,except those for p-Lanning (which would be covered by a grant from theCentral Oovernment') would be recovered from the occupAnts of the estatesover periods varying wxith their ability to pay, but not exceeding 20years in th-e case of land aind buildi-egs nrid 30 yea in the case ofbasic facilities. If factory buildings were made available on a subsi-

A, '7 .A ~ ~ + 1-1- ~r + Cx -' + ~1, .'7,d-iC- A,r !Mj IlleA I-,cn '71i v-el riim~ll1 r hir t.hedized ba-sis--, the cost of the- -0bsi^ woul be-sa-e eq1 y by -hCentral and Provincial Governments. The cost of operating the estates

-A r--vfrfing general senrices o -1d -e covered -- a r ch-age I evr orn

the occupants by the Estate Authorities.

46. The Central Government's directives lay particular stress on their;portILance OrL econo;r,dcal design andl construction.

47. The ProvinLcial Industrial Development Corporations have engagedengineering consultants to assist in the physical planning and develop-mnent of the estates.

- -

V. THE PROPOSED ESTATES AT GUJRANMALA AIN SIALKOT

O'TT TTD A 1H9,TA T AdU U td dU, 'v±L. I ' 1 UW

40. kGUJrand1w&,al, WI-lhic is~ locaUted abo-ut 40 111-LU6 rnorthi'eastL of Lahoreon the Pakistan National Highway to Rawalpindi, is one of the leading in-dustrial towns in rest Pakistan. It nas a popuiation of about 200U000 orabout two thirds more than in 1951, when it was about 120,000. It has anarea of about 4,000 acres and the highest population density in Pakistan(33,(00 per square mile).

149. 3GujranwaLa is one of a group of towns noted for skilled craftsman-ship. Niziamabad, about 20 miLes away, is a cutlery and small tool center.Sialkot, about 30 miles away, specializes in sports goods and surgical in-strunents which have an international reputation. Gujranwala itself waS animportant center for the production of utensils (sold in Afghanistan andthroughout the Middle East as well as in India), hardware, metal goods andtextiles long before Partition, and is today the leading producer of lightengineering products and the second most important center of hand-loomweaving and other small textile industries in Pakistan.

5b. Most of the industrial activity in Gujranwala is carried on b;ysmall enterprises (defined here as those employing fewer than 50 workers).There are only ten enterprises in the Gujranwala district clearly identi-fiable as medium or large scale (the most important of which are a strawboardplant and a sugar miLl), although there may be a few additional enterprisesemploying slightly over 50 workers. On the other hand, there are about 3,100small industries employing about 57,000 workers; two thirds of these enter-prises employ fewer than 20 workers each.

51i . Roughly 70% of all GuLranwala's small enterprises are in the tex-tile industry; a substantial proportion are hand-loom weaving establishments,some of them very small, which are not expected to settle on the estates.The balance are distributed among 80 different inidustries, -r=ith a heavyconcentration in metal working and light engineering. Gujranwala has a. size-able output not only of utensils, hardware, cutlery and other metal productsbut of agricultural machinery and implements, textile machinery and parts,electrical= equipment and parts (transformers, motors. electric fans. lightfittings, etc.) small machine tools, etc. Some of these industries are new,nfot.;Thlv P1Pel'tri cnl Pnnir)mAnt=. All of the-m-hn have epandr1ed siihst_ntAqllv sinGePartition0

There is an ample supply of skilled labor in all the engineeringcra+ics (monlrding, na.r-'hine fi +3ng, electro+.p,- in g, forging, ec+. ) in

Gujranwala and the surrounding villages.

-11.- ±14 -

53. Information about the output of small enterprises in Gujranwalais very limited. However, a survey conducted by WPSIC of 3h6 enterprises(not including any in textiles) employing about 3,500 workers in all showedthat they had a total output in 1960 of about Rs 17.6 million ($3.7 million)or about $10,700 per unit on the average.

5h. 1Most of the small industrial enterprises in Gujranwala operate intiny crowded shops, although a number of the new medium-sized enterprises(e.g. those making fine electrical goods) which generally use more machineryoccupy larger and better laid out quarters. bhops are scattered throughoutthe town, for the most part in former dwelling units ill suited for theirpresent purpose. Little machinery, most of it obsolete, is used; workis organized poorly and techniques are inefficient. Costs are high andthe qualitv of the ororiucts uneven= At the same time. the workers showan impressive degree of skill and ingenuity, and the enterprise of thesmall indn.trialiRts has been dPmonstrated hy their willingness and abil-ity to take advantage of the opportunities for expansion.

b. Site of the Estate

55. A good site has been chosen for the Gujranwala estate on the Nation-al 6.i.-.wy frrThoei ^wwlpidi -ess +ha hclf a rile fr.m - he -- u

ranwala railway station and goods yard. The site is located about one mile' 2.JU. o if th reet=±IL LbUU .raPiLLy tZ%Ajd.IuLi1r' tULVL1 li,ILLUS in ain area reserv d

for industry, adjacent to a new model town being developed by the Gujran-wala Improvemenlt Tr-ust. The site of abut 100 acres has already been pur-chased. WPIDC intends to acquire first refusal rights on land adjacentto the estate as well as the rigrht to be consulteU or the etU3UalishmenItU

of any industrial plant on this land.

56, The site is on relatively high land, not subject to normal floods;it is virtually flat and does not present any serious drainage problems.There is abundant water at about 300 feet below ground level. An 11KVtransmission line runs along the edge of the site and the Water and PowerDevelopment Authority (WAPDA) has indicated its willingness to erect asubstation and to supply all the power required; maximum requirements arenot expected to exceed 6,000 KW. The sewerage system of the estate willbe linked to the outfall sewer of the model town adjacent to the estate,which will use the disposal works being constructed by the Gujranwala Im-provement Trust. The only disadvantage of the site is an irrigation canalwhich runs across the estate and which INPIDC intends to bridge at approp-riate points.

c. Fact;ory Plots and Buildings

57. JPIDC5s plans envisage the division of the estate into 305 factoryplots distributed by size as follows:

15 -

'a-e4- A_-^ e_ PI^+ iTitnha-" -rof Pl n1t<*

(sq. f.

A 18,000 86

C 5,000 115

305

In addition, the final layout plan provides for the construction by WPII)Cof 50 very small industrial units (artisans' workshops),,600 sq, ft each,These very small enterprises are to benefit from their closeness to theother estate enterprises and will afford them maintenance and repair fac-ilities.

58. There are to be a number of community buildings, including an ad-ministration building, a post office, banks, a fire-fighting station, adispensary, a canteen and a cooperative store as well as a residence forthe manager of the estate, a club and a guest house. In addition, therewoulcd be a Light Engineering Service Center to provide technical and mana-gerial assistance and a raw material depot. A plot has been set aside fora mosque to be paid for by contributions from the occupants of the estalte.

59. The Dlannine of the estate was satisfactorily done by WPIDC civilengineering consultants (Republic Engineering Corporation, Lahore) andin the final lavout plan certain suggestions which the mission made in theinterest of economy were taken into account.

60. Since it may take several years before all factory plots on theestat;e are take up the ami ssion suggested +hat the development of theestate should proceed in accordance with actual demand for the plots.The pLakistani authorities have, however, decided to d- th.e- estate ]inone step claiming that development costs will thus be lower, due to econo-m;i tc r%f 'N o,nnA +.1h, ^- n h-l"o+-r p. ; r on- in +hn ,'min va apn-rS

The needed flexibility in plot sizes in accordance with actual demandS.ho0lJd not serliou-s]yr be afPecIP0 4 nc 4iO toa certair. extert+ thy on-t,

be rearranged.

61. Most of the contracts for the estate development and the communityUlIIcdirigs Inve already been awardeu ana construction work hjas s iar t:u.The development of the estate is expected to be completed by March 19634,

SIALKOT

a. Characteristics of the Town

62. Sialkot, which is 33 miles northeast of Gujranwala, has a popll-lation of about 17(),000 in an area about as large as that of Gujranwalaand, like -that town, has been expanding rapidly, It, too, produces itemsrequiring skilled craftmanship.

63. Sialkc.tts small industries generally use less machinery and employmore workers than Gujranwalals. The number of small industries (i.e.those employing fewer than 50 workers) is estimated at 5,800 and theirtotal employment at 63,500. As in Gujranwala, the vast majority of thesmall, enterprises (78%) are in textiles; a substantial proportion aresmall. handweavers, and average employment in textile enterprises is onlyifive,. The remainirng enterprises are distributed among a large number of'industries; the sports goods industry is by far the most important, withsome 800 enterprises and some 25,000 workers.

64. A sample survey conducted by WPSIC among 344 enterprises (exclus-ive of textiles) showed that they had an average output in 1960 of Rs 27',800($5,840), a little over half the average output of the 346 firms surveye!din Guiranwala. The difference in output is probably related to the diff'-erence in degree of mechanization. Apart from this difference, Sialkot'ssmal]. industries resemble Gujranwala's and share their problems.

65. Although SialkotAs industries have, like Gujranwala's, expandedsubstantially since Partition, its important sports goods industry hasbeen experiencing riffincllties S-ince 1957? Its problems are discussed ingreater detail below (see paras 7b to 74).

b. * ite of the Estate

66. A tract of land of 100 acreo has been acquired for the Sialkot estate.T+. is les than one .mjle yw+est of the +,v.m on a goodro n t1cl o th e4 i,

railway line at Wazirabad. The site is level and not subject to flooding.There is abundant good water avai;able at a depth of 30 Peet and thereare grood power connections. WAPDA would be responsible for supplying elec-tric._y to the occ;Upnts of the estate and doesnot foresee any difficultyin mEteting their requirements.

c. Factory Plots

67. The final layout plan prepared by 1<PIDC's consultants calls for dilv-isiorl of the 100 acres into 330 factory plots distri-Lbuted by size as fol.-lows:

(8ategory Area per Plot Number of Plots(sq. ft.)

A 18,000 71B 10,000 95C 5,000 164

330

- 17 -

As in the ca3e of Gujranwala, WPIDC will also construct 50 artisans' work-shops for ve-y small industries on plots of 1,200 square feet. Construc-tion work ha, just started, and the development of the estate is expectedto be compleJed by June 1963.

Market Prospects

68. lNo detailed studies have been made of the market prospects for thescores of products manufactured in sizeable quantity in and around Guj ran-wala and Sialkot and most likely to be produced by enterprises on theestates. However, such information as the mission obtained indicatedthat, with certain exceptions noted below, demand for these products,mos-tly domestic, is rising rapidly. Unless there is undue expansion i:ncertain lines - which WPIDC is expected to guard against - the enterpr:iseson -the estates should have no marketing difficulties, especially becausethey would, if the program of technical assistance is successful, becomerelatively low-cost and high-auality producers.

69. The exceotions are hand-wioven cloth and sDorts goods. Pakistan'shand-loom weaving industry is being squeezed by the rapidly expahding milltextilc inducstrv, although demand for hand-woven cloth is not declining asrapidly as was feared. However, the problems of the hand-loom weavingindustry would not concern the estat-es, because 1rJPIDC does not inten(d toadmit hand-loom weavers.

70. A problem is presented, however, by the sports goods industrywhich is expected too be hneavily repre-etedA on t he SjialIkot est +ve P aLi s-ta-viL1L '.sL~~~~~~~ ~~ .j~~~~a V,~~~~ J'. t,'~~~~~~ a V * t~~~~~~~ L4i VVLJ 'Jan UtV~~~~~~~~~~~~~ ~.Lak,t'.J- - - -IS- _

sports goods industry, which is concentrated in Siallcot, exports nine tenthsof its output 0 The industry experienced a boom after devaluation in August1955; from about Rs 5-6 million exports rose to Rs 13 million in 1957-58.From that peak level, however, exports fell to about Rs 11.0 milllon in1959-60. It was only in the past two years that exports increased againto aro und IL) ) 1 mi.Ll.-Jon, Ln part undoubteUdLy sULI t A r L 'LIJ. Or 1 teiAnus

try's realization that price cutting as practiced in the past few yearswas no'U IthLe answer lto it "s probLems andlu tUhe GovernmenLt ! s introduction ofLminimum prices. Despite the recent increase in exports, there is noquestion that the corupetitive position of this significant export industryhas weakened.

71. Sialkot produces all kinds of sports goods - tennis and badnintonrackets, cricket bats, nockey sticks, cricket and soccer balls, ordinaryrubber balls, leather gloves, chest and leg protectors, etc. - which com-pete in foreign markets with the products of India, Japan and mainlandChina, as well as with those of the importing countries. Pakistan's pricesare competitive with those of other Asian countries and below those of U.1-.and Western European manufacturers. The inability of its producers to go

- 18 -

on expandin.r their exports or even to maintain the level they had reachedis due to tlie uneven and not infrecuent substandard quality of theirgoods. Prine cutting has not enabled them to sustain their competitiveposition against produrers of standard qunality intems; even at higherpricess.

72. The problems of the industry were discussed with Sialkot manufac-turer<; and exporters, sr gAoodrrl in K(rachli, IJPTTl and +the Pro-vincial and Central Governments. The industry attributes its recent diffi-cl- tieS in large pa t to a -0 in- quality In.+ the lrJyear

due mainly to price cutting, but in part also to the industry's inabilityto get; adequate supplies ofL certE>lin _U11Ported, raw r,saut:rI.a.l needed L for high

quality products (e.g. wood for rackets). But the problem is more basic..VVwLU1LLLu, ciacrIles karii the industry is relatively urmTechjjanzed) lU ± llCtl-U

to achlieve standard quality; the careful handwork required is difficultto obtain from the nomeworkers (many of them children) who form a largefraction of the labor force. The Government is aware of the importanceof conformity to standards, but many of the sports goods manufacturers,particularly the smaller ones, are not; they include substandard itemsin shipments for which higher standards were specified.

73. To solve its problems, the industry must be helped to mechanize,improve its techniques and product quality and learn how to conform strict-ly to quality specifications. This is the type of assistance that can beprovicded most effectively through service centers set up in connection withthe e,tates. In the meantime, however, certain steps about to be taken,may enable the industry to hold its own and possibly recover some of thegrouncl it has lost. In addition to the settinc of minimum prices, the Gov-ernment has recently established a system of strict control of raw mater--ial st;andards, and wi11 introduce a compulsory inspection system for ex-ports, if the industry does not set up a voluntary inspection system ofits own.

74. On the marketing side, the industry itself has plans. The SialkotSports Goods Cooperative, with about 190 members, a little less than onequarter of all the sports goods producers in Sialkot, which now importsraw wood, seasons it1 and does some preliminary processing for its members,has e.tablished a subsidiary to undertake marketing. It recently askedthe Pakistan Government for a foreign exchange grant of Rs. 500.000($105,000 equivalent) to enable it to open sales offices in London, NewYork and Singanore The London office has alreadv been oDened.

Set.tAompnt on the Es~tates

75. Until a substantial number of mnall enterpr ses have made formalapplication and been definitely approved for admission to the estates,there. V is no bWLasisLO for e.V ating how long it is l- to take to .;Jl

- 19 -

them, wha-, types of enterprises are likely to settle on them, the respec-tive proport ons of new and going concerns, etc. At this point, it isPossible only to comment on the assumptions underlying WPIDC's developmentPlans and estimates. At Sialkot. no formal applications for admission haveyet been iubmnitted. At Gujranwaia, information was macle public at theend of October 1961 about prospective charges, other conditions of occu-pancy and services to be supplied, and applications were solicited. Onehundred and fortv-tThree formal anlniiations have by now been submitted.However, there is no way of telling whether this first batch includes thewhole backlog of interested concerns that had been waiting for an opportu-nity to make application or is the beginning of a steady stream. Nloreover,the first applniations, n hinch +.aanvr beej.n +.rnq tor t-he Bank by WPIDC.do not give enough information for a judgment as to what proportion ofthe applicants are likely to prove s--table o+-pants

76. in attem.pting to est-,mate the rate at which the estates are likelyto be filled, however, it must be borne in mind that present rentals forfactory- space in and around Gujranwala are in man-y cases well below theproposed charges for an equivalent amount of space on the estates. On theother hand, many of the small industrialists with whom the mssiorL dliscussedthe estates attached considerable importance to the fact that the shopson the estates would be more suitable for productive purposes tlan thosenow available, that there would be room for expansion, that technical andmanagerial assistance would be provided, and that the estate occupantswould receive priority for credit, raw materials, etc. On balance, how-ever, it seems prudent to assume that it may take several years to fillthe estates.

77. WPIDC has assumed that as many as 70; of the enterprises settlingat Gujranwala would manufacture parts or accessories for mechanically pro-pelled vehicles (scooters, rickshaws, three-wheeled cars, etc.), agricul-tural and textile machinery, refrigeration equipment, etc. Such arrange-ments have proved economic in more industrialized countries, but have notyet been developed in India or Pakistan mainly because small enterprisesin these countries have not yet achieved the habits and practices - uni-formity in quality, adherence to delivery dates - required. It is hardlylikely that several hundred small firms at Gujranwala can find marketsfor parts unless some medium or large-scale enterprises settle there andcontract firmly for their production.

78. WPIDC has received inquiries, but no commitments, from foreignfirms about the possibility of setting up assembly plants near Gujranwalaand arranging for parts production with its small enterprises. WPIDCwould be willing to let such enterprises settle on the estates themselves,It would undoubtedly be desirable to have medium or large-scale enterpriseson the estates or near them. But even if arrangements can be worked outit will take time. At least for several years. therefore, it would notbe prudent to expect a large-scale development of this type.

- 20 -

79. WPIDC has a]so assumed that 70/`0 of the enterprises settling atGujranwala wqould be going concerns, operating mainly in and around thetown. However, about half of the 118 first applications came from persons,several from as far away as Lahore, planning to set up new enterprises.In ouIr estimates this has been assumed to be the characteristic distribu-tion, which should result in increasing financial requirements since exi-st-ing enterprises are expected to bring along some of their machinery.

80. Of the first 118 applications, only about 30 state complete invest-ment figures. Therefore, not too much weight should be applied to theestimates, but nevertheless some interesting data can be drawn from them.Both at Guiranwala (and at Sialkot, where informal inquiries have beenmade) the percentage of the applicants that requested large plots (18,000)sq. ft.) was considerablv highpr than nriginallv assumed: this change hasbeen incorporated into WPIDC's revised layout plans. On the other hand,at Guiranwnla, the estimates of bhlldiing costs per sn. ft.- are only abouthalf of the reasonable estimates of the cost of constructing to the stan--drdsrI. requiiredl hyr theo 'hUilliner by-lt,-rTQ for- then esate+.n Ayjn-rarnoes of' fin..ancial realities may lead to a scaling down of space requirements or, very

possblypto ihtr-> of applications.

rrit eri-;a for th-e Se"lection 4ofLI4 Ocupnt othEsaes'.'L...U~J J . LI.L Ii -~L U L'.I- Lu V LuUL LId.LL.:) V4. "I 11 j .LO C1U

81.p ±± T JLhUIIU Sec LVn It'-c1 Y IFJLU1 U±LE L thIIe SmaclUl IndUUsLtr CoJ.LvraLtillo

to give priority to industries:

a) required to support agriculture and increase theproductivity of labor in rural areas.

b) processing aricultural products and other localraw materials;

c) producing essential consumer and producer goods;

d) required for the development of educational, healthand transport services;

e) in light engineering and services;

f) in the traditional arts and crafts; and

g) producing for export.

82. In addition, WPIDC plans to apply special criteria for admissionto the estates: sizes willingness and ability to mechanize and modernize,market prospects, and ability to undertake the financial obligations

- 21 -

required to permit establishment on a sound technical basis. Only enter-prises of a minimum economic size would be admitted. Priority would begiven to firms that have made some progress towJard modernization and arewil:Ling and able -to mechanize, improve their methods of operation, workingconditions, and product standards. WPIDC recognizes that unless the smallinduastries settling on the estates are large enough to operate on a soundbasis and are run by men willing to take advantage of the assistance pro-vided, the estates will not serve their major function which is to prom.notethe development of sound and efficient industry.

83. In general, new enterprises settling on the estates would be ex-pected to be fairly well mechanized. Existing enterprises moving to theestates would probably be permitted to mechanize gradually in order tominimize technological unemployment. Mechanization would be insisted upon,however, even at the expense of some technological unemployment, sincethere is reason to believe that any reduction in demand for labor due tomechanization would be offset by the inerpnsed demand rpsulting from thegrowth of the small industries on the estates.

84. The market prospects of each applicant would be appraised, takingaccount of the potentinl increase in the output of his products likely toresult from increased mechanization in the industry and the entrance ofnew enterprises. To the e possible, priori +, wo - b given to enter-prises producing items for export or substitutable for imports.

85. Finally, estimates would be made of the amount each applicantWJUUJ.U L1cave 4.uo orro f0r.'hU .L buJ t rLJ.LUJin%J MalJin ..:IIy CL d. y. ,A_U _J.r..±1.I jJ±Ud.J- 4 -1

quired for efficient operation and of his ability to service and repay theseloans. Ireference would be g-iven to th0ose enterprises that could cover thelargest percentages of their financial requirements from their own resources.

86. The only enterprises barred from the estates would be those likely. _ e ' - g - _- - - - L2 D- - _ -A - - ' - - e - _ _ _ . L_ L- _Z

bU crat Ib: sU.LIUe 11 UUrVUgi± cU2iblVe *lU S, fumes, etC., andU tUhose Ut 11g

fully unmechanized.

Screening Procedures

87. W4PIDC's responsibility for selecting suitable occupants for theestates would not be limited to making or arranging for personal, techni-cal, financial and market appraisals of applicants for admission. Manyapplicants who might prove suitable occupants would be unable by tnemselvesto select the proper machinery and equipment, plan methods of production,or estimate their prospective production costs and general financial pros-pects. Provision must be made not only for the assessment of plans butfor assistance to applicants in the formulation of plans. The task willrequire tact and persuasiveness, for a large number of small industrialistsare not aware that they require assistance. W?IDC's Small Industries Div-ision does not yet have the staff to prepare projects adequately or tc) make

- 22 -

satisfacto)ry technical and market appraisais, although vWrFIDUs eXperinlt-in the esi.ablishment of large enterprises will certainly be helpful alsoin the appraisal of smaller enterprises. For some time to come, it would.require the assistanlce of foreign experts if these tasks are to be perform-ed saltisfactorily.

88. WPIDC does not expect to make financial appraisals itself, but in-stead to rely on financial institutions. To the extent possible, thQassistance of commercial banks would be sought. It is expected, however,that their activiti(es would be limited to assessing the credit records ofexisting enterprises. They have neither the facilities nor an interestin preparing the estimates of financial prospects that are required todeternine safe limits for loans to existing as well as new enterprises.The bul.k of the responsibility for financial appraisals is expected to beborne by the Industrial Development Bank of Pakistan (IDBP), which was or-ganized in July 196L as the successor to the Pakistan Industrial FinanceCorporation (PIECO) with particular responsibility for assisting small andmedium-sized indust:r-v (See Annex 5). IDBP intends to operate along simiLarlines as the Pakistan Industrial Credit and Investment Corporation (PICIC)whose narticiL ar responsihilit is the finanGinn of relativelv large enter-prises with substantial foreign exchange requirements.

89. Although IDBP is already making the kind of appraisals which wouldhe required in connection writh the projecti iti s only now building up itsstaff to meet its new and increased requirements. Financial appraisals ofsmall enterprises are likely in any case to be difficul. becaus of theinadequacy of their accounting systems. In the next few years, therefore,WPTPC wrouAld n-pnobablr finrl it uefll +n hnaer a fr%r .c; inov f1+.eieq1 ^ nain-.r

with experience in financial analysis to advise it on financial appraisals.Eventually, it is hoped that 1DBP, assisted by- the co----erci I brnns, crrouldtake over full responsibility.

90. The procedures to be followed in the preliminary selection of ap-p VXW0LA v *1 UGV V JIIXG1 U- tiI9UJ. I sp LVJU.,l W11 Ul Gv D XW||;sG|V wV1W y-- .

plicants for admission are expected to be as follows. W4hen first makingforal" application apapplcants would be asked to supply certain basicinformation which would be outlined on a simple questionnaire. These in-itial applications would be reviewed by a screening committee consistingof WVPIDC officers, WPIDCts civil engineering consultants, and its foreignindustrial advisors, and a representative of I±D±BP, possibly with the heipof a representative of a commercial bank.

91. Applicants who passed the first screening would be assisted to de-velop detailed technical and financial programs by the preliminary screen-ing committee. Their financial programs would include estimates of theirfinancial requirements for operation on a technically sound basis, theamounts they would have to borrow, and their prospective earnings. From

- 23 -

these estimates it could be determined whether they could safely borrowas much as it is estimated they would need. The preparation of thesetechnical and financial programs is expected to take from three to sixmonths.

92. To the extent possible and in particular for questions of highlyspecialized technical nature, WPIDC will also seek the advice from the AID-financed Pakistan Industrial Technical Assistance Center (PITAC), Lahore,which specializes in light engineering industries. So far the center hasconcentrated its technical assistance to medium and large industries andto existing enterprises. If this center's services could be used as neededthey would be a good complement to the skills WIPIDC would have at its avail.

93. Applicants who could work out technically and financially soundprojects would then submit them to a final Allotment Committee consistingof the estate manager. two additional WPIDC officers, two industrialistsoperating in the branch of industry in which the applicant proposed to op-erate and the District Commissioner who would act as chairman. Decisionsof this committee could be appealed to the Board of Directors of WPIDCwhose decision wiould be final.

Assistance to Estate Occunants

91g The heart of the small industries P.states nroaram is technicalassistance. Besides aid within the screening procedures described abovethe occupnnts of the proposed estates wo ld need conti nued adrice and assist-ance on technical and managerial matters to become efficient producers. Theproposedf project includes facilities ann narsonnl +rt ntvri r uch cnin st

tance.

95. At the very outset, applicants admitted to the estates who choset.0 constuructL tUheir O'wn, 1fa.C4o-Uy buildings 41inste ad 01f having thWi bu;'+"I blyr

WPIDC, would be able to obtain technical advice and assistance from WPIDC'sc.LVi.L ±%±.Lin coUnULLtiant WIIh aLr responsible fo p.LLJI. an s1u1pe =

vising the development of the estates (constructing earthworks, roads,water-works ewage uisposalacdU.Lties, c.j.

96. For enterprises settled on the estates, wPrDC would provLde aurUad

range of assistance. The Corporation would establish a Small IndustriesService Institute at Lanore and service extension centers at Gujranwalaand Sialkot and on the other estates it is in the process of setting up.There would be a service center for each industry heavily representedon an estate or in an urban area, e.g., there would be a light engineeringservice center on the Guiranwala estate, a sports goods service center onthe Sialkot estate and a cutlery and small tools service center at Nizamabad, atown where this type of industry is concentrated and which is some 30 miles

- 24 -

from Sialkot. The Nizamabad center is also to serve the cutlery and sur-gi cal instr e+s ind Us+ri es e=-` to -ome +to the -t-wo estates-

97. mlh TLiahor T-titut-e woul'd coor AJdia 4d -tA n e w of

t;he service centers, and thus would eliminate duplication of effort andfac'i-4ta4ete xhge1, of, T-rene InAdd4tion -4 wo-4 'd wrk o.Lai±.LUL.d. Ui1= tU!2 ~JULICUiUtz;. .111 CLAALU _LU± i13 .LL ~ 1. "MJ±f. L d

problems common to all small industries, help elaborate and implement a.prograUd, fuor theil- dev-UlopUJmientU W. UILL11 ULUhe coW±LUy- ! oVerL-d evLeo UUVt=rVe.UtLu.t.

effort and. perform all such duties which do not require the direct andclose assistance to individual ernterprises which WoUlU be pIrOvideU thrUugLh

the service centers.

98. The Lahore Institute and the service centers would provideservices to industries - such as demonstrations of machinery and techni.ques,training programs, establishment of quality standards, etc. and assistanceto individual firms - such as designs and drawings, advice on technicaland management problems, assistance in instituting new methods of production,accounting systems, etc. In addition, they would make surveys of industriesand markets, study the potential uses of indigenous raw materials, designspecial machinery for small industries in and around the estates, etc.Eventually, the service centers would help applicants to the estates preparetheir projects and to screen applications.

99. 'the service centers would also serve as conmon facility centErs,that, is, each would be equipped with certain pieces of equipment toospecialized and costly to be purchased by individual small firms which couldbe made available to all enterprises requiring their use. In addition toproviding technical and managerial assistance and common facilities, hE'IDCexpects to assist occupants of the estates to obtain raw materials and tomarket their products.

100. Charges for the use of common facilities and for raw materials andmarketing services supplied by 1OPIDC wolEd be expected to cover costs fully.For all other types of assistance and service, charges would be nominal atthe outset, but would be increased gradually until they, too, completelycovered costs. If the small enterprises were to pay from the beginning asubstantial Dart cof the cost of the assistance. most of them would rattierprefer not to benefit from it; this would greatly reduce if not totallydefeat the desired effect of the assistance. At the outset, services wouldbe made available mainly to the occupants of the estates, but enterprisesoff the est-ates woilr] hbe permitted to avail themselves of thpmn as nnd 1;o theextent that it became feasible.

l0l1, The proposed IDA credit would include the estimated foreign ex-c h an ge ex,yendit,,-c-s and a small part of te+1 1-oa e-n+tn for thesetting up of the Service Institute at Lahore and the service extensioncen1ters ab purovidala, Sbyfreig aeprts,whic is &ndiscued furtherblow.sanceI to be provided by foreign experts, which is discussed further below.

Foe-

1020 ~ 1l Ih Pakisutan- auhrte wo--uid we l comie t[he helpoforine+rt

to provide technical assistance and to help them elaborate their plans forassistance -oul - n-u-is TD1_esccs oi -v-MrPIDC! dlfrtscee

for the development of small industries depends not the least upon thework-ing out of a sound over-all program for smali industries coordinatedwith the over-all program for the development of the country. This aspectand tie need for foreign assistance is presently being studied in Pakistanby a t;eam of the Stanford Research Institute; the mission is financed bythe Ford Foundation. 'There are prospects that, as a result of these stud-ies, the Ford Foundation might finance a number of experts to go to Pakis-tan for a few years to assist in the elaboration of the development programfor srmall industries.

103. Tu give assistance in the implementation of the proposed industrialestat(es' project writh its more narrow scope, it is envisaged that foreignexperts would be provided through an industrial consultant firm; they areto assist in the appraisal and screening of enterprises applying for admissionon thie two estates and the preparation of their individual projects, assistin promoting patterns of inter-related production between one or more largerscale enterprises and other enterprises on the estates and help in the estab-lishm,ent and initial operation of the small Industries Service Institute,and the service cen-ters on the two estates and at Nizamabad. through whichthe assistance described further above would be given. Preference is givento a consultant finn over individuals, since a great deal of flexibility isrequired to effectively carry out the assistance; furthermore, it cannotyet be said with certainty what the specific aualifications of all the ex-perts would have to be and how long everyone of them would be required to re-main in Fakistan The allocatinn nroi ded in the credit would finance theestimated total foreign exchange and a small part of the local expendituresof about 36 man-vynrs.

OLL. The assin wtnnG nTnUld be rcnentnrnter on the individual enternrisesand the sectors of industries coming on the Gujranwala and Sialkot estates,sI1 thowih they w.oldAi n1i 'n be' in rvlvired,- ton the Pete,rnt. m-nnqi hi _ in advriqin-- on

the Lahore Institute's wider functions, and in advice to enterprises outsidethe eStates. !.-In ore to car out the or;is+-n economi 1 + deti- - beimperative that best use should be made of consultant services already a;vail-abvle in Pakistan such as the PITAC center and of the back- stopping sevicesthe consultant firm is to give from its home headquarters. All the foreignexpertus wiouJl d have PaIlostanLi coWuiterpartUs working J-wLi Ul l11 them II ULIr te UUtset

who would be expected to take over the foreign expertst responsibilities whenthy hiiau buen tra.Lnied.

105, It would be impractical and too costly to bring to lWest Pakistanforeign experts on a long-term basis in all branches of industry likely tobe represented on the two estates. An expert for an industry should not be

- 26 -

brought in until there is a large enough demand from enterprises both onand oIf the astates to require his service full time. However, it is recog-nized that be;.ore an industry needs the full time services of a foreign ex-pert it wou7.d need technical assistance that cannot be supplied through theservice centers and by other experts locally available. Therefore, proviLsionhas been made in the proposed IDA credit for foreign experts required forassistance in specialized fields and for particular studies of relativelyshort duration, and for fellowships abroad of Pakistani personnel, primala-ily those working with the Institute and service centers.

106. A summary of the provision for technical assistance (facilitie,and services) that might be included in the proposed IDA credit is given inAnnex 6. Requests for proposals for the consultant services have just boeensent out by WPIDCj and a contract for such services between WPIDC and a con-sultant firm on terms and conditions satisfactory to IDA would be a cond:itionof effectiveiness of the proposed credit. WPIDC will, in the near future,start its preselection of applicants, but will not finalize plot allocationsbefore the consultant firm has had a chance to review the applications andgive its recommendations for possible modifications of the individual pro-iects,

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VI. ECOi1ONlIC JUSTIFICATION

107. The proposed project to establish two estates for primarilysmall industrial enterprises at Gujranwala and Sialkot has several pur-poses. It is intended, first, to assist several hundred, small enter-prises improve their productive efficiency and increase their earnings byproviding them with more adequate working quarters than are now availablein theBse to'wns, technical assistance, credit facilities and help in ob-taining raw materials and marketirg. This should also permit some ofthese small firms to grow into efficient medium sized enterprises.

108. The estates would be one feature of the program for small indus-tries intended to make possible an increase in the exports and/or reduc-tion in the imports of oroducts of these industries. Pakistants handicraftand other small industries are reported to have had exports of Rs 44 mil-lion l,$9.2 mrillion) in 1960. (FignrP.s for earlier years do not distinguishbetween large and small industries.) The target of the National SmallIndus-triAs Cornorationa whicth was resnonsihn Vh for nromoting exoorts ofhandicraft and small industries, was to double them by the end of the Sec-ond Plnn per-iod (L965) It many be difficnl+. to -chiere an inerease Of thi smagni-tude in so short a period, especially because exports apparently rosein l9etC) aS a resu1lt of the introduction in 1959 of the export bonus scheme,under which exporters are permitted to retain for unrestricted use a portionof the foreitrn exchange they earn. However, active promotionl effortsshould yield some increase. The emphasis is on handicraft exports, butevffoyrts ev~n also mad~ e,t -or-^mote expo,-rts of4 o-t-her m 1r.-I indsrTh ies.* Ex-ports of the sports goods and surgical instruments industries alone areestimalted at Rs 13 2 ril'ion (US$2.8 11-lron) in 1959 (sport goods A Rs 10.8

million, surgical instriments - Rs 2.h million). Improvements in the effi-ciency of these indus4uries and pror.lot-iona1 effforts slho,.' ;cesthsefigures.

109. Imports of selected items of the type produced by metal productsa.nU LiI.ghteijgiL1-ing eUteUplses UUJad-1WLa anU O_LcL,I'U amio-unted 1ir L959

to Rs 64 million ($13.4 million) for all of Pakistan and Rs 49 million($P.L)J rLL±..lJLon) for0 WetO i aLone. ( nex 7 ) SidL. .s at

Gujranwala and Sialkot Would p2obably not be able to match import quality forsome time, but improvemenits in their techniques should enable utem to replacethese imports in part as their production increases.

110. A rnodest increase in the output of export commodities likely to beproduced on the estates (e.g. sports goods) or in import substitute com-modities would in itself result in a reasonable economic return on the in-vestment on this project. But the project has an additional and broaderpurpose - to demonstrate to entrepreneurs with limited financial resourcesand limited access to foreign technical skills the possibility of profitableutilization of modern machinery and methods and of expansion. In Pakistan,as in most developing countries, industrialization has taken place mainlythrough the establishment of large-scale industries, requiring substantial

- 28 -

investment and the employment of foreign technical and management experts.If the iaLge number of potential entrepreneurs with limited financial re-sources and knowledge of modern methods could be made aware that they, too,could employ these modern methods and expand, the process of industrial-ization could be accelerated.

ill. The estates seem to offer the most economical as well as effectivemeans for achieving the ends sought. Additional factory space is requiredat present in both Gujranwala and Sialkot. Quarters of the standard thatwoul1 be provided on the estates could probably be made available at alower cost there than through the construction of individual buildings whichwould require individual utility connections. More imnortant. however,the estates offer a means through which the most promising enterprises -those able to make use of modiern machinery and methods andi wdillinr to takeadvantage of the advice and assistance offered - could be brought togetherand incThceed t.o nv-lT 1 ±.hemscz1u of' +hese facilities= Soma of thof e enter-prises might then expand into medium-scale enterprises, with economic bene-fits to Pakistann. In some cases, they mnght even expand to the point iwiherethey would have to seek larger quarters off the estates to provide for ex-nnnsqton- i -. e.h pt estats.+. woul serve as n.q nurseries fo sf zm-all en+.erprisq.

119= However- the n-ct5ir'+. miust tQill hb regrded a pimental=

Experience is too limited to make it possible to estimate firmly thedirect and indirect benefits of the estates vo their occupants Ad to +heeconomy as a whole.

113. On the other hand, the cost of the project would not be high. AsulbstantlaLq fratio ofr the expenitu 4 would -- IAbL,e flor machnr an14up

ment. Most of the costs would be recovered from the occupants of theestates. There is ro basiJ s f'or a ' ifULedstIi l,l e fs m1ate au tuo lhou0w LUJAi it U souUl take to fil:L the estates, but they should be filled in a reasonable time.If iU proves Ud±iffcuu uv tvtL-ac1t enough jilia±Ll enuLerpr±ses, 'wrDUC is pre-pared to ad9mit more medium sized enterprises than it now plans to. Thereis a demand for space from medium sized enterprises and the estates, withtheir well-located sites and facilities, would undoubtedly be attractiveto lthem.

l14. Evren a modest development would probably result in a reasonablereturn on the investment involved. There is a good chance also that theesta-tes would serve to accelerate industrialization. For these reasons,the project seems economically justifiable.

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VII. CAPITAL REQUIRWqENTS FOR PROJECT AND RECO-VERY FROM USERS

Capital Requirements

115. The capital requirements for the project include: (1) the require-ments fnr the the-mel vp.e.s that, i - the niirchasp nri ce of the sitesand the cost of preparing the land, installing basic facilities and con-

s ctr ,'rwng n-vi +io r 1%iii I rl-ngs;c! (2 ) +he nc of' +the frto.rvr )ni I ri naq ;=nr

the machinery -to be installed in them; and (3) the requirements for theSmali Ir.dus_t.e_1s Sertvrice Institu+te Wnd th-e se-rvJce centersc1 16 ThA.e est4 at. of, - requrements aPar th e estates are based onthe

estimates prepared by W.PIDC's consultants, the Republic Engineering Cor-j.104. dLI± 4i T±.~d.1 t L-- A-..._ -I - -eI tL i.A - O * 1J±U 4-LI- eIIV_- j1 L~porat-ion of- Lah0re. (ForL-W- detailsO, see t::R ex 8 11i.) . SJLinIce thedevlopen

of the two estates is expected to be completed by June 1963, it is unli.kelyth at actual costs will exceed by a sizable margin the estimates which, forpurposes of establishing charges to the estate occupants (discussed inpara.graphs 20V-12;), include a conLi,'gerlCy reser-ve Uf 10%.

117. Requirements for factory buildings and machinery cannot be estinia-ted firmly at present. There is no basis for an accurate prediction as tothe size of establishment enterprises would wish to set up at the outset ortheir industrial distribution, nor as to the amount of machinery they wrouldbring with them. Moreover, information on the fixed capital requiremertts orsmall enterprises of the type likely to settle on the estates is meager andunreliable. However, rough estimates have been made, based on the opinionsof the Small Industries Division of WPIDC and its consultants and such in-formation as the mission was able to gather and from the first applications.(For details see Annex 9).

118. Since the exact requiremnents for floor space and machinery ancdequi.pment of the Small Industries Service Institute and the service centerswill be firmed up by WPIDC at a later date with the help of the foreignassistance team, the estimated costs of the Institute and the centers 1;Seefol].owing paragraph) should be considered as tentative.

119., Estimates of total capital requirements by major categories,excluding the cost of the foreign assistance, are given below (in millionRupees):

of which,foreign

Gujranwala Sialkot Total exchange(102 acres) (100 acres)

Estate Development 3.58 3.80 7.38 0.95Factory Buildinas andArtisans 1workshops 22.60 21.75 44.35 8.87

Machinerv and eauiDment 24.30 23.40 47.70 23.85Sub-total 48.95 93943 777

Institute and centers - - 375 1 2Total 103018 34.99

(;in m;i11;inn Tl.S1 AmHn1p;vn nt.) 91 _(s7 7 A~

Charves for Plots and Rentable Community Buildings

120= IjJPTTDC wolAri l the nlcots for 99 yerars instead of selling themoutright in order to retain greater control over their use, but lesseeswon]ldi hnpve the right to transfer leases, qubie.t to nrior apnroval by thecorporation. Charges for leasehold rights to plots and rents paid forrentable comrn,rznity buildings would be the sources through which lkPTTn wouldreccver the bulk of its investment in the estates. 1/

121. The rentals for rentable community buildings would cover their

ment. cost and the major portion of the operating cost of the servicecent1±ers, at least for some tie. , w-ul1 beL/ 1-r by1 LVqDTID, -whVI V-LA. be

reimbursed by the Government. The charges for leasehold rights to plotsw-uld cover, theI, remainng aia expeditres excldin eAend4ur o

the water system, which would be covered separately. The costs to be re-COVeered fromJ [1e ssees is esU LMIatIe,Ud at Rs 2.63 II onL.LfLU11 1U1 ULIJ.LdJIwALd. acIILL

Rs 2.87 million for Sialkot. The amount to be paid by an individual lesseewould be determi ined b-y the relationship between thLe area of his plot aridthe area covered by all factory buildings, artisanst workshops, rentablecomnrullunity- -buildings, arnd service centers. The crlarge as th-us determi-unedwould be increased by 10%, to allow for vacancies. It is estimated that thecharge for a 10,000 sq. ft. plot would be Rs 8,250 at Gujraniwala andRs 9,321 at Sialkot.

122. WIIDC would not recover the expenditures of its Small IndustriesDivision for planning the estates. Its adtinistrative expenses are coveredby a grant from the Provincial Government. Interest during constructionon loans incurred for the purchase of sites and their development would becovered bvr a service charge equal to 2.5% of the recoverable investmentcosts which would be included in the total charge or rental.

1=23. The lessee of a factory plot could pay the charge for his lease-hold right in full on signing the lease agreement or over a period notexceeding 23 years thereafter, including a grace period of three years.A minimum down payment of 20°' would be required. Based on present costestimates, the lessee of a 10,000 sq. ft. plot, making a dowm paymentof 20% and paying the balance over the maximum,n allowable period of 20years would, assuming an interest rate of 7% per annum, have to pay Rs 51($10.71) per month at Gujranwala and Rs 58 ($12.18) at Sialkot.

124. The amount of the down payment and the period over which thebalance would be payable would be determined in the light of the lessee'sfinancial resources, the additional obligations he would be incurring fora factory building, machinery and equipment and his working capital recquire-ments.

1/ List of rentable and non-rentable community buildings are given inAnnex 8.

- 31 -

1 25 TI , A;1+iO, +OA c-harge f l rgt o p sof the

esta-tes would pay a monthly charge to cover the cost of administering andmaint-Filling, th-r estts Ti ; s ;eS4-4,4 1+ 4lt-1-+ +" - nS_1 A

u,iw. C.O tiuc)ucUI UL* .L -VL .O O L L t -VLIlA- .1I.c -5w

amount to Rs 320 per year for a plot of 10,000 sq. ft. on both estates;charges wol- Ld b0le suLb0 Ject0 to modiifi c atllLUn1 as .I4 ULLL_LI t--1. p res eOntII

plan is not to require payment of this charge for the first three years afterU1e s.lgn,-ng of a -lease agreement,t

CUrLLU for .Vaucovy D-LLLU1L1dgs W.[IQ Pacrullery

126. Enterprises settling on the estates wouid pay thie fui-l costi ofthei:r factory buildings, machinery and equipment but would be able to obtainiong-term credit at 7 to 7-2% a rea.onable rate for Pakistan, to financeconstruction and purchase. iDID would make loans to enterprises constructingthei;^ own factories, as most are expected to. It is expected that suchloans would be repayable in not more than 20 years and be limited to 70, ofthe estimated cost of the buildings. '&IDC would construct buildings forthe r emainder and sell on IDBP terms or those for the sale of leasehold rights.

127. MIachinery and equipment are to be made available on a hire-purchasebasis by ID]3P. A down payment of 25% to 40% would be required as a minimum(the more specialized the machinery, the higher the down payment). Thebalance would be payable in a period shorter than the estimated life of themachinery or equipment, and in no case exceeding ten years. WJPIDC has agreedto assume 75% of the bad debts arising from IDBP loans to estate enterprises.

CredLt for wVorking Carital

128. IDBP is authorized also to inake short-term advances or loans forworking capital in an amount not exceeding 25% of IDBP's total advances tothe enterprise. The commercial banks have indicated that they, too, areprepared to make short-term loans to the occupants of the estates providedthat WPI-DC (or the '-overnment) assumes 100% of the bad debts of such loans.An effort shiould be made to have commercial banks participate to the fullestextent possible in providing credit to the occupants of the estates. However,the reauest of the commercial banks that NIPIDC should bear the whole risk isnot reasonable and does not assure that the banks consider the credit -worthiness of the estate enternri _es as oqrefnl v ais they shnud. Negotliationsto this effect are now in progress between AWPIDC and the commercial banlks.

- 32 -

VIII. PROPOSED IDA CREDIT

129. Inclusion in the IDA credit of $10.8 million equivalent to coverhalf of the estimated capital requirements for the project (about $21.6million cn the basis of the present estimates, see paragrpph 119), might.be considered appropriate. However, because of the tentative character ofthe estimates of capital requirements and the difficulty of determining overhow long a period expenditures would be made, it is proposed that the presentIDA credit include $5.7 million for that purpose or slightly more than onefourth of the estimated total cost of the project. If additional funds arerequired and appear justified, one or more additional credits could be con-sidered at some time in the future.

130. It in nrnnosed that the credit shouild also include $0.8 millionfor consultant services and fellowships. In all, the proposed IDA creditwoul d amount, to $66.5 mn11lion,

131. Up to the amoulnt of the credit, foreign exchange expendituLreswoulc be reimbursed in full plus a portion of the local expenditures to bringdisbursemen.ts up to Co% of the $13 mllion. Disbursements woll-d not be de-pendent upon the sources of financing for the capital expenditures of thep_iv-tc enter-pr3 ses and -'ere ruppees., but, not fore4g exhre,wr ther-

V" - .v .i~4W.L~ .. ALVI v ~L ~I U . L gn.E exchange we.'" '-e

wise available to the enterprises the foreign exchange included in the creditcoulI be made ava"ilable by p-rchasing such foreign exchange *wlth rapees.Although there might be individual enterprises which could contribute mcorethUn 50l of the costs of their individual projects (defined as the costs ofthe plots, which include a proportionate share of the development costs ofthe E!states, the costs of buildings, machinery, equipment and working capital),it is unlikely that enterprises would, on the average, contribute more thanabout 40% of these costs. On such an assumption, the credit would cover lessthan the enterprises' non-equity requirements under the project.

Channeling of the IDA Credit

132. The proposed IDA Credit of $6.5 million would be granted to theGovernment of Pakistan free of interest for 50 years with no repaymentduring the first ten years, and repayment of 1% of the principal in eachof the next ten years and 3% of the principal in each of the last 30 years.There would be a service charge of 3/4% per year on the amount outstanding.The credit to the Pakistan Government would be covered by a Credit Agreement.The Pakistan Government would make the proceeds of the credit available tothe P'rovince of West Pakistan at IDA terms.

133. The Province of West Pakistan in turn would pass on the credit;amourLt to WP&IDC, of which an estimated $1.2 million would be given in theform of a grant to cover the estimated foreign exchange and part of thelocal costs of the foreign consultant services and fellowships ($0.8 mil-lion) and of the Service Institute and the service centers ($0.4 million),

- 33 -

al' 1i.he remaining $5.3 million in the form of a loan bearing interest of4% and for 25 years including a grace period of five years.

134. WPIDC would use part of the $5.3 million portion of the credit- an estimated $0.7 mi illon - to cover its own foreign exchange and partof its local expenditures incurred in the development of the estates, theconst:ruction of artisans' workshops and the construction of factory bulld-ings of occupants that do not choose to construct their own. VWIDC wouldreceive 7% for credit it extended to estate occupants for the purchase ofleasehold rights and factory buildings.

135. The remaining $4.6 million of the credit would be channelled thiroughTDBP to occupants of the estates, for the construction of factory buildingsand the purchase of machinery and equipment. Any loans for these funds wouldbe made avaiLable for various periods of time at 7% interest per year.It is tentatively envisaged that of the interest spread of 3% (between 4 and7%), IDBP woluld keep 11-2% while WPIDC would keep the remaining 1-l2% tocover part of the expenses incurred by the latter in the technical screeningof applicants. It is possible that for its loans for imported machinery,IDBP would charge 7T% to cover foreign exchange fluctuations. Apart froinsuch charge, the foreign exchange risk would not be borne by the estate occu-pants.

Conclusion

136. On the basis outlined, the project is suitable for an IDA credit

of $6.5 million equivalent.

October 19, 1962

1IJL]EX 1Page 1

Assistance to Small Scale Industry in India

The mission spent five days in India visiting small industriesestates and service institutes in and around Delhi and Calcutta. Astud-y of Indi an experience seeriied useful because the Indian program ofassistance to smiall industries, on which the Pakistan program is general:Lymodeled, has alreacdy been in operation f'or several years.

Small Industries in India

Lhe term "small industries" is defined more broadly in India thanin ei.ther viwing of Pakistan (i.t is ctef'i.ned diiierentliy in East and 'viestPakistan) andl its scope has been progressively enlarged. In 1960, the termwas delfined to m..ean enterprises em-llovin2 fewer than 5C) workers if powerwas u.sed, or 100 workers if no polier was used. The employment limits weresubseqzuentlv raised to 50 or 100 workers per shift. respectivelv. 1Iorerecently, -11 employment limits have been eli.L-inated, and the only require-ment an enterprise must meet to be classed as a small inndnstrv at presertis that its fixed assets amount to less than Rs 500,000.

According to the 1958 Census of Xanufacturing Industries, 73% o:fa]l industri.dl units in Tndi were snlall indlustries (o.robablv defined asonterprises employing urp to 50 workers if power was used, or 100 workersif no nowT,er was used'); these enterpri.ses er%-p1ovc] aboout 80.'' of the workersbut probably no more tlan 10% of t.e productive c+pital of industry.

Government Program for Sma'1l Industries

Public expenditures on small industries (including cottage indus-tries) rose fronm anr Pa Rs P. r.il i n +ihe Firth Ir Ve Ye- Plan

period (1951-56) to Rs 1,800 million in the Second Plan period (1956-61);the Th<ird Plan provides fPor ex.penditues of Rs 2,70 mii in 1 Q-l A.Public expenditures on 211 mining and manufacturinar industries (small,mediun and large) amounted to Rs 800 mrillion in the First Plan period andto Rs 8,800 ;nillion in the Second Plan period; the Third Plan providesRs 15,000 nn.million. Thus the share of total public epennditures on indus-tryaccounted for by small industries rose from 6.2%o in 1951-56 to 20.,%' in19%6-6o1 but zis slated to fall to 18.3%. under the T'hird P1a.

There a-be no figv.res f'or private il vest+l.er+ in t sl 1 industries,

but Indi-an authori ties estirrmate it at five to ten tirnes public expenditure.

Tlhe Indian Governmqent has relied heavil1r on service institutes incl=,.ng out its" progrm fre sra11 J. * tf1 w euQ tri)e n ;-r n^+ * l n#n11;V s4-n4 1+-ry - J XI5 ~LU 4. V 1V ) yJ. X J~4 Cf 4.( JJ O~t XO IGB[J. 4.1±UJU O U 4I. JA. 4.L LIt; XJ 1 U at U U. .L1± E_ bJvLV

one in each state, wuhich with their extension centers provide technicalauvict) -s-i.,t,nce and 4- T -A A Idarn technice- _11- oficr'aeiedbC'UV U , C04,- U C~1 ~ W I" U Xf4. I 4 l.OL J.ACS UO LAIJ -U L U) .U A 4. U &LLt¼ UjJ

foreign consultants (21 in 1961) who advise on production methods, designof uii y cl equiJ.;c-.,ent andU. otUihier technL _il tr,aters. The *lili Uo.

persons receivinEg assistance from the centers has risen from 8,000 in.195U->7 -o -.-.L. )d4U, LII In 16-.

AN1A(RX 1

Page 2

Inclus'riO. Estates

The small industries estates program, which forms an importantreaC4ure u± th- I-e overa.LL progra±Ur for smIri1Ll ULLO UstLrieO, LLLa Ua4lray ra.L he

substEantial proportions. To the end of Mlarch 1961, expenditures ones to as 1O^.7 2m1'i n - and 'e re etal-e UateS WJIEU tUII d~ LU0 £THS 10O*. -17LL1-1U11, li UIII.'Ie Vt=eitz ;2' :OudLUt'c ±1i U.Pt'.±=L

tion, 40 completed but not yet functioning, 24 under construction and 29where pruli-runal-y WuifK kaCqLuziujoii 0f lalni, pepaiaution± Uof e-UaLUestimates, etc.) was under way. On the 52 estates already in operation,Ulthre were l,000 enterprises, emplloying 1320UU persouns ana producinggoods with an estimated annual value of Rs 140 million ($29.3 millionequivalent,) .

The Indian estates differ from the proposed lNest Pakistan estatesin several respects. In India, normally the Small Industries Corporatlionsnot; only cevelop the land (i.e. clear it, install basic facilities, etic.)but erect factory buildings. In West Pakistan, small industries will beallowed to erect their own buildings if they choose and it is expectedthat most of them will do so. In India, rentals on most estates havebeen fixed a-t half the true economic rent for the first five years, andthis conce!ssion is expected to be continued for some time longer on anumber of estates. On the proposed Pakistan estates, charges are expectedto cover all the costs of investment and maintenance; technical assistancewould be providedc for a nominal fee at first, although it is hoped thatcharges could be raised to cover most if not all of the costs eventua3ly.

The Indian estates are generally smaller than the proposedPakistan estates. Iethods of development have been less economical inIncLia than they are expected to be in Pakistan, mainly because the propor-tion of the total area used for factory plots has been rather low. TheIndian Third Five Year Plan provides for the establishment of 300 newestates at a total cost of Rs 270 million, or Es 900,000 per estate. Thisis only about one-quarter of the estimated cost of each of the proposedPakistan estates at Gujranwala and Sialkot, and this despite the fact thatthe Indiar, Ligure includes, while the Pakistan figure excludes, the costof factory buildings.

The Indian estates (even very small ones) have been developed instages. An example is the Okhla estate near Delhi which the missionvisited, and wlhch is expected ultimately to cover an area of 110 acres orabout as large an area as will ht covered hv each of' the proposed Guiqrn-wala and Sialkot estates. In the Iirst stage, which ended in 1958, onlyhO aeres were dvelonnpd nnd fant.ory hnildin ngs erected. The SmnllIncustries Corporation is now developing another 40 acres and putting upanCther liO buiildings. No date has been set for the com-pletion of thedevelopment.

ANNEX 1Page 3

At least on the Okhla estate, the enterprises are larger on theaverage than the enterprises on the Gujranwala and Sialkot estates areexpec-ted to Ibe.

ThInan extension centers like the estates are more modestthan the pro )osed Pakistan centers, however their fields of activities

areno f'1yIv comnpara,bl-- e.

Results of T-Anc- Q-al - I - ndustr4es E~st4ates ProgramU 4 44J.., TAJ.tJaL.4I

The am of the Indi an small -ndustries estates program has beento aid indus-lirial growth in areas outside the large cities where mostIndia industry is n c et At first, estates were establishedin middle-sized cities and satellite areas of large cities, but in the lastfew yYears the Government has begun to establish estates also inr coapcara-tively underdeveloped rural areas, in order to stem the movement to thecities wrich has resulted in serious overcrowding and press are on alLsocial facilities - water, electricity, sanitation, transportation, etc.

The estates in middle-sized cities and satellite areas of :Largecities have generally proved successful. At Okhla, which is a satellitearea estate, the enterprises visited by the mission seemed generally well-rim and all of them had expanded their operations considerably since theymoved on to the estate. Operators of small enterprises off the estateare apparently eager to locate there. Although formal applicants have topay three months rent in advance, 400 persons have applied formally for the4h buildings now under construction. The number is not large comparedwrLth the number of small enterprises in the Delhi area, which is estiumatedat 25,000, but it is significant that 400 small industrialists have beenwilling to tie up funds merely to be considered for admission.

The appeal of these estates does not seem to be low rents.A:Lthough rents on the estates are generally only half the true economicrent, they are sometimes higher and are rarely significantly lower thanr?nts for the same amount of space off the estates, The principal attrac-tion seems to be the preference given to tenants by the Government forcredit, raw materials and foreign exchange licenses.

The rural estates on which the Government is placing increasingemphasis (it plans to establish at least one estate in each of the 350districts in India) have been less successful. On many of the estatesalready established, a number of factory buildings are still unoccupied.The difficulty seems to be the distance from sources of raw materialsand markets.

ANNE.Y 1

Page 4

More ::1 VL ree.l,the autoriie CLU beenO. eFrLe+n U*.rQ L

estates for small enterprises feeding components to larger firms. Theseest ates haveS not- yet- provedu sceful. Large mlanuflact-urers have s.>ovlittle interest in contracting for the manufacture of components outsidetheir plants, in part because of the fCilure of small enterprises to meetquality standards and to keep promised delivery dates, in part because thelarge manufacturers do not yet appreciate the poten-tial econoilic advaltagesof relying on other firms for some of their requirements.

Conclusions

Indian experience with estates suggests a number of points whichmightl be useful to the Pakistan Government in its planning.

Pl Main:ly because of the small proportion of the total areaof the estates used for factory plots (generally 30-55%),Indian development costs have been high. The decisionof the Pakistan authorities to use about 65-75% of theestate area for factory plots should result in savings.

2) Experience at Okhla (and other Indian estates) indicateethe feasibility of development in stages.

3) The poor results achieved to date by some rural estatesand estates for small enterprises contracting to producecomponents for larger enterprises suggests that cautionshould be exercised in proceeding with such estates.

4) The important role played by the small industries servicecenters in the small industries program deserves particularattention. Both the scope of the services provided (theyinclude technical advisory services, common facilities andt;raining for all grades of workers, apprentices, supervisorsand managers) and their high standard are impressive. Thecenters have served small enterprises off the estates aswell 2S those loc2tea on thyn- At Okhln. for exnmnle- nnlr30% of the work of the Light Engineering Service Center isfor enterprises on the estat6es

ANNEX 2

WEST PAKISTAN S1MALL INDUSTRI1S CCIRPORATION

Schemes Approve by the GcZtMment, Allocations of Funas anci ZxpendiitUres

(In Million Rupees)

Estimatedl .196-1961 196'L-1962Total Budget Alloca- Expendi- Budget Allocation

Name of Scheme Cost Provision tion tures Provision Loan Grant Total

Development of sericulture industries Not 0.88 0.2:3 0.4 0.'34 0.44 0.74lWool weaving and sLpinning centers Available 0,50 0.03 0.45 0.40 0.05 O.45Pottery research d[evelopment centers

(GLjrat and Bhag) 0.21 :1.00 0.20 0-`05 - 0.05 0.05Eight carpet development centers '" 1.32 0.10 0.92 0.61 0.31. 0.92'rwelve cottage industries clevelopment

centers " 1.54 0.2 6 0.85 0.40 0.45 0.85Eight sales and display depots 0.54 0.1:L 0.25 0.;25 - 0.25Rural industries extension service

program 1.45 o.o6 - 00 - 0.07 0.07Sports goods service center -Sialkot 1.08 0.07 - - 0.]12 - 0.12 0.12Small. industry survey organization 0.03 0,08 0.08 0.02 - - - -

Eight Small I.ndustries Estates 14.80 0.10 0.10 0.01 4.00 4.00 - 4.00Metal industries common facility

center - Shikarpur 0.30 - - 0.12 - 0.12 0.13'West Pakistan design and publicity

center - Lahore 0.73 - - - 0.22 - 0.22 0.22Small textile service center - Multan 1.04 - - - 0.'34 0.:14 0.20 0.34Light engineering service center -

Gujranwala 2.46 - - - 0.20 - 0.20 0.20Cutlery and small tool service

center - Nizamabad 0.97 - - 0.41 0.11 0.30 0.41Sewing machine estate, Lahore 0.42 - - - 0.'36 0.36 - 0.3Matting development center - Kcot Adu 0.10 - - - 0.:L0 - 0.10 0.10Rural indlustrial service p'Llot

project - Peshawar 1.45 0.45 0.46 0.09 0.36 - 0.36 0.36

Total Schemes 5.75 1.64 1.05 9.56 6.61 2.95 9.57'

Headquarters and zonal offLcers 0.51 - _.55 05

GRAND TOTAL 2.15 1.6o 6.61 24 1LO.07O

INDUSTRIAL ESTATES PROGRIA

Elast LwT-s+

Pakistan Pakistan Karachi Tc,tal

Original Alloc.-:tion of theSecond Five-Year- Plan

Number of units i6 7 1 24Total investment (in Rs million) 24.0 10.5 1.5 36.0

Latest revised estimate for theSecond Five-Year Plan Period

Number of units 18 8 - 26Total inves-tment (in Rs million) 66.0 18.3 - 54.3

Allocation of funds for the firsttwo years (1960/61 and 1961/62)

Number of units 7 8 - 15Amount (in Rs million) 24.3 4.1 _ 28.4

ANNEYX )

rPTTT .MlcmP DAWTCrPAMk T1\TT)TCTZV'QTAT Th TMTnlPNM~T PnOPPnQAVTTP\i-tJE -T. S.RIA..KJ-.- --N - -INDUSTRIh L .LtJtT CO. OR-TIO

PIDCG the predecessor of the two provincial Industrial Develop-metL u I.,dorporatiUL1n waVds sUdaUA±Lw1CU 1in Apij L ±70. PIDC -l was ce wDith

the objective of promoting industrial enterprises, which private indus-try wsis either unable or unwilling to undertke. It has been the policyof the Corporation to supplement rather than to replace private enterprises.nTT^.A J____.! - .. n.1 *3 - _' I-_ _ :_ PCa ltlerefore, has refrained from establishing industries in ieLds n1which private industry is active. Emphasis was put on the promotion ratherthian owriership of industries and PIDC followed the policy of se'lling itsenterprises to private investors as soon as practicable. These generalpolicies have not changed with the dissolution of the former PIDC, andthe establishment on June 4, 1962, of the West Pakistan Industrial Develop-ment Corporation.

PIDC by early 1962 had established 54 projects in both wings,and had another 16 projects (13 in East Pakistan and 3 in West Pakistan)under consideration. PIDC's total investments by the end of 1961 havebeen about $300 million equivalent, of which some 30% were private par-ticipations.

According to its ordinance, WPIDC is responsible for planning,promoting, organizing and implementing programs for the development ofthe following industrial sectors: jute, paper, heavy industries, in-cluding iron and steel, shipbuilding, heavy chemicals, fertilizers,pharmaceuticals, dye stuffs, sugar, marine fisheries, industries basedon forest products and cottage and small industries. WPIDC is also res-ponsible for the exploration, and exploitation of minerals, includingcoal and peat.

The authorized share capital of WPIDC is Rs 10.0 million, ofwhich Rs 4.5 million have been paid up by the Provincial Government. TheBoard of Directors is appointed by the West Pakistan Government, whichalso hzas to approve the projects proposed by the Corporation. All re-sources undertaken by I1PIDC come from budgetary grants of the Province,such orivate capital as WPIDC is able to attract and foreign aid as wellas loans and working capital obtained from Pakistani banks on normalcommercial terms.

Ai'JlNEX 5Page 1

The Industrial Development Bank of Pakistan

The Industrial Development Bank of Pakistan (IDBP) was estab-lishecl by an ordinance of the Government of Pakistan of July- 29, 1961, asthe successoi to the Pakistan Industrial Finance Corporation (PIFCO). Thereorganization had been recommended by the Credit Enquiry Commission, inorder to provide Pakistan vith a credit institution with special responsi-bility for financing small and medium-scale industry and with the author--itv t) nro-nidrf fo'repign exYrnchag as well as locni eurrepncy financing,

TDE…P h.as a share capital of Po 30 mil.!ion,P1… fully p idn p 51of the shares are held by the Government and the rest by commercial andcooperative bar.ks-, lns _ance cosmpanie-Ss, -er.sion fnsand inAilyidU-01S.The Bank is authorized to accept long-term deposits from the public, toborrow. from the Government to issue a sell bonds and debentures, and,for the purpose of making loans in foreign currencies, to borrow such cur-

rencss fro, theIBPmL or- arly ot-her instit_utULion. liThe ZAL ofL -Lts bonds andldebentures issued and outstanding and its contingent liabilities in respectof guarantees or under-w-iting agreements may not exceed five times theamoun-; of its paid-up share capital and reserves, but there is no limi-tation on its borro-wings from the Govurlurlent or its foreign excui8u borrow-ings. IDBP is authorized to provide financing only for industrial devel--opmenl., but may- make funds ava8iiable both for modernizing and boalacing t'X-

isting enterp)rises and for establishing new ones. liore specifically, theBDnk iLS aiuthlorlzea to conducT tne following types oI transactions:

(1) Advancing anid lending money and opening cash creditsfor the specific purpose of assisting an industrialconcern;

(2) G-uaranteeing loans, credits and debts raised orgranted to or incurred by an industrial concernand repayable within a period not exceeding 20years;

(3) Granting loans to or subscribing to debentures ofindustrial concerns;

(4) Selling and utilizing the proceeds of sale of allproperty whether movable or immovable;

(5) Underwriting the issue of stocks, bonds or deben-tures by industrial concerns;

(6) Drawing, accepting, discounting, buying and sellingbills of exchange and other negotiable instruments;

(7) Borrowing and granting credits in foreign exchange;

AIEWEX iPage 2

'8) Borrowing money for the purpose of its businessand giving security for money so borrowed bypledging assets or otherwise;

(9) Carrying out surveys of and research on industriesand maintaining statistics;

(10) Administering, as agent of the Central Government,such loans and in such a manner as the CentralGovernment may direct.

IDi3P may grant loans to limited companies, partnerships and soLeproprietary concerns. All loans must be adequately secured by pledge,mortgage, hypothecation or assignment of property, including prospectiveassets, and loans for fixed assets may not exceed 70% of the estimated val-ue of the assets offered as security. The terms of its loans may not ex-ceed 20 ;years, and the amount of any individual loan or guarantee may notexceed Rs 1.0 million (or Rs 0.5 million in the case of foreign exchangeloans) excent, with the annroval of the Gnvernmpnt. However- the Bank ma;yfinance without limit certain sectors of industry (mining, jute and cottonmanufacture, and inlinne transport).

Although IDBP's main responslbil+y is the financing of -mallenterprises, it is not required to confine its financial assistance tosuch enter-prises. It is aii+)1-4 7.f to fi- Pin!r'o nnnr +peC-,ni r,ellr anrd firn n

cially sound project within the framework of the investment schedules forthe private sector Tn n4'n+ ;+ m- C+ 'ri- rn.oPonno i-

(1). J industr-ie t 4- i JlJ.4.Acfltcb uQse u indiger.4d6 .eous raw4 mmateo llA ,J '

(2) industries wihich earn or save foreign esxchange;(3)D ~Ismial.Jl. and med1iw.-sUAML0Lize indLuLsLtrie WIchLLIIIa re ex-

pected to make the largest net contribution tonatioa4i.. -L o _ ;t 4 4. _.P 4 .. 4 -e n

IDBP-.L ZUi J.S Il makes technIIcLLLd4, Ji.Laia.WLC.L adIIU tecoUVoIIJ.c3 apprlsa}LsD

of projects submitted for financing, Projects recommended by managementfor financing are reviewed by a Technical Advisory Committee, consistingof engineers, industrialists and representatives of the Government and theState Bank of Pakistan and those approved by the Committee will be su'mittedfor final approval by the Board.

Besides appraising projects, IDBP's staff inspects and appraisesfixed assets offered as security and suoervises the execution of its pro-jects to insure that its funds are properly utilized. IDBP has a staff atpresent of about 50 engineers, economists and financial analysts; it ex-pects to engage consultants as and to the extent necessary.

ANNEX :;Page 3

IDBP took over all the business of PIFCO when it began operationson August 1, 1961. Including loans made by PIFO, the total amount oIloans approved up to August 31, 1961, was as foLlows:

Loans Sanctioned Amount Disbursed(in million Rupees)

Rupee Loans 17.42 1500Foreign Exchange Loans 13.08 7.14

30.50 22.11

At that date IDBP had under consideration applications from aboat250 industrial enterprises for rupee loans totaling nearly Rs 8.0 million.The Drincipal limitation on its lending activities is a lack of resource5s.especLally foreign exchange.

IDf3P has entered into an agreement with the West Palcistan Indus-trial Develonment Cornoration (WPIDC) to undertake leriding onerations infurtherance of the Corporation's Small Industries Development Program. Todate; Rs C.n million have been allocated to WTPTDC for that niirnose hv theGovernment and have been placed by it at the disposal of the Bank.

A -- t

Summary of Provision for Technical Assistance(r acl Uites anu Services) Lo bue ircluded in 'Propo±sedU LtA Credt t

for Two Industrial Estates at Gujranwala and Sialkot

ForeignTotal Exchange(In thous. Rupees)

A. Facilities (Capital Cost only)Small industries Service Institute, Lahore 1,100 350Light Engineering Service Center, Gujranwala 1,450 600Sports Goods Service Center, Sialkot 600 170Cutlery and Small Tools Service Center,Nizamabad 600 200

3,750 1,320788,000 277,000

Estimated IDA Contribution $385,000

B. Consultant Services1) Small Industries Service Institute, Lahore:

1 Senior Advisor (Management Consultant) witheconomic and engineering background

1 Industrial Economist with experience infinancial analysis

1 Expert in Industrial Engineering and pro-ductivity

1 Expert in Cost Accounting

2) 'iervice Centers on the Gujranwala and SialkotEsqtatesP.c anri at Nizam.abad:,ri

1 Machine Tool and W4orkshop Expert1 Expert in Woodworking1 Expert in the manufacture of cutlery goods

and s',_,l 1 +$t0olsVa.rious medium to short-term technicians in

:!C:e.- &1 i C!; f4 D1 An oro toi +h olf+l

of leather goods, specialised fabrics, knittedgoods, heat treatm.ent, el31ectropllatir.gp enamelln,14..annodizing, non-ferrous metal sheet rerolling,u Vo.Uuri- O work, etc.

IA CoA,r ibto Qon5°,U°U°V

C. £ llow "spa for .PdAbrL,i 'ersorruiel

TTIA ±b $ 5°b°°°A.JJ.J2%1ontUI± i U LUThLLII _'p U, UV

$i-p,i85,ooosay $1,200 000

IDA wTould contribute 100% of the foreign exchange expenditures and an esti-mated 21% of the local expenditures.

A --- rRd'JI'Z!A 7

Pakistan Imports ir, 1959 of Selected E'etal Products,

of Tools, and 1iachinery and Equipment, Farts and Accessories

(In thousand Rupees)

Wdest Fakistan Total

Implements 1,600.5 2,195.1Builders Hardware 182.7 362.1Metal Lamps 101.5 183.3Lamp Parts, Piiscellaneous 44.6 65.5Domestic Hardware 144.0 232.8Enamelled Ironware 119.5 322.7Hardware, .iisce.Llaneous 5,813.6 9,377.4Oil Engine Parts 3,657.9 4,340.0Typewriter Parts 376.9 524.3Sewing Machine Parts 3,301.6 3,552.6Bolts and Nuts 1,201.0 1,781.5Nails, Rivets, Washers 3,295.3 3,799.3Wire Nails 830.9 2.908.6Cycle Accessories 1,824.0 2,590.0Vehicle Part.s 26;441.1 32.161.0

Source. Cent -Iral Stat[listia.L Off iJ_ £e

Annual Report for 1959.

AFNEX 13Page 1

The Gost of the Estates at Gujranwala and Sialkot

Land Costs

The cost of the land is based on actual prices paid by WPIDC:Rs 12.25N (12.q7q) pnr aerp for the Guiranwala estate and Rs 1563o($3,2B4) per acre for Sialkot.

Development Costs

The cost of development includes the cost of preparing the land(layout and leveling); con.structing roads, landscaping -Ma, nn ins rna thewater supply-, sewage disposal and electricity systems; and the consultants'fee which is $< of the cost of developmentv, as descbed above, n onf, all

community buildings. In the case of electricity, provision has been madeonl for - 1tee lgv,+v sine te LJt,+- -A Td- ------ Deelpmen Authorlty

(WAPDA) will supply electricity directly to the occupants of the estates.

Community Buildings

Each estate would have the folloing non-rentable communitybu ldings - an administration building, dispensary and a Lire station, andthe following rentable community buildings - a manager's residence, can-teens, a postv office, buildings for commercial oanKs and tne IndustrialDevelopment Bank of Palcistan, a water works, a supply and marketing depotand a display center. A club house and guest house are expected to beconstructed either by YJPIDC or by the occupants of the estates.

ANNEX 8Page 2

TABLE 1

INDUSTRIAL ESTATE AT GUJRAINWALA

R.ti maft.pd Cani t.al Tnvpqtrmnnt.

(102 acres)

Rupees

1. Land Acquisition 1,250,000

2. Development and Basic Facilities:

(E) Site Preparation 8,600Ic)) -R-acls, Br-dges drin3 - -- 1,-40.0n~LJ ILUCUAL-) ~ 1£JLU± Ur, t,L djU iL4~

wiorks and culvertsI.Ic) Landscaping J.JAJ..LC

(cl) SelaLge Disposal System 353.¢800k '; t,J e±tricity System u143UUV(i') W4ater Supply 583,800

Subtotal 1,600,720

(g) Contingency 160,072

Total 1,760,792

3. Non-Rentable Corrmunity Buildings 119,000

Contingency 11,900

Total 130,900

4. Rentable Community Buildings 299. 000

Contingency Pq,j9nn

-Th-q + t2 I 900±m Pq

TotalI investme.rn.nt C.

AINNEX 8Page 3

TABLE 2

INDUSTRIAL ESTATE AT SIALKOT

Estimated Capital Investment(100 acres)

Rupees

1. Land Acquisition 1,563,000

2. Deve:Lopment and Basic Facilities:

(a) Site Preparation 16,000(b) Rorads Drainage Works and Culverts 4!98,ono(c) Landscaping 40,000(dI) SEDW.-, age+ 0i-4s nyt 25oo((e) E:Lectricity System 156,00()(f) iljatr Supl 57 7,100)r

1,522,10()

IV UL.L L ,) I £4, )%L J

M-n fl~4. .. L - - .L.. ty 1- rigs:Jn-'eta11LHU±eCrnLL .U -vlILI±U L ULL±J± -L;,0U

Contingency _______

Total 130, 900

4. Rentable Cormmunity Buildings 299,000

Contingency 29,900

TPotal 328,900

5. Consultant's Fees 106,705

Total investment 3,803,815

ANNEX E9Page 1

Assumptions for Estimates of Capital Requireinents for (a) Factory Build-ings and Artisans' Wdorkshops and (b) Machinery and Equipment for the

Proposed Industrial Estates at Gujranwala and Sialkot

Size of Estates and Area Used for Factory Plots

The sites selected for the Gujranwala and Sialkot estates havean area of respectively 102 and 100 acres. It is planned that about 727'of the total. area of each estate(some 3.2 million square feet at Gujran-.wala and some 3.1 million sauare feet at Sialkot) would be usable forfactory plots

Floor Space for Factory Buildings

Regulations for the estates provide that factory buildings shouldocCrinv no more thm.n c: of' nln+_.. of 1iA'fnn_ Ictl of nlnot.q of 1().000 snuare_ , -- - - - . - -_ , - - - - -, _ _ - - - _ - - - - - - _ _, _ _ _, ,feet and 60% of' plots of 5,000 square feet. WPIDC's consultants assumedthAt. n1 1a IDu}i,-ei uvr-Q ,.w ml, A b a -s lr a rypemi, ible, However/_ the fi rst

applications for admission to Gujranwala and preliminary inquiries aboutSilkot in,dicat,e that -m-any prospectiv o ts pl-n tpt up sr,lerbuilidings than would be permitted by the regulations) Based on these aoppli-cations and iinquirie.-sp it has beer Psu,e htuemorsae of faczr

buildings on each estate would be equal to about 40% of the total area ofland used for P-4to- plots, or 1.3 On lo square feet at-4 -l -uw' an11 U~ .L.L JCA. U±) jJJ VU.A. , U.L ..Lo..YJ HII.L.L.L4.VUI D1_UcXLLd. - L- A C6'. L .UJ. A (1

1.25 million square feet at Sialkot.

Cost of Factory Buildings

W,PIDC's consultants estimated the cost of constructing factorybuildings at Rs 20 per square foot of covered floor area. Estimates ofcurrent costs obtained by the mission in Pakistan ranged from Rs 8 to Rs20 and averaged Rs 13-14 per square foot; in India, they averaged Rs 14per square foot. Allowance has been made for possible increases in con-struction costs and it has been assumed that building costs would amountto Rs 17 per square foot of covered floor area on the average, or Rs 22.10million at Gujranwala and Rs 21.25 million at Sialkot.

Cost of Artisans' Workshops

The cost of constructing a 600 square feet artisan's workshophas been estimated by WPIDC's consultants at Rs 10,000; in total, build-ing costs of 50 workshops would amount to Rs 0.5 million for each estate.

Cost, of Machinery and Equipment of Occupants

Republic Engineering estimated that the cost of machinery andequipment would be equal to the cost of the factory buildings (i.e., REs20 per square foot). Professor Bredo of the Stanford Research Institute

ANN EX 9Page 2

w^ho hoc! beeno advising t51thee Paolb,sswa ofovjC.ernmnent on ;y nSicrd'u ; t:1r ct.tc c.

mated the cost of machinery and equipment first at Rs 15 per square footand later at Rs 30 per square foot. All e e ae

none of tlhem are supported by studies of costs.

In an attempt to establish a firmer basis for this estimate, theissOCion1 U made s Lme 14Ut:± dLUUUI.. ULt th value of IICLULrL.L y ii lace lI rZ;-

presentatiive small industrial establishments in Pakistan and India. Itreceived estimates ranging from Rs 8 to Rs 2h per square foot and averagVingRs 15 per square foot. These estimates were of course depreciated values;the cost of new ecquipment would be nigner. Although establishments on thrieestate would be expected to be more mechanized than establishments ofexisting enterprises, tnis would probabiy be offset by the fact that theformer would be less crowded. Overall, therefore, an estimate of the cost(new) of machinery and equipment as Rs 22 per square foot of factory spaceseems adequate.

If all the machinery and equipment used on the estates were pur-chased new, the cost would thus be about Rs 28.6 million at Gujranwala andRs 2c7.5 million at Sialkot. However, part of the machinery and equipMentwould be brought to the estates. VWPIDC estimates that 70% of the enter-prises on the estates would be already in operation and would bring halfof their equipment with them. For our estimates, it has been assumed,more generously, that only half of the enterprises would bring machineryor equipment ;with them and that such machinery would constitute about 30%of their total requirements. On that assumption, the cost of newly pur-chased equipment would amount to Rs 24.3 million at Gujranwala and Rs 23.4million at Sialkot.

A number of firms in Pakistan. notably the Batala EngineeringCorporation, Lahore, produce relatively hiigh quality machinery. It doesnot seem unreasonable to assume that as much as 506/v of the new machineryto be installed on the estates could be purchased from domestic producers.

WEST PASTAN.

INDUJSIRiAL ESTA ES FORSMALL INDUSTRIES --- : N

Peshawoc __

(TO EIE ESTABLISHED DURING SECOND *. * . : .FIVE YEAR PLAN) I RAWALPINDI® ;K

:- ~~~OBANNU /}) jwvE Gur ato5 Sizkot ¢

Ouett * I

IV ULT N Sj ~ , 1

-. Sukkur.. -

f '. ~~~~~~~~~~~~~~~~~Locations ( excluding Karac hi)|t "t --- ~~~~~....... and planned sizes oflIndustb ial

, ~~~~~~~~~~Estates to be established by the

. ~~~~~~~~~~opnient C or poration

0- _1 Under consideration forN %J, IDA credit

__ , , ~~~~~~~~~~~~~~~~~~~~ ~ ~ ~~~50 loo Areas in acres

20HYDERABAD

3_KARACHI .|

,7~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I L OCTOBER 1962 18RD-948R