A lot has been recommended for the revival of sick industrial units. Before we think about reviving such units, we need to first consider the causes of their sickness, only then, can any remedies for their revival be considered.

It is a well established fact, that a healthy industrial sector makes for a healthy financial sector, and unless, goods markets are healthy and vibrant, financial market cannot be the same. This holds for any country.

Many industrial units in various industrial sectors in Pakistan suffer from “sickness”, which without going into the details, I would confine myself as meaning unable to remain solvent, let alone profitable.

The diffrent governments at different times have taken measures to resolve the problem of sick units. These included: giving banks the option of converting the non-performing loans of the sick units into equity (as mentioned in the State Bank’s Annual Report 1994-95, p. 82); or rescheduling the loans of these units, with the hope that the units will again become solvent; or liquidating the business and selling off its real assets, if nothing else works.

It is important, however, that before any measure is undertaken, to establish whether it is worth reviving the unit at all. In industrialized countries, like the US and the UK, where capital markets are well developed, and there exist active markets for corporate control, the process of allocation of capital to its most efficient use is achieved rather easily, as sick or under-performing units, are either liquidated or taken over by healthy units.

However,in Pakistan where neither active markets for corporate control exist, nor are there enough active entrepreneurs / managers who would take over and revive a unit, any measure to revive a unit has to be carefully considered.

In today’s highly competitive world, where technological changes are occurring at a mind boggling pace, and locating production knows no boundaries, a country and its industry, which has not kept pace with the world cannot hope to survive. The same is true for Pakistan. Many industrial units, in fact industries, are sick and the question of reviving a unit in any industry, has to be seen in the broader context of the state of the industry itself in Pakistan and in the world as a whole.

What I mean here, is, is there a point in reviving a sick unit using outdated technology, in an industry which perhaps is already having over capacity in Pakistan, and is declining around the world? A sick unit in the tobacco business could be a possible example.

To elaborate upon the point I just make, I would like to consider a hypothetical example of a sick unit in the spindles sector within the textile industry.

The textile industry is currently considered the backbone of our economy, but like many other industries, is beset with many sick units, in many sub-sectors. Before we blindly try to revive these units, we need to consider the question seriously and then decide.

Around the world, the textile sector has experienced rapid rises in productivity, and only those countries and industries within them, have been able to survive which have kept pace with these technological changes.

Unfortunately, Pakistan as a whole is not one of them. Our textile sector is still largely low value added based, and many of its sub-sectors suffer from excess capacity and that too is outdated.

According to figures quoted in Zaidi (1999), and taken from Pakistan Economic Surveys, although the installed spindles had shown an increase of over 440 percent by 1994-95, over a period starting from mid-1950s, the actual capacity utilization had declined from a peak of 97 per cent in the 1950s and 1960s to about 72 per cent in 1994-95. Clearly our spindles sector shows excess capacity. Such is also the case with the looms sector.

So far as productivity in our overall industrial sector is considered, Wizarat’s (2002) empirical work, clearly highlights the fall in productivity across the board in almost all sectors. Using total factor productivity and labour productivity indices as measures of productivity, Wizarat (2002) finds these to have declined steadily in Pakistan from an all time peak in 1965-66.

Among other reasons for low productivity, Wizarat finds greater exposure to foreign trade to be adversely affecting the productivity in the industrial sector. According to Wizarat, while imports may be adversely impacting by exposing industry to foreign competition, negative effect of exports could be explained with the help of Kreuger’s argument that LDCs export simple products which have low productivity growth.

Clearly the low productivity in our textile sector, dominated by low value added sub-sectors, can also be explained with the help of above argument.

Highlighting the need for moving into higher value-added in textile sector, the SBP’s Annual Report for 2000-01, stresses the need for the same, as these sectors are less prone to suffer due to vagaries of nature, which so severely affect the sector, as well as our GDP in case of any misfortunes in the cotton crop.

Coming back then to the basic theme of this article, the decision and efforts to revive any sick industrial unit in any sector needs to be clearly seen within the large context of the overall state of the industry in Pakistan and its position within the world context.

Perhaps the sickness is economically justified, and is not just due to mismanagement. In such cases, the question of revival has to be clearly weighed against the option of winding up the business altogether, so that whatever resources remain are freed for more efficient uses and good money is no longer thrown after bad.