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Marble and Granite Sector Strategy
Marble and Granite Sector Strategy
2006
Contents
Acronyms 1. Executive Summary 2. Profile and Assessment of Industry Competitiveness 3. Vision and Strategy for the Marble and Granite Industry 4. Description of Strategic Initiatives 4.1. Raise Value Chain Productivity 4.2. Improve Industry and Market Information 4.3. Strengthening Policies for Increased Productivity and Competitiveness 4.4. Invest in Workforce Development 4.5. Strengthen Industry Organization and Supporting Institutions 4.6. Special Initiative: Assist in Rehabilitation of Earthquake affected Areas 5. Prioritization and Sequencing of Initiatives 6. Expected Impact and Conclusion Appendix 1. Overall Summary of Industry Competitiveness: Porter Diamond 2. Industry Definition and Market Segmentation 3. Industry Statistics 4. Social Value and Role in Poverty Reduction 5. Market Analysis 6. Competitive Position of Domestic and Regional Competitors 7. Cluster Maps 26 28 33 35 36 38 40 4 6 10 14 16 16 19 22 23 24 25
Acronyms
CFTC: FANA: FATA: GOP: ML: NWFP: PL: PCSIR: PISDAC: PSDC: SRO: SWOG: TUSDEC: UET: Common Facility Training Centers Federally Administered Northern Areas Federally Administered Tribal Areas Government of Pakistan Mining License North West Frontier Province Prospecting License Pakistan Council Scientific and Industrial Research Pakistan Initiative for Strategic Development and Competitiveness Pakistan Stone Development Company Statutory Regulatory Order Strategic Working Group Technology Up-gradation and Skill Development Company University of Engineering & Technology
1. Executive Summary
Pakistan has enormous reserves of marble and granite. Currently over 40 types of natural color marble are known to be mined, and initial estimates indicate 160 million tons of marble reserves across Pakistan and 414 million tons of granite reserves in the Northern Areas alone, with more reserves spread over NWFP, Balochistan, and Sindh. In 2004, nearly 2000 quarries and 1500 processors produced an estimated 100 million square feet of marble and granite, of which 97% was sold domestically earning a total of Rs. 1.7 billion. Exports were just 3% of total sales but earned Rs. 1.34billion, over 25 times the unit value of domestic sales. The Marble and Granite Industry in Pakistan is severely underdeveloped. At the quarrying level, productivity suffers from indiscriminate blasting, poor quarrying techniques and lack of infrastructure for handling and transportation. The processing industry suffers from low capacity utilization, lack of modern technology and skills and limited value addition. Even in the domestic market, the final product is uncompetitive compared to lower priced, higher quality imports. There is significant wastage at every step of the value chain. Although the industry currently represents a small fraction of the GDP and less than 1% of current exports, the potential to raise exports and foreign exchange, and deliver value to rural areas is immediate and significant. It is in this context that the Pakistan Initiative for Strategic Development and Competitiveness Project was launched by the United States Agency for International Development. The project is implemented by J.E. Austin, a U.S. management consulting company working in partnership with Pakistans Small and Medium Enterprise Development Authority. As part of the initiative, a group of committed industry stakeholders agreed to form a Strategy Working Group (SWOG) to address how the industry could reposition itself through a better strategy. The SWOG has developed a strategy shared and agreed to by the private sector and the Government of Pakistan. The SWOG itself has become a recognized private sector led platform on which all the key players in the value chain, including the public sector have come together. The Strategy focuses on upgrading the entire value chain through the following initiatives: Raise Value Chain Productivity Establish 10 model quarries to increase the supply and improve the quality of stone; Identify gaps in supporting services (transportation, financing) and facilitate cluster development and co-investment in shared facilities and services through model quarries. Improve Industry and Market Information Compile comprehensive marketing database on types and specification of stone supply to develop product information for international buyers. Strengthen Policies for Increased Productivity and Competitiveness Strengthen security of land leasing contracts: work with high-value mining sectors (gems, rare earth metals) to develop regulation and enforcement framework for structuring long-term leasing contracts; Gain the highest industry status for the marble and granite industry;
PISDAC USAID Pakistan JE Austin Associates, Inc. 4
Phase in ban on indiscriminate blasting; Improve quality of supply across the value chain; Work with government to increase level of local stone usage in government buildings. Invest in Workforce Development Deliver on-site practical training in modern quarrying practices and technology through model quarry training program; Establish Common Facility Training Centers (CFTC) for model processing and training to serve as a platform for upgrading skills and technology across the supply chain and support the development of value-added activities; Develop world-class valuation (prospecting and planning) expertise in Pakistan to support future investment in the sector. Strengthen Industry Organization and Supporting Institutions Establish Pakistan Stone Development Company to co-ordinate implementation of strategic initiatives and provide support to the sector; Develop mining specific financial services. Assist in Rehabilitation of earthquake affected areas Establish 10 mechanized model quarries for the Mansehra - Balakot regions to rehabilitate the local population. NWFP, FATA and Balochistan are the main marble and granite producing areas of Pakistan. These are also some of least developed regions. Development of the Marble and Granite sector will lead to higher income opportunities in these areas. Processing clusters will move closer to quarrying which will lead to rural development. Training of labor will increase labor productivity, leading to higher income levels. Skill up-gradation will also create better quality jobs in rural areas reducing the trend of urbanization. As marble and granite clusters develop, allied industries will grow leading to greater employment and income opportunities. With the implementation of the strategy, the SWOG expects that by 2015, wastage will reduce from the current level of 85 percent to 57 percent, total revenue will increase form PKR 2.44 billion to 161.6 billion and exports will increase from USD 23 million to USD 2.44 billion. The main body of this document outlines the strategy and specific initiatives in more detail, supported by an industry profile and key supporting data. A more detailed industry analysis is appended to this document for reference.
In 2004, nearly 2000 quarries and 1500 processors produced an estimated 100 million square feet of marble and granite, of which 97% was sold domestically earning a total of Rs. 1.7 billion. Exports were just 3% of total sales but earned Rs. 1.34billion, over 25 times the unit value of domestic sales. While a comprehensive survey of reserves has not yet occurred, there is little doubt that Pakistan contains enormous reserves of marble and granite. Currently over 40 types of natural color marble are known to be mined, and initial estimates indicate 160 million tons of marble reserves across Pakistan and 414 million tons of granite reserves in the Northern Areas alone, with more reserves spread over NWFP, Balochistan, and Sindh. Yet, the Marble and Granite Industry in Pakistan is severely underdeveloped. At the quarrying level, productivity suffers from indiscriminate blasting, poor quarrying techniques and lack of infrastructure for handling and transportation. The processing industry suffers from low capacity utilization and limited value addition. Even on the domestic market, the final product is uncompetitive compared to lower priced, higher quality imports. There is significant wastage at every step of the value chain. A value chain analysis recently conducted by the industry shows that 73 percent of the Tons/Quarry /Mnth potential volume is wasted at the extraction 2,500 2,250 and transportation stage due to 2,000 underdeveloped quarrying methods and 2,000 antiquated technology. Stone that is extracted 1,500 through indiscriminate blasting is inconsistent 1,000 and in irregular shapes. Of this, 3 percent is cut 425 500 into square blocks for the purpose of exporting. 0 However, the process of cutting square blocks Spain Italy Pakistan still leads to 50 percent wastage, so only the Source: www.stoneworld.com remaining half is exported. Out of the 97 percent that is locally processed, there is an additional wastage of 45 percent; 5 percent is converted into slabs and the remaining 50 percent into tiles. Three percent of the slabs are exported and the remaining slabs are consumed by the local market, whereas 2 percent of the tiles are exported and
Quarry Productivity: Average Monthly Production per Quarry
the remaining 98 percent is consumed by the local market. The cumulative wastage is 85 %1. The current value chain is illustrated in the diagram below.
Export $1.01 Million
3%
97%
98%
Net Extracted
2%
85 % Net
Source: Federal Bureau of Statistics, Director General Mines & Minerals, Industry
Quarrying Industry As mentioned above, quarrying techniques in Pakistani quarries are primitive. Uncontrolled blasting is a common practice. In the majority of the mines basic machinery and equipment like compressors, drill sets and lifters are not available. This not only leads to colossal wastage, as illustrated above, but also to low production at mines. Uncontrolled blasting destroys value throughout the value chain. The 27% of stone that is transferred to processors is all in the form of irregular blocks. These blocks then need to be cut into square blocks or into useable pieces for processing, adding additional cost and wastage to the chain. There is also a lack of education towards the importance of good prospecting and practices such as topographical mapping, geological surveys, environmental management and physical testing of the stone. Proper quarry management and investment is constrained across much of the country due to lack of formal property rights and contract enforcement. Land is owned and regulated by the provincial governments. All quarries are then leased by the provincial government to investors and quarry managers. However, leases can and do get canceled without notice and passed to a new investor. As a result, there is no guarantee or predictable conditions under which an investor can be assured that they will be able to generate expected returns on an investment. The risk of having the institutional rug pulled out from underneath them means that investors and quarry managers currently have no incentive to invest in the long-term productivity of their businesses and are forced to adopt a short-run mindset. Most quarries operate under a blast and run strategy, maximizing the short-term value of the quarry under the risk that their lease could be canceled at any point, but undermining the long run value of the quarry for both the business and the economy. Processing Industry The processing industry for dimensional stones in Pakistan started to develop in the late sixties with the housing construction boom. At the time, much of the demand was for low cost, low quality, locally processed stone produced by local processing equipment. The mid-seventies brought imported plants from Italy. Initially, the plants were second generation machines that were barely capable of cutting slabs and tiles at high speed and were operated by inexperienced technicians with limited quality consideration. Today, there are still very few processing units with a complete range of machinery and equipment capable of processing stone in accordance with international standards. Utilization of these units is barely half of their installed capacity due to inappropriate raw material and lack of technical skill. There are only about 25-30 units which all have appropriate machinery to do one of the sequential activities: cutting slabs, cross cutting, polishing. The FATA marble and granite clusters provide a useful illustration of the structure of the industry. At present, processors produce irregular slabs and transport them to a second set of processors in Peshawar, Lahore, Karachi, and Islamabad at low prices/sq ft. About 2% of the processing sites are using gang saws to produce irregular slabs because the blocks extracted themselves are irregular. They are then sold either in the market or to processors that use them to make cut-to-size tiles. Across the value chain, processors lacks advanced stone working skills, and are unable to capture the total value of the products they produce. For example, due to lack of up-to-date equipment and the skills to use such equipment they have no facility or ability to:
Carry out quality polishing of stone slabs or other products they produce; Appropriately size tiles into 12x12x1 inch tiles to 12x12x1/2 inch tiles as demanded by the market; and Chamfer 2 the polished cut to size tile. The absence of the above-mentioned capacity and the requisite equipment prevents quality processing and results in a lower market value for the stone produced. As a result, processors at FATA lose 30% additional income that could be earned through proper processing of the stone. Quarry managers and processors alike lack knowledge of the properties of locally available stone that would enable them to decide the best and most appropriate uses of the stone. Furthermore, there no are training opportunities and/or facilities for people to learn modern dimensional stone processing techniques.
70%
Local $240 Million 90% 8% Tiles Local $9.4 Million Export $66 Million 55% Blocks Squared 4%
Handicrafts & Finished Products
30%
30%
70%
90%
70%
45%
30%
57% Net
The following strategic initiatives have been identified to achieve this vision: Raise Value Chain Productivity The first step in transforming the marble and granite industry is to upgrade the supply of stone through better quarrying practices and improved support infrastructure. This will involve introducing new technologies and techniques and facilitating the development of supporting facilities and services. The core initiatives identified to raise productivity are as follows: Establish 10 model quarries to increase the supply and improve the quality of stone by: o Demonstrating international best practice quarrying technology and processes; o Setting a precedent for a secure leasing and regulatory environment; o Catalyzing the development of higher value supporting services; o Serving as a training hub for the quarrying industry; Identify gaps in supporting services (transportation, financing) and facilitate cluster development and co-investment in shared facilities and services through model quarries. Improve Industry and Market Information Investments in productivity enhancement must be supported by concerted efforts in collecting reliable industry and market information. Industry data regarding stone properties and appropriate applications is non-existent. The demand is currently not driven by the consumer. Supply is
PISDAC USAID Pakistan JE Austin Associates, Inc. 11
dependent entirely on what is extracted, rather than what the market demands. There is lack of market research on international demand trends and different appropriate usage of stones. In an effort to improve alignment between stone supply and market demand, the industry plans to undertake the following initiative: Compile a comprehensive marketing database on types and specification of stone supply to develop product information for international buyers by: o Contracting geological institutes to conduct testing on stone specifications; o Developing region specific product database/marketing materials on stone specifications. Strengthen Policies for Increased Productivity and Competitiveness The current regulatory mineral policy is not implemented properly. Surface rent agreements between the lease owner and the local inhabitants are loosely defined and are not regulated by the mineral departments. Quarry leases are often revoked due to inconsistent political conditions and frequent reshuffling of the bureaucracy. In order to ensure a more enabling policy environment, the industry recommends the following reforms: Strengthen security of land leasing contracts: work with high-value mining sectors (gems, rare earth metals) to develop regulation and enforcement framework for structuring long-term leasing contracts; Gain the highest industry status for the granite and marble industry; Establish minimum quarrying standards by phasing in a ban on indiscriminate blasting; Improve quality of supply across the value chain by: o Establishing quarry and equipment collateralization framework to facilitate upgrading of quarrying technology to meet standards; o Developing quality control processes at all stages of quarrying and processing; Work with government to increase level of local stone usage in government buildings. Invest in Workforce Development A skilled, specialized workforce is essential for raising the productivity and competitiveness of the marble and granite sector in the long run. There are currently inadequate training opportunities for both quarrying and processing and limited knowledge of modern practices and technology. There is also a lack of prospecting and planning expertise in Pakistan. The industry has identified the following initiatives to support workforce development: Deliver on-site practical training in modern quarrying practices and technology through model quarry training program by: o Training trainers by integrating team of experts with local institutions & experts for onsite practical training; o Collaborating for funding of pool of experts for model quarry training program (EPB, EU, etc.); o Working with training institutions (e.g. Peshawar University, CE, UET Peshawar, Engineering University Khuzdar and NED Karachi) to develop 10 week certificate courses in quarrying and prospecting; Establish Common Facility Training Centers (CFTC) for model processing and training to be a platform for upgrading skills and technology across the supply chain and support the development of value-added activities by:
PISDAC USAID Pakistan JE Austin Associates, Inc. 12
o Training the workforce in value added activities; o Providing shared facility for processors to learn and use value-add technologies; o Conducting crafts training in handicrafts and mosaics for small-scale artisans; Develop world-class valuation (prospecting and planning) expertise in Pakistan to support future investment in the sector. Strengthen Industry Organization and Supporting Institutions A formal, inclusive platform would ensure implementation and continued up-dation of the Marble and Granite strategy, provide marketing, research and technical support to the sector, and continue the private-public sector dialogue to ensure policy reforms. To strengthen industry organization and supporting infrastructure, the industry plans to: Establish Pakistan Stone Development Company to co-ordinate implementation of strategic initiatives and provide support to the sector; Develop mining specific financial services. Assist in Rehabilitation of earthquake affected areas Due to the earthquake on October 8, 2005, most of the quarries in Mansehra and Balakot have closed down. In order to revitalize these quarries and provide support to the governments rehabilitation program, the following initiative has been proposed: Establish 10 mechanized model quarries for the Mansehra - Balakot regions to rehabilitate the local population.
13
Expected location of quarries: FATA (1), NWFP (2), Northern Areas (1), Punjab (1), Balochistan (3), Sindh (2).
PISDAC USAID Pakistan JE Austin Associates, Inc. 14
Once the quarries are short-listed, a quarry cultivation plan will be developed by an expert using geological and topographical mapping data for each selected quarry. Quarry development will be based on this cultivation plan, implemented by a quarry master. All the physical and material testing (in accordance with internationally recognized standards) will be paid for by the quarries themselves and can be carried out by institutions such as National Center of Excellence, Materials Testing Lab, Pakistan Center for Scientific and Industrial Research and the Geological Survey of Pakistan. Once the model quarries are selected, each quarry will be assessed on the investment needed for upgrading quarrying, handling, and transportation technology. Quarry investment is expected to be co-financed by the government and private financing. Once initial staff is trained and the quarry is operational, the model quarries will become a center for training and workforce development. The Model Quarries are going to be set up within major quarrying clusters to demonstrate best practices. The catalytic effect of the model quarry within a cluster will encourage more investment in machinery and better prospecting. The cluster will upgrade itself over time with the upgraded mechanized quarries controlling wastage considerably, bringing it down from a staggering 73% due to indiscriminate blasting to 45%5. The detrimental impact on the environment due to indiscriminate blasting will be mitigated. The waste generated from new quarrying practices will be utilized in value added handicrafts. Model quarries will engage in extracting square blocks through minimum wastage of stone which will in turn result in lower wastage at the processing stage (less than half). Greater value per metric ton of stone will be achieved in the local market. Currently, rough boulders fetch an average of Rs.1200/ton as opposed to Rs.4000/ton6, the projected value of square blocks. The skill level of the workforce will be upgraded and the average income of a quarry worker will increase by almost a 100%. Exports will go up considerably due to more consistent supply and quality of stone. The 10 Model quarries will train 12 master trainers in the first year and at least 100 skilled quarry masters, quarry technicians and other skilled workforce by the end of second year.
industry and outline how these industries can expand and target services to marble and granite. The SWOG team will work with the supporting industries to understand the constraints to their ability to offer services to marble and granite and work with the government to ease such constraints. Overall capacity building in terms of basic infrastructure, roads, utilities and supporting services such as mechanics, machinery spare parts shops, tyre shops, weighing stations, fuel pumps and road side hotels will act as an incentive for investment and growth. Since the industry is a weight losing one, emergence of supporting infrastructure and businesses will encourage processing facilities to move closer to the quarries, providing employment opportunities to the local rural population. The result will be greater employment and income generation leading to overall rural development. Cluster development will also result in higher productivity through better management of the supply chain and stronger linkages and alignment within the value chain, leading to an increase in domestic and international sales. A heightened understanding of processors needs by the quarrying sector will lead to higher value products.
at any given time, without prior notification. This ownership structure undermines the incentives for the landowner and lease owner to seek the most profitable use of the quarry over time. This incentive structure results in low value blasting where the quarry manager does not face significant risk of lost investment if his lease is canceled. In some areas (NWFP, NA) this issue has been resolved by installing an independent governing body to ensure that leasing contracts are upheld. However, in Balochistan lease security is still a major constraint to investment. In addition, site security and law enforcement in some key areas is weak for profitable quarries using modern technology. Once a quarry is known to be valuable and profitable, informal and formal rent-seeking activity and site sabotage becomes a risk. This again creates a disincentive for profit-maximizing investments. These security issues are affecting all sectors of the mining industry and will require collaboration and coordination across the entire mining sector for complete resolution. Leasing and site security are cross-sector constraints that affect all businesses operating in FATA, FANA, Sindh and Balochistan. Resolution of these fundamental issues must happen before large scale economic development can occur in these regions. However, marble and granite cannot wait for the institutional environment to be resolved. Leasing and site security are necessary prerequisites for the establishment of model quarries and any additional foreign investment that is promised. The establishment of the model quarries offers a unique opportunity to reset ownership structures and incentives to ensure the full value of the quarry is extracted with as little wastage as possible. Each model quarry in conjunction with the local authority will be required to submit an agreed contract and security plan. These plans will then be reviewed by the government and financing agents for enforceability. Any concerns must be addressed prior to investment. The model quarry contracts, security plans and their implementation will set a precedent for future quarry investments. The SWOG plans to review the Mining Concession Rules and propose regulatory reforms and an enforcement framework for structuring long-term leasing contracts. The SWOG will lobby with the Government of Pakistan and the concerned regulatory departments. The SWOG also recommends forming community consultative bodies to resolve lease agreement disputes and surface rent issues7. Secure model quarry leasing contracts and their implementation will encourage strengthening of lease regulations. This will eventually result in a more defined lease regulatory framework, and will in turn lead to greater security and increased local and foreign investment and joint ventures. Due to secure leasing contracts, quarry owners will invest in quarry machinery. An average of Rs. 30 million per quarry in added investment is expected. Secure investments will also encourage greater investment in infrastructure by the private and public sector.
Such consultative bodies already exist in NWFP and have proven to be successful.
17
The SWOG will liaise with the government of Pakistan to attain industry status A. This will facilitate bank financing, thereby encouraging more investment in the industry. It will also lead to an increase in exports.
18
19
The absence of the above-mentioned capacity and the requisite equipment prevents quality processing and results in a lower market value for the stone produced. As a result, processors lose 30% additional income that could be earned through proper processing of the stone. Quarry managers and processors alike lack knowledge of the properties of locally available stone that would enable them to decide the best and most appropriate uses of the stone. Furthermore, there no are training opportunities and/or facilities for people to learn modern dimensional stone processing techniques. The prioritized FATA CFTC, and the additional CFTCs to be established once the FATA CFTC is operational, are intended to overcome the current deficit in training and processing skills. Once operational, the CFTCs will provide skills based/vocational training that will train processors, their workers, and new entrants to improve the processing of stone. The CFTCs will assist the local industry to capture the value that the area loses due to unavailability of a properly equipped and managed model processing and training facility. The CFTC will demonstrate use of upgraded and new equipment and train the local industry to use up to date stone processing techniques and practices. The CFTC will provide common manufacturing facilities with the latest equipment to be availed by processors. This will allow them to produce higher quality product without substantial investments, increase their sales and thereby encourage them to invest in up-grading their units. The training aspect of the CFTC will have two major components: Training in processing of stone to produce better quality products for all the current product lines such as tiles, and introduce new products based on new skills development and market demand; Training in manufacturing of household handicrafts and mosaics, improving the quality of current products, and improving skills so that the local industry can effectively use upgraded technologies that enable an expansion of product lines. In addition to the above-mentioned components, the CFTC will also train processors and workers on basic management and business development skills. These will include: Checking for the overall quality of the products and improve packaging for the market; Developing improved sales, purchase and services skills; Selecting and purchasing stone waste and blocks for processing into handicrafts, mosaics and other products developed by the CFTC. The CFTC will have a demonstration department which will sell the products manufactured at the CFTC and by those processors using its facilities. The CFTC will be designed to be partially selfsufficient in its second year of operation and almost if not fully self-sufficient by year three based on profit sharing with producers resulting from the production and sales of products, fees from use of its equipment and from its training courses. Realistically, the income generated from sales and fees may not reach a level that enables the CFTC to be 100% self reliant with respect to its costs. In that case, the CFTC will seek local Government funding for its training operations to be phased out with three to five years as the CFTC production and sales operations grow and are formed into a separate business profit center to help finance the CFTCs operations.
20
The CFTC will result in the following: Better quality jobs in terms of working conditions and income resulting from improved skills imparted by the training; Reduction in quarrying waste through its utilization in making of better quality and better designed handicrafts and mosaics; Increased direct and secondary job creation supporting poverty alleviation in the FATA; Increased investment, production and higher wages as a result of higher demand and improved quality products; Infrastructure development. Specifically, for the first CFTC planned in FATA targeted results are outlined below: Skill development, Job creation, Poverty alleviation, and Development of FATA rural economy Presence of a CFTC in FATA will produce a skilled workforce and provide an incentive for investors to move to FATA, thereby increasing employment in the region. The Mohmand Agency and Khyber Agency have about 650 processing sites employing approximately 13,000 people. Establishment of the CFTC would lead to an increase in the skill and income levels of workers. Proper quarrying and increased processing at FATA will also have an expansionary effect on the income of local processors and quarry owners. Use of stone waste to produce high value products like handicrafts will engage more people in the sector. FATA can also increase the production of decorative tiles by engaging more women in the sector that specializes in making mosaics. The mosaic tiles have a high demand both locally and internationally. These women use small cubical pieces of waste stones to join them to make decorative tiles. Therefore, the project will also help women to contribute to the productivity of the sector and to their household income. Training of labor to use different processing machines will increase labor productivity, which will lead to a wide range of quality products and higher income. Workers would learn about the stone properties found in FATA and thus they will have a better idea of how to mine it. Environmental Impact The CFTC by using benchmarked technology and skill will result in better capacity utilization and lower levels of wastage at the processing site. CFTC will also practice and demonstrate proper handling of the slurry produced during processing, which will mitigate the harmful effect to the environment. Part of the waste stone will be utilized in handicrafts and mosaics, reducing overall wastage levels. Infrastructure Development Higher income and increased investment will have a positive impact on infrastructure development of the quarrying areas. Increased production of processed stone will result in a greater need of transporting the mined & processed stone to the local markets. As such, the investors and government would invest in roads for smooth transportation of stone. Higher traffic of trucks on roads will lead to establishment of small businesses like restaurants for truck drivers and utility shops providing more employment opportunities.
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This will allow the mining industry to invest in up gradation of technology and will further encourage new investors to enter the industry.
23
24
2015 57%8 380 million sq ft PKR 161.6 billion9 USD 2.44 billion 4.18% 2.31%
85% 100 million sq ft PKR 2.44 billion USD 23 million .16% .038%
According to Industry estimates, the implementation of the strategy would result in a primarily export oriented industry with predominantly high-end products. The projected exports by 2015 are estimated at $2.44 billion, mainly comprising of slabs, handicrafts, mosaics and other value added products. Projected exports are assumed to be 70% of the total production while 70% of the finished product is high end slabs and handicrafts priced at international prices. This assumes that the international market continues to grow at 8 percent (it is currently at USD 22 billion) and that the global market will absorb all of Pakistan exports. NWFP, FATA, Balochistan and Sindh are the main marble and granite producing areas of Pakistan. These are also some of least developed regions. Development of the Marble and Granite sector will lead to higher income opportunities in these areas. Processing clusters will move closer to quarrying which will lead to rural development. Training of labor will increase labor productivity, leading to higher income levels. Skill up-gradation will also create better quality jobs in rural areas reducing the trend of urbanization. As marble and granite clusters develop, allied industries will grow leading to greater employment and income opportunities.
8 9
International Industry benchmark value Assumption: 90% raw material locally processed- 70% higher value slabs produced- 70% of the total stone exported at international market rates.
25
26
+ + -
Good industry relations with workers Improving public-private sector dialogue Limited cooperation amongst firms Limited marketing strategies for international markets Price-based competition resulting in poor quality and limited value added Access to quarries granted and controlled based on personal relations with local leaders
Demand Conditions
+ + -
Abundance of good quality stone Low cost labor Rudimentary quarrying practices Low capacity utilization and limited value addition during processing Poor regulatory infrastructure/mining laws
+ + +
Strong and growing international demand Demand driven by the booming construction industry in Asia Inability to meet large local commercial construction projects due to poor quality of processed stone and weak supply chain hence quality stones are imported Limited knowledge of international customer trends and preferences
+ + -
Linkages between academia and industry developing Presence of indigenous processing machinery manufactures Low quality suppliers Lack of financing schemes Lack of training institutions for quarrying and processing Underdeveloped distribution networks Limited quarrying equipment manufacturers
27
Blocks, etc.
10 11
Marble and Granite Sector Brief, Small and Medium Enterprise Authority, 2002. There have been no recent studies, so actual reserves are unknown and may be significantly higher.
28
Leased Area Total 280 203 N.A ML 80,789 PL 34,438 Total 115,227 104,139 N.A
Reserves in Mill. Tons Marble 157.9 2.2 N.A Granite N.A N.A N.A N.A N.A N.A N.A 4,140
PL 156
124
FATA Total
4 128
4 160
8 491
5,620 86,409
3,976 38,414
9,596 22,8962
7000 160.2
13
Source: Marble and Granite Sector Brief, Small and Medium Enterprise Authority, 2002
12 13
Northern Areas Low estimates of reserves are only due to absence of surveys rather than lack of reserves. Latest estimate represented in Table 3.
29
Table 2: Significant Industry and Installed Machinery in Pakistan, 1999 Name of Total Gang Saws Cutters Auto Manual city no. Polishers Polishers of units Imported Local Mini H.V 48 12 to 36 Karachi 180 14 16 1 20 630 3 300 Hyderabad 6 10 2 Quetta 3 1 9 Multan 35 49 5 Faisalabad 28 2 53 2 Sargodha 6 10 Lahore 93 2 2 3 200 19 Gujranwala 11 1 1 20 2 2 Sialkot 6 8 Gujrat 6 1 11 Rawalpindi 112 15 4 1 10 165 4 Islamabad 51 2 23 4 3 5 200 18 NWFP & 148 3 46 21 70 850 7 33 FATA Total 685 22 103 9 45 92 2215 12 385
Source: Marble and Granite Sector Brief, Small and Medium Enterprise Authority, 2002
Chip Tiles 36
2 1
4 2 45
The total population also included a further 1000 units with over 2000 cutters of 12 - 36 inches. These units came under the unorganized sector (i.e. informal sector) and specific information about them was not available at that time. A more recent estimate by the Industry (See Table 4) places the number of units as being much higher, reflecting upon the tremendous growth of the sector. Three kinds of processing facilities are present in FATA, one of the main marble and granite producing areas of Pakistan: Processors using Gang Saws to produce irregular slabs; Processors using a Horizontal & Vertical Machine (more commonly known as H/V machine or block cutter) to produce 12 inch strips; and Processors that own both the gang saw and the H/V and its supporting machinery. At present, processors produce irregular slabs and transport them to a second set of processors in Peshawar, Lahore, Karachi, and Islamabad at low prices/sq ft. About 2% of the processing sites are using Gang saws to produce irregular slabs because the blocks extracted are irregular. They are sold either in the market or to processors that use them to make cut to size tiles. 80% of the processors in the area have H/V block cutters that cut the blocks horizontally and vertically to produce 12 inch strips and tiles. Approximately 50% of the processors owning an H/V block cutter
PISDAC USAID Pakistan JE Austin Associates, Inc. 30
produce 12x48x1 inch slabs and sell them to the market. The remaining 50% resize the rectangular strip using a Section Machine and 18 Inch cutter14 that divides 48x12x1 inch strips into 4 equally sized 12x12x1 inch tiles. However, the processors do not work the stone well and are unable to capture the total value of the products they produce. For example, due to lack of up-todate equipment and the skills to use to such equipment they have no facility or ability to: Carry out quality polishing of stone slabs or other products they produce; Appropriately size tiles into 12x12x1 inch tiles to 12x12x1/2 inch tiles as demanded by the market; and Chamfer 15 the polished cut to size tile. The absence of the above-mentioned capacity and the requisite equipment prevents quality processing. The stone produced has a lower market value and thus processors at FATA lose 30% additional income that could be earned through proper processing of the stone. The number of processors able to produce a completely processed, cut-to-size product is low, and FATA loses the potential income could be earned through improved skills and onsite equipment for appropriately processing the local marble and granite. Processors also lack knowledge of the properties of locally available stone that would enable them to decide the best and most appropriate uses of the stone they work with. Furthermore, there are no training opportunities and/or facilities for people to learn modern dimensional stone processing techniques.
14 15
18 Inch cutter cuts the 48x12x1 inch strips to 12x12x1 inch strip Chamfering a tile is smoothing its corners and all its sides.
31
Area
Khushab/Mianwali Buner, Diir, Kohat Mohmand/ Bajaur Loralai/Khuzdar/Lasbela
Operational Quarries
5 400 300 500
20 1225
Note: Of the total operational quarries, over 97 percent are marble quarries. 2.4.2 Processing: Table 4: Processing units in major clusters, 2005 Province
N.W.F.P
Area
Mansehra, Mardan, Peshawar Mohmand Agency Khyber Agency Bajaur Agency
Total
400
Gang-Saw
H/V Cutter
Single Cutter
FATA
15 0 1 1
335 15 7 22
0 0 6 0
Balochistan
Sindh
Karachi
100
200
100
Total
Source: SWOG analysis, 2005
1624
117
564
106
32
3. Industry Statistics
3.1
Contribution to GDP
Revenue in 2004 was estimated at Rs. 2.44 billion16. Total contribution to GDP in 2004 is estimated at .038 percent (GDP at market price: 4.3 trillion) 17.
3.2
% growth
3.3
Growth
Table 6: Growth of Extracted Stone
Year Extracted/Million Tons % Growth
3.4
Pakistans total exports in the marble and granite sector are estimated at USD 23 million for 2004. The following tables provide exports of the top five exporters of marble as well as India, China and Pakistan. India and China have been included because they are regional competitors.
Industry Estimates Pakistan Economic Survey, 2004-05 18 This includes employment for the entire mining industry. SWOG feels that these are understated. Employment figures for marble and granite quarrying alone are not available. 19 The data represents employment in surface mining and is projected year 2001 onwards.
17
16
33
Country
Italy Turkey Egypt Spain Portugal India China Pakistan World Total
Table 7: Export of Unprocessed Marble Exports in 000 $ Percentage share % 2004 2004
193992 127628 106968 80677 30774 26195 8733 5000 833602 23 15 12 9 3 3 1.0 1.0
*Pakistan has large deposits of granite which is mostly untapped and its exports are negligible. There are less than 10 granite processing facilities in Pakistan.
34
35
5. Market Analysis
5.1 Market Growth
The domestic market in 2004 was estimated at Rs 1.1 billion20. Total exports were 23 million in 2004. In volume, the total local demand is 600,000 tons21. In the international market, exports of marble have grown at 12% per year on average since 2001. Granite exports have grown even faster at 18% per year.22
5.2
Demand Drivers
Growth in the housing sector, both local and international, is the primary driver of demand for marble and granite. Local demand is mainly for tiles whereas international demand is for slabs and square blocks.
5.3
Supply Drivers
The primary supply drivers would be better quarrying and processing techniques so as to reduce wastage and improve productivity (currently net wastage is estimated at 85 percent). Improved infrastructure, better financing opportunities and a more enabling policy environment will also result in more investment and consequently greater output.
5.4
Technological Advances
Following the Italy study tour by the SWOG there has been greater awareness amongst a relatively large group of quarry owners. A growing trend of upgraded quarrying technology has been observed. Majority of SWOG members have either already installed upgraded machinery or are in the process of importing it. A number of quarry owners have contracted professionals for implementation of controlled blasting extraction methods. Quarry owners have also realized the importance of pneumatic tools and some have imported inline stitch drilling equipment which is essential for pre-splitting (controlled blasting) procedure. Consulting services of local geological experts and mining engineers are also being employed by a few progressive quarry owners for quality prospecting. On the processing side a few local companies are actively engaged in reverse engineering of processing machinery. Most Gang saws and Horizontal / Vertical cutters are also manufactured locally by a few individuals experienced in the field. However the quality of the processing is compromised with locally improvised machines.
20 21
Total Revenue for 2004, Rs 2.44 billion minus exports, Rs. 1.38 billion. Based on industry sources. SMEDA 22 UN COMTRADE Database, 2005
PISDAC USAID Pakistan JE Austin Associates, Inc. 36
5.5
Profitability
Table 9: Profitability of the Industry Current Projected Rs.4000/Ton (Square blocks)23 Rs. 17000/Ton (Slabs)24
Better quality and higher yield per ton raw material Greater per ton yield, 120 square feet/ton slabs ( high value) as compared to current 60 square feet/ton of lower value 1x1 tiles, due to raw material being in square block form. 25 Based on higher per ton yield and international market price
24
23
37
Weaknesses
Lack of quarrying tradition Low capacity utilization both at the quarry and processing stage Primitive quarrying technology in use Proper prospecting methods not used No credible valuation of deposits Low technology and skill at quarrying and processing stage Lack of security for quarry lease owners Weak or no infrastructure Inaccessible deposits Minimal value additions
Opportunities
Improve quality and production through better capacity utilization Focus on high end value added products through better market understanding Promote joint venture projects and foreign investors through better deposit valuation -
Threats
Regional competitors such as china have low processing cost due to energy subsidies Lack of environmental concerns in quarrying can discourage investors and potential markets
38
6.2
97%
98%
Net Extracted
2%
85 % Net
The value chain analysis shows that 73 percent of the wastage occurs at the extraction stage due to underdeveloped quarrying methods. From the output that is extracted, 3 percent is cut as square blocks for the purpose of exporting. However, the process of cutting square blocks leads to 50 percent wastage, so only the remaining half is exported. Out of the 97 percent that is locally processes, there is an additional wastage of 45 percent; 5 percent is converted into slabs and the remaining 50 percent into tiles. Three percent of the slabs are exported and the remaining are consumed by the local market, whereas 2 percent of the tiles are exported and the remaining 98 percent is consumed by the local market. The cumulative wastage is 85 percent.
39
7. Cluster Maps
7.1
Pakistan
Gilgit
FATA
Peshawar
NWFP
Mianwali/Khushab
Loralai Quetta
PUNJAB
BALOCHISTAN
Khuzdar
SINDH
Bela Jhang shahi Thatta
Karachi
40
7.2
NWFP
Chitral
1 Dir
FATA
15
Malakan 300 10 d Buner Mansehra Charsadah Peshawa Abbotaba r Nowshera 300 d Kohat
20
NWFP
50 30 Swat
41
7.3
FATA
42
7.4
Balochistan
Processing Quarries
LASBELA 90 Uthal
Dureji 110
Hab
KARACHI
43
7.5
Sindh
DADU
Mangho Pir
THATTA
44