Marble and Granite Sector Strategy

Pakistan Marble and Granite Strategic Working Group Strategic Plan 2006

Contents Acronyms

1. Executive Summary

4

2. Profile and Assessment of Industry Competitiveness

6

3. Vision and Strategy for the Marble and Granite Industry

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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

14 16 16 19 22 23

5. Prioritization and Sequencing of Initiatives

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6. Expected Impact and Conclusion

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Appendix

1. Overall Summary of Industry Competitiveness: Porter Diamond

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2. Industry Definition and Market Segmentation

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3. Industry Statistics

33

4. Social Value and Role in Poverty Reduction

35

5. Market Analysis

36

6. Competitive Position of Domestic and Regional Competitors

38

7. Cluster Maps

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PISDAC – USAID Pakistan JE Austin Associates, Inc.

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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


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1. Executive Summary Pakistan has enormous reserves of marble and granite. Currently over 40 types of natural color 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 Pakistan Initiative for Strategic 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 Pakistan’s 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 address how the industry could reposition itself 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 itself has become a recognized private private sector led platform on which 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 mar ble and granite industry;


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Pakistan Marble and Granite Strategic Working Group Strategic Plan 2006   

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.


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2. Profile and Assessment of Industry Competitiveness The marble and granite industry is poised to catalyze economic growth in remote areas of Pakistan not yet benefiting from the country’s current economic growth cycle. Marble and granite is a young industry for Pakistan, representing a small fraction of GDP and less than 1% of current exports. However, the potential to raise exports and foreign exchange, and deliver value to rural areas is immediate and significant.

Pakistan Marble & Granite Sector   



 

100 million sq ft produced in 2004 Rs. 3.04 billion in value sold in 2004 2.5% of tonnage exported earning $23.1m (Rs. 1.34 bn, 44% of value) 2000+ quarries concentrated in western and northern rural areas 70,000 people employed Over 40 types of natural color Marble 85% wastage across the value chain

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


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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

5%

3%

Slabs

Local Processing

Local $5.6 Million

97%

97%

Local $23.7 Million

50% 27%

98%

Tiles Blocks (irregular) Export $5.19 Million

Net Extracted

2%

3% Export $16.9 Million

Square Blocks

50%

45% 50% 73%

Waste

85 % Net

Source: Federal Bureau of Statistics, Director General Mines & Minerals,

1

Study: University of Peshawar, Center of Excellence in Geology (2004).


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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:


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Pakistan Marble and Granite Strategic Working Group Strategic Plan 2006  

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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.

2

Chamfering a tile is smoothing its corners and all its sides.


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3. Vision and Strategy for the Marble and Granite Industry In the short-run, the Pakistan Marble and Granite industry is focused on achieving one goal: extraction of “Square Blocks.” The trickle down effects throughout the value chain of this one achievement will be transformational. In the long run, the industry’s vision is to count itself among the socially responsible and globally competitive dimensional stone industries of the world. The domestic and international markets are both growing, but for now Pakistan is only able to capture a very small fraction of the market and its growth. Transforming the industry into a globally competitive and socially responsible player will require an overhaul of the value chain starting “at square one,” and then investing in the more advanced processing capabilities to build on the upgraded raw materials. The industry expects a major increase in productivity and profitability throughout the value chain. By 2015 it has been estimated that the industry can achieve benchmarked wastage levels r esulting in higher capacity utilization and improved quality. Currently the industry is unable to compete in high end international markets due to poor quality raw material, poor processing capacity, weak supply chain and nonexistent marketing of the local stone. The Industry is aligned with low end markets and has failed to capitalize on the unique and high quality dimensional stone of the country. The marble and granite industry has great potential in the export market which has grown to a massive $22 billion3 in 2003 and is still growing further at over 8% annually. Pakistan, to date has only managed to capture a very small fraction, a mere $23 million in exports, of the total international market. According to Industry estimates, the implementation of the strategy would result in a primarily export oriented Industry focusing on high end markets. The projected exports by 2015 are estimated at $2.44 billion, mainly comprising of slabs, handicrafts, mosaics and other value added products.

3

www.stoneworld.com, “World Stone Industry Data”.


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Minimum Minimum Technology Technology Standards Standards

68% Slabs

Local Processing

Export $1.68 Billion

Local $240 Million 90%

8% Tiles

Local $9.4 Million Export $66 Million

55%

70%

30%

30%

70%

Blocks Squared Export $586 Million

4%

Net Extracted

Handicrafts & Finished Products

10%

Local 10% $8.20 Million Export $100 Million

Blocks Exported

90%

70%

5%

45%

30%

20% Waste

57% Net

Source: SWOG projections

The following strategic initiatives have been identif ied 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: 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 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.

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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: Contracting geological institutes to conduct testing on stone specifications; o Developing region specific product database/marketing materials on stone o 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: 

  

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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: 

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Deliver on-site practical training in modern quarrying practices and technology through model quarry training program by: “Training trainers” by integrating team of experts with local institutions & experts for ono site practical training; o Collaborating for funding of pool of experts for model quarry training program (EPB, EU, etc.); Working with training institutions (e.g. Peshawar University, CE, UET Peshawar, o 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:


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Training the workforce in value added activities; o Providing shared facility for processors to learn and use value-add technologies; Conducting crafts training in handicrafts and mosaics for small-scale artisans; o Develop world-class valuation (prospecting and planning) expertise in Pakistan to support future investment in the sector. o



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 government’s rehabilitation program, the following initiative has been proposed: 

Establish 10 mechanized “model” quarries for the Mansehra - Balakot regions to rehabilitate the local population.


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4. Description of Strategic Initiatives 4.1

Raise Value Chain Productivity

Establish Model Quarries The economic and social value in the stone industry hinges on the efficiency of extraction. International best practice processes and technology extract stone in sized, square blocks that can then be cut and processed with minimum wastage, maximizing value across the value chain. These “square blocks” reduce wastage across the entire value chain by over 50%. Despite clear profit potential that is present with the application of modern technology and quarrying techniques, quarries in Pakistan are still using older indiscriminate blasting processes that result in abnormal shapes and over 85% wastage. In order to demonstrate the wasted value of current quarry practices, and catalyze the supply and quality of stone, 10 Model quarries will be established in the main quarrying regions according to internationally benchmarked standards and technology. The industry, in collaboration with the government will establish 10 model quarries4 to increase the supply and improve the quality of stone by: Demonstrating international best practice quarrying technology and processes; Setting a precedent for a secure leasing and regulatory environment; Catalyzing the development of higher value supporting services; Serving as a training hub for the quarrying industry.    

The SWOG, led by a selection committee will solicit proposals from current quarries outlining why their quarry should be considered along with stone samples that have already been tested by an independent testing authority. Candidates will then be short-listed based on transparent criteria forwarded to the Government of Pakistan as part of a co-funding proposal. The initial short-listing will involve: Importance of cluster: jobs, volume, value ; Infrastructure availability; Structure of the deposit (Structural/Geological Mapping); Reserve estimation through core drilling and contour mapping; Marketability of the Stone locally and Internationally (Material Testing); Technical Credibility of the party (Financial, Skills); Status of the present quarrying operation; Willingness to commit own funds; Title Deed / Contract; Ability to execute; Credit worthiness; Quality and application of material; At most one quarry in each cluster and at least two quarries in each province.             

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Expected location of quarries: FATA (1), NWFP (2), Northern Areas (1), Punjab (1), Balochistan (3), Sindh (2). PISDAC – USAID Pakistan JE Austin Associates, Inc.

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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.

Facilitate Cluster Development Supporting services in transportation, handling, and financial services are significantly lacking across Pakistan for a modern quarry industry. Quarries co-located in specific regions that could be working together and sharing overhead costs are not currently doing so. Quarries are not operationally well-aligned or integrated with downstream processors and exporters and do not understand their needs in raising the value of their products. In coordination with the selected model quarries, the SWOG will identify gaps in supporting services and facilitate cluster development and co-investment in shared facilities and services. The SWOG members will meet with representatives of key related and supporting industries including transportation and financial services to communicate the needs of the marble and granite 5 6

World benchmarked value. Industry estimates, 2005.


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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.

4.2 Improve Industry and Market Information Introduce Stone Testing and Specification Due to lack of knowledge of stone properties in Pakistan, it is not uncommon for limestone to be mistaken for marble. Across quarries and processing plants, there is limited quarry or industry-wide knowledge of the types and specifications of stones mined and processed in Pakistan. The international market demands detailed and tested specifications, photographs and samples of stone of which there is no systematic database in Pakistan. There is also limited expertise to carry out the necessary tests. Expanding export-driven quarrying and processing will require detailed, verified knowledge of the types and specifications of stones. Through the selection requirement for model quarry stone testing, the SWOG will begin to compile a comprehensive marketing database on types and specification of stone available in Pakistan. Geological institutes will be contracted to expand the database to include quarries outside the models. This database can then be used to compile product information to attract foreign investors and international buyers. The initiative will lead to an increase in exports and local sales as the industry will have greater knowledge of the market. Knowledge of product applications will allow the industry to market their products more effectively and enable them to get higher value. This knowledge will also encourage investment in developing value added products that are demanded by international buyers.

4.3 Strengthen Policies for Increased Productivity and Competitiveness Strengthen Leasing Contract and Site Security For most quarries in Pakistan, quarry managers lease the quarry from local officials with little security that the lease will not be canceled without justification. Under the fragile contractual relationships, the local government can cancel leases or transfer leases from one party to another PISDAC – USAID Pakistan JE Austin Associates, Inc.

16


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.

Propose Formal Industry Status The marble and granite cluster is currently recognized by the government as a type ‘C’ industry. Industry status type ‘A’ is necessary for interfacing with the government and raising and resolving regulatory barriers and business environment constraints. Incentives under status “A” include export rebates and fiscal incentives. 7

Such consultative bodies already exist in NWFP and have proven to be successful.


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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.

Phase in Ban on Indiscriminate Blasting Indiscriminate blasting is literally shattering the value of the marble and granite industry. In addition to 73 percent wastage, it results in the following:   

Damaged extracted stone resulting in irregular, fractured and poor quality raw material; Damaged remaining deposits; Shortened quarry life due to build-up of waste.

Currently, there is no law against this practice. The model quarries will provide the incentive for quarries to change their operations, but an enforceable ban is needed as well. The SWOG proposes to work with the government to phase in a ban on indiscriminate blasting in parallel with training and technology transfer activities for upgrading the industry. The SWOG recommends that the government should initially discourage indiscriminate blasting through incentives, with eventually a complete ban on the practice. Controlled blasting techniques through certified individuals and companies will eventually replace the indiscriminate use of dynamite coupled with a minimum level of investment in quarry machinery. The use of controlled blasting techniques will reduce stone wastage, increase quarry life, and result in better quality, higher value raw material leading to an increase in productivity and consequently in exports and local sales. The phasing out of hazardous dynamite blasting will improve the overall working conditions and safety of quarry workers, and mitigate environmental damage.

Introduce Standards to Increase Quality Currently no industry standards exist to ensure the quality of exports. In addition, there are no environmental standards to regulate and limit the negative impact of quarrying and processing on the environment. International competitors already have in place stringent standards that are effectively regulated by both the industry and government. To integrate operations into world markets, the industry must adopt and enforce internationally acceptable quality and environmental standards. The SWOG will liaise with relevant government authorities to introduce minimum quarrying standards. The SWOG also plans to develop quality control standards for processing. It is proposed that a quality control organization will be established consisting of private and public sector representatives with the capacity to verify product quality and issue quality certificates. The board will be affiliated with an internationally accredited body to ensure that certification is internationally recognized. Quality control across the value chain will lead to better quality products, and consequently higher domestic sales and exports. It will provide the industry with access to high-end market segments.


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Increase Use of Local Stone in Government Buildings Government construction represents an important share of the domestic construction market. Current construction is using only small supplies of local marble and granite, and in some cases using imported materials. Planned productivity and quality enhancements will position the marble and granite industry to increase the level of local stone usage in government buildings. This will be an important first step in repositioning the industry with local construction companies an d preparing processors for future exports. Once the supply chain is developed enough to produce q uality products, the industry will lobby with the government to introduce a policy which encourages use of local products in government buildings.

4.4 Invest in Workforce Development Provide Technical Assistance and On-site Quarrying Training There is currently no skilled expertise available in Pakistan that is fully trained to operate the modern machinery proposed for use in the model quarries. As a result, each model quarry will serve as an onsite training facility. An integrated team of international experts and local institutions and experts will provide on-site practical training. International experts will also build the capacity of local trainers. The SWOG will collaborate with institutions such as EPB/TDA, EU etc. to provide funding for the model quarry development and training program. As part of the initiative, the Centre of Excellence at the University of Peshawar, UET Peshawar, Engineering University Khuzdar and NED Karachi will develop ten week certificate courses in quarrying and prospecting. The model quarries will work with training institutions (Peshawar University, CE, UET Peshawar, Engineering University, Khuzdar and NED Engineering University, Karachi) to develop 10 week certificate courses in quarrying and prospecting. The initiative will result in higher skill level and workforce development essential for sustainable productivity growth. The social impact is going to be reflected in employment generation, better paying jobs and overall improved standard of living for the local workforce. Average monthly income will increase by over a 100% while the initiative will directly train batches of 40-50 skilled individuals twice a year.

Establish Common Facility Training Centers Across the value chain, processors lack 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 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 the polished cut to size tile.


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 CFTC’s 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.


21


Develop World-Class Valuation Expertise The full value potential of the marble and granite sector will only be unlocked when the industry has the capabilities to conduct world-class valuation (prospecting and planning) to support future investment. Valuation expertise in the country is nearly non-existent at the present time. Initially, the industry will bring in international expertise to work with local geologists and industry experts to train local technicians on how to value a quarry. Over time, the industry will work with local universities to develop programs that train scientists on the techniques of evaluating a quarry. The initiative will help quantify industry assets and thus facilitate investment through joint ventures and bank financing. This will in turn increase overall investment in the quarrying sector.

4.5 Strengthen Industry Organization and Supporting Institutions Establish Pakistan Stone Development Company Once the industry enters the implementation stage, the need may arise for a formal platform or company that would manage the implementation and development stage of all the identified initiatives. The SWOG proposes establishing the Pakistan Stone Development Company (PSDC). PSDC will be a private-sector led company that will develop and implement the Marble and Granite SWOG strategy. PSDC will:   

Propose policy and quality regulations; Implement training and research support initiatives; Develop clusters by providing models for quarrying and processing oriented to the best markets and applications.

Until such time that a company is formed, the SWOG will operate as an informal platform. The SWOG will continue to have a chairman at the top and regional offices in each province with a nominated regional SWOG member responsible for that region. The regional SWOG offices will diffuse the SWOG related activity information to a broader audience from the sector. Regional SWOG activity will also be critical when the process of advertising and short listing for model quarries will take place. Once established, the Sector Management Company will provide the industry with an institutional platform to carry out strategy formulation and implementation. It will enable the industry to continue its dialogue with the public sector, strengthen linkages within the value chain, and help the industry as well as individual companies to develop and implement growth strategies.

Develop Mining Specific Financial Services Currently the financial sector does not address the financing needs of the quarrying industry. A dialogue will be initiated between the SWOG and the representatives of the banking industry to develop mining specific financial services. The SWOG will liaise with the State Bank of Pakistan to facilitate extension of financial services to the mining industry. PISDAC – USAID Pakistan JE Austin Associates, Inc.

22


This will allow the mining industry to invest in up gradation of technology and will further encourage new investors to enter the industry.

4.6 Special Initiative: Assist in Rehabilitation of Earthquake Affected Areas In the aftermath of the earthquake, the SWOG conducted a tour of Mansehra and Balakot, accompanied by a qualified geologist to assess the potential of the region possesses in terms of dimensional stone quarrying. At present there are 5 quarries in the Balakot region and another 15 in Mansehra (most of them currently closed down) extracting black, blue and green granite which fetches a high value in the domestic and international market. The value potential of unique blue granite has already been realized at Balakot where an Italian joint venture progressive quarry was set up a few years back. The SWOG has proposed 10 mechanized quarries to be set up at high potential sites in the Mansehra and Balakot region based on upgraded quarrying practices, which would act as models and will catalyze the development of a quarry cluster, providing more direct and indirect employment through new quarries and allied industries. Model Quarries would be equipped to extract square blocks of marble/granite through best quarrying practices, with minimum stone wastage and damage to the environment. Each Model Quarry will host a cobblestone manufacturing setup for the utilization of waste and providing further employment to the local people. Reloading stations will be setup at major junctions in the region to facilitate transportation. It was assessed in the tour report that the Balakot region alone has a potential for over 170 Quarries providing income for as many as 12,000 people. Model Quarries will provide better quality jobs and enhance productivity of the stone deposits.


23


5. Prioritization and Sequencing of Initiatives The SWOG through benchmarking themselves against industry leaders have realized the unacceptable amount of stone wastage at the quarrying level which in turn results in poor quality raw material and low capacity utilization further down the value chain. The strategy requires an immediate response to primitive quarrying and better utilization of the nation’s nonrenewable wealth. The SWOG has prioritized initiatives in the following order:         

Model Quarries; Workforce Development: Onsite training; World Class Valuation: Prospecting & Planning; Common Facility & Training Center (CFTC); Pakistan Stone Development Company (PSDC); Minimum Quarrying Standards: Ban on indiscriminate blasting; Introduction of stone testing standards; Policy initiatives (ongoing); Cluster Development (supporting infrastructure development).

The major dent to sector productivity is made right at the source, at the quarrying level. Poor quality raw material and high wastages during extraction triggers a chain reaction all through the value chain, resulting in low capacity utilization. The sector productivity is largely dependent on the quarrying sector, which in turn justifies its high priority followed by workforce development. Workforce development will be critical towards sustaining the model quarry initiative and facilitating cluster growth. Priority policy initiatives will include a phased in ban on indiscriminate blasting and creation of quarry lease and equipment collateralization framework for valuation. The initiatives will support a complete overhaul of the quarrying sector through encouragement of improved and modern quarrying practices. Initiatives addressing bottle necks lower down the value chain will only be addressed once improved quality raw material is readily available. The need for facilitating and upgrading the processing industry will take center stage with the introduction of improved quality raw material. Workforce development and technical training will again be of high importance to execute the initiatives.


24


6. Expected Impact and Conclusion 2004

2015

Wastage

85%

57%8

Total sellable (in sq feet)

100 million sq ft

380 million sq ft

Total revenue

PKR 2.44 billion

PKR 161.6 billion9

Exports

USD 23 million

USD 2.44 billion

.16%

4.18%

.038%

2.31%

Percentage share of total exports Share of GDP (PKR: 4.3 trillion) Source: Industry sources and SWOG analysis

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

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. 9


25


Appendix 1. Overall Summary of Industry Competitiveness: Porter Diamond To understand the current state of the competitiveness of Pakistan’s marble and granite industry, this study uses the Competitiveness Diamond, often referred to as the Porter Diamond. The economic theory of the Competitiveness Diamond has been validated by numerous analytical and case studies and is now used by industries and governments worldwide to assess industry competitiveness and to develop strategies for improving competitiveness. It is structured around four pillars:    

Factor (input) conditions: skilled labor, infrastructure, assets and re sources; Demand conditions: size and type of accessible demand; Related / supporting Industries: presence of supplier and supporting industries; Context for firm strategy and rivalry: conditions for conducting business.

The Porter Diamond framework demonstrates that the current weaknesses in Pakistan’s factor conditions and related and supporting industries are weighing down productivity. Although strong local and international demand offer tremendous opportunities for growth, low levels of technology and skills, limited innovation, and poor marketing inhibit the industry from developing.


26


Context for Firm Strategy and Rivalry

+ + -

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

Factor (Input) Conditions

+ + -

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

+ +

Related and Supporting Industries

+ + -


-

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


2. Industry Definition and Market Segmentation According to estimates, there are 160.2 million tons of marble reserves in the country out of which 98% are in Balochistan and NWFP10. Granite reserves, only at one place in Northern areas show a total of 414 million tons while other reserves of granite are spread all over NWFP, Balochistan and Sindh11. The marble and granite industry is made up of two stages of production: Quarrying (extraction) industry Processing industry  

The international market for marble and granite is segmented by stone into crude/roughly trimmed and blocks. Marble and travertine, crude or roughly trimmed

Marble and travertine in

MARBLE AND GRANITE

Blocks, etc.

Granite, crude or roughly trimmed

Granite, merely cut into Blocks, etc.

2.1 Quarrying Industry Quarrying is done in the country through primitive techniques such as uncontrolled blasting which is wasting the marble and granite reserves of Pakistan. In majority of the mines basic machinery and equipment like compressors, drill sets and lifters are not available. This not only leads to colossal wastage but also to low production at mines. There is also a lack of education regarding the importance of good prospecting and practices such as topographical mapping, geological surveys. Currently physical testing of the stone is non- existent.

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


Table 1: Reserves in the Country, 1999 No. of Leases

NWFP

Leased Area

Reserves in Mill. Tons

ML

PL

Total

ML

PL

Total

Marble

Granite

124

156

280

80,789

34,438

115,227

157.9

N.A

Balochistan

203

104,139

2.2

N.A

Sindh

N.A

N.A

N.A

N.A

Punjab

N.A

12

N.A

N.A

N.A

FATA

4

4

8

5,620

3,976

9,596

7000

N.A

Total

128

160

491

86,409

38,414

22,8962

160.2

4,140

13

Source: Marble and Granite Sector Brief, Small and Medium Enterprise Authority, 2002

2.2 Processing Industry Processing industry for dimensional stones in Pakistan using local processing equipment started to develop in the late sixties with housing construction and industrial activity picking up most of the locally processed stone without quality consideration. The mid seventies brought imported plants from Italy. Initially, the plants were second generation machines that were barely good enough to cut slabs and tiles at high speed and were operated with no quality consideration. Very few units with a complete range of machinery and equipment capable of processing stone in accordance with international standards were established in the last decade. Utilization of these units is nearly half of their installed capacity due to inappropriate raw material and lack of skill. There are only about 25-30 units which have the appropriate machinery to do one of the sequential activities: cutting slabs or cross cutting and finally polishing. A study conducted by SMEDA in 1999 is summarized in the following table:

12

Northern Areas Low estimates of reserves are only due to absence of surveys rather than lack of reserves. Latest estimate represented in Table 3. 13


29


Table 2: Significant Industry and Installed Machinery in Pakistan, 1999 Name of Total Gang Saws Cutters Auto Manual Chip city no. Polishers Polishers Tiles of units Imported Local Mini H.V 48” 12” 36 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 2 Gujranwala 11 1 1 20 2 2 1 Sialkot 6 8 Gujrat 6 1 11 Rawalpindi 112 15 4 1 10 165 4 Islamabad 51 2 23 4 3 5 200 18 4 NWFP & 148 3 46 21 70 850 7 33 2 FATA Total 685 22 103 9 45 92 2215 12 385 45 Source: Marble and Granite Sector Brief, Small and Medium Enterprise Authority, 2002

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.

2.3 Market Segmentation The local market has the major share in processed dimensional stone while a small percentage is exported. The market consists of the following segments: Quarrying & Processing Industry Export Blocks

14 15

Slabs

Local Tiles

Other value added / Handicrafts

Slabs

Tiles

Other value added / Handicrafts

18 Inch cutter cuts the 48x12x1 inch strips to 12x12x1 inch strip Chamfering a tile is smoothing its corners and all its sides.


31


2.4 Geographic Spread 2.4.1. Quarry: Table 3: Quarry Clusters in major areas, 2005

Province

Area

Operational Quarries

Punjab

Khushab/Mianwali

5

NWFP

Buner, Diir, Kohat

400

FATA

Mohmand/ Bajaur

300

Loralai/Khuzdar/Lasbela Balochistan

500 Chaghai (Onyx)

Sindh

Thatta, Jhang Shahi

Total

20 1225

Source: SWOG analysis, 2005

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

Area

Total

N.W.F.P

Mansehra, Mardan, Peshawar

400

FATA

Mohmand Agency

250

Khyber Agency

350

Bajaur Agency Balochistan

Sindh

Gang-Saw

H/V Cutter

Single Cutter

15

335

0

50

0

15

0

Quetta

14

1

7

6

Loralai

25

1

22

0

Lasbela

35

Karachi

500

100

200

100

1624

117

564

106

Total Source: SWOG analysis, 2005


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

Employment in mining and quarrying18 Table 5: Employment Year

Avg. daily employed

% growth

1999-00

14033

2000-01

15240

8.6%

2001-02

16780

10.1%

2002-03

18458

10.0%

2003-04

20303

10.0%

19

Source: Labor force Survey, 2003-2004

3.3

Growth Table 6: Growth of Extracted Stone Year

Extracted/Million Tons

% Growth

1999-00 2000-01 2001-02 2002-03 2003-04

0.579 0.62 0.685 1.070 1.000

7.1% 10.5% 56.2% -6.5%

Source: Federal Bureau of Statistics

3.4

Regional and International Trade

Pakistan’s 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.

16

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


33


Country

Table 7: Export of Unprocessed Marble Exports in ‘000’ $ Percentage share % 2004 2004

Italy

193992

23

Turkey

127628

15

Egypt

106968

12

Spain

80677

9

Portugal

30774

3

India

26195

3

China

8733

1.0

Pakistan

5000

1.0

World Total

833602

Source: International Trade Map

Table 8: Export of Processed Marble Country

Exports in ‘000’ $ 2004

Percentage share % 2004

Italy

823550

24.8

Turkey

459194

13.8

China

177182

5.3

Spain

149400

4.5

Portugal

99518

3.0

India

39594

1.2

Pakistan

6000

0.2

Total

3319120

Source: International Trade Map

*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


4. Social Value and Role in Poverty Reduction 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 sector will invariably lead to higher income opportunities. 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. Availability of processed stone will attract more customers to the regions than before. As such, the quarry owners and processors are likely to get more business and thus more earning opportunities. Increased business opportunities will force higher production and a need for productive workers. Therefore, processors will engage their workers in training opportunities and would be willing to pay higher wages to trained, more productive workers. More demand would push for higher production and increased investment by the processors and quarry owners. As marble and granite clusters develop, allied industries will grow leading to greater employment and income opportunities. The livelihood of more than 95% of the population in FATA is dependent on the operation of dimension stone mines in FATA. The Mohmand Agency and Khyber Agency have about 650 processing sites employing approximately 13,000 people. Establishment of the CFTC would provide an opportunity for these workers to get trained thereby raising their skill level and income earning opportunities. 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. Proper quarrying and increased processing at FATA implies higher income for the local processors and quarry owners. Higher income will lead to more business opportunities and thus a higher rate of job creation. Use of stone waste to produce high value products like handicrafts will engage more people in the sector. The employment rate will increase, leading to poverty alleviation. 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.


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

Total Revenue for 2004, Rs 2.44 billion minus exports, Rs. 1.38 billion. Based on industry sources. SMEDA 22 UN COMTRADE Database, 2005 21


36


5.5

Profitability Table 9: Profitability of the Industry Current

Projected

Square Blocks

Rs.1200/Ton (Boulders)

Rs.4000/Ton (Square blocks)23

Unpolished tiles/slabs

Rs. 2100/Ton (1’x1’ tiles)

Rs. 17000/Ton (Slabs)24

Source: SWOG analysis, 2005

25

23

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 1’x1’ tiles, due to raw material being in square block form. 25 Based on higher per ton yield and international market price 24


37


6. Competitive Position of Domestic and Regional Competitors 6.1

SWOT Analysis Strengths

+ + + + +

Abundance of good quality marketable stone Exclusive colors and types of stone Low operational and labor cost Low environmental regulatory limitations Access to regional markets such as Dubai and other middle eastern countries

Weaknesses -



Opportunities ↑ ↑ ↑

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

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

Value Chain Analysis Export $1.01 Million

5%

3%

Slabs

Local Processing

Local $5.6 Million

97%

97%

Local $23.7 Million

50% 27%

98%

Tiles Blocks (irregular) Export $5.19 Million

Net Extracted

2%

3% Export $16.9 Million

Square Blocks

50%

45% 50% 73%

Waste

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

Probable Model Quarry Sites Dir

Probable CFTC Sites Bajaur Agency Mohmand Agency Khyber Agency

FATA

NWFP

Loralai

Peshawar

Mianwali/Khushab

PUNJAB

Quetta

BALOCHISTAN Khuzdar

SINDH Bela

Jhang shahi Thatta

Karachi


40


7.2

NWFP

1

Chitral

Processing Cluster

1

Quarrying Cluster

Dir

50 30 Swat

NWFP

Malakan

300

Buner

Charsadah Peshawa 300 Nowshera

FATA 15

Kohat


10

Mansehra

Abbotaba

20

41


7.3

FATA


42


7.4

Balochistan

Processing Quarries

Ziarat 45 LORALAI 5

QUETTA Mastun 20 CHAGHAI Nok Kundi

10 Dalbadin

150 10 100 Wadh KHUZDAR

LASBELA 90 Uthal

Hab


Dureji 110

KARACHI

43

Marble and Granite Sector Strategy

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