Impact of Cement Industry on

GDP of Pakistan
(API sec B)

Submitted To:
Maam Sadia Mansoor
Submitted By:
Shahzeb Zaheer 16210
Umer Shahkar 14319
Contents:
Introduction
Literature Review
Methodology
Empirical Results
Ratio Analysis Graphs
References
 Introduction
The history of cement industry of Pakistan goes back to 1947 when Pakistan got
only four cement plants after independence. The existence of this industry was
due to the extensive availability of raw materials. The cement industry of Pakistan
had less than half a million tonnes per year production capacity. The industry had
observed many developments with the passage of time but the production of
cement in the country was not sufficient. There was a gap between the demand
of cement and the supply of cement. To meet the demand of cement in the
country, cement was imported from different countries. The industry was
nationalized in 1972 and the State Cement Corporation of Pakistan (SCCP) was
made under the Economic Reforms Order, 1972. As a result of nationalization, a
total of 10 cement units with an installed capacity of 2.8 million tonnes per
annum were transferred to the SCCP. Price control was also enforced with the
SCCP and for a long time the industry operated under strict regulation and price
control. While the cement industry was working under the state control, the SCCP
established five new units with an installed capacity of 1.8 million tonnes per
annum. For the next fifteen years no new cement plant was established under the
private sector, which resulted in shortage of cement in late 70s and early 80s. This
gap was filled by the import of cement. Severe shortage of cement and price
deregulation prompted the private sector to establish more plants.

Privatization and effective price decontrol system in the period of 1991-92 gave
way to growth in the cement industry. The cement industry of Pakistan had
reached a level where surplus production was achieved after meeting local
demand in 1997. Due to this huge development in the industry, many investors
were attracted. Other reasons for attraction of the investors were cheap and
abundant availability of raw materials in the country. Increasing local demand for
cement consumption also encouraged the producers for further expansion in
production capacity of their manufacturing units. Currently the cement sector is
utilizing approximately 74 per cent of its installed production capacity of 45
million tonnes approximately since the local consumption of cement is dull for the
last several years.
The cement industry made a contribution of rs. 100 billion in the GDP (2013).

It generates rs. 30 billion tax revenue (2013). Producing 38.87 million tonnes in
2015.

Key Players:

D.G. Khan Cement, Lucky Cement, Askari Cement, Maple Leaf Cement, Attock
Cement, Pioneer Cement, Kohat Cement Company, Thatta Cement Company,
Dewan Cement, Fauji Cement.
 Literature Review
Kumar (2013) published an article on the progress of the cement industry of India.
The study was designed to investigate the progress of Indian cements industry
since 1991. The study was done purely on secondary data, with the following
variables taken into account:

-installed capacity

-production

-exports

-value additions

The time series of data was done for a period of 15 years from 1991to 2006.

In order to know the progress of ICI, annual time series data for the six variables
were studied for trend, cyclical variation and random variation, as seasonal
variation was not observable in the annual data.

Installed capacity of ICI grew by 3.70 percent. Production of cement increased

at the(CGR) rate of 3.21%. Export had never exceeded 4.24 % of production
during the period of study.

The Indian cement industry is on the dynamic growth path in capacity,

production, factor productivity and financial parameters. The future prospects are
also bright. However, it needs attention to increase export and build net worth,
which required more detailed and effective planning and management.

Hijazi and Tariq (2006) attempted to determine the capital structure of listed
firms in the cement industry of Pakistan. The study took 16 of 22 firms in the
cement sector, listed at the Karachi Stock Exchange for the period 1997-2001 and
analyzed the data by using pooled regression in a panel data analysis.
This study focuses on firms of the cement industry of Pakistan and the purpose is
twofold. One is to see whether the determinants identified by Rajan & Zingales
(1996) provide an explanation for the choice of capital structure of firms in the
Pakistani cement sector. Second, is to attempt and see whether each industry
exhibits some unique attributes which are not apparent in the combined analysis
of firms from different industries.

As this study has focused on the Cement Sector, initially all the 22 firms (which
are listed on the Karachi Stock Exchange) in the cement sector (whose published
data was available) were selected. Then after screening the firms with incomplete
data, only 16 firms were left. So, 80 firm-years for panel data analysis have been
selected.

Variables and Results: This study follows the framework of Rajan & Zingles (1995)
and Shah & Hijazi (2005) that use tangibility of assets, firm size, growth and
profitability of the firm as explanatory variables to determine the degree of
leverage (the response variable). In this section the description of these variables
is presented, how they are measured and what empirical evidence was found by
previous studies. The results, except for firm size, were found to be highly
significant.
 Methodology
Objective:

To find the impact of Cement exports on GDP growth per capita.

The variables

Dependent Variable: GDP growth per capita.

Independent Variables:

-Cement Export

-GFCF (gross fixed capital formation)

-Labor Force

-FDI (Foreign Direct Investment)

-M2 (Money supply)

GDP (growth per capita)= C + X log(cement exports) + X log(GFCF) + X(LF) +

X(FDI) + X(M2)

Software: SPSS Statistics 17.0

SPSS Statistics is a software package used for statistical analysis. Long produced
by SPSS Inc., it was acquired by IBM in 2009. The current versions (2015) are
officially named IBM SPSS Statistics. Companion products in the same family are
used for survey authoring and deployment (IBM SPSS Data Collection), data
mining (IBM SPSS Modeler), text analytics, and collaboration and deployment
(batch and automated scoring services).

SPSS is a widely used program for statistical analysis in social science. It is also
used by market researchers, health researchers, survey companies, government,
education researchers, marketing organizations, data miners,[3] and others. The
original SPSS manual (Nie, Bent & Hull, 1970) has been described as one of
"sociology's most influential books" for allowing ordinary researchers to do their
own statistical analysis.[4] In addition to statistical analysis, data management
(case selection, file reshaping, creating derived data) and data documentation (a
metadata dictionary was stored in the datafile) are features of the base software.

Time Series of Data:

The data used for analysis is of ten years (2004 to 2014). The cement exports
were available since 2004 on SBP site. The data for GDP growth per capita, GFCF,
LF, FDI and M2 were provided by the instructor of this course.

Analysis: Ordinary Least Squares Method

ordinary least squares (OLS) or linear least squares is a method for estimating the
unknown parameters in a linear regression model, with the goal of minimizing the
sum of the squares of the differences between the observed responses in the
given dataset and those predicted by a linear function of a set of explanatory
variables (visually this is seen as the sum of the vertical distances between each
data point in the set and the corresponding point on the regression line the
smaller the differences, the better the model fits the data).

Empirical Equation:

Model Summary

Adjusted R Std. Error of the

Model R R Square Square Estimate

1 .957a .915 .830 .85578

a. Predictors: (Constant), M2, FDI, lGFCF, LCE, LF

Coefficientsa

Standardized
Unstandardized Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) 23.402 50.002 .468 .659

LCE -2.822 .822 -1.196 -3.432 .019

lGFCF .224 6.232 .050 .036 .973

LF .257 .642 .642 .400 .706

FDI -.360 .352 -.205 -1.024 .353

M2 .248 .218 .462 1.139 .306

a. Dependent Variable: GDPPC

Equation:

GDP growth per capita = 23.402 - 2.822 log(cement export) + .224 log(GFCF) -
.257 (LF) -.360 (FDI) + .248(M2)

Empirical Results
R-squared is a statistical measure of how close the data are to the fitted
regression line. It is also known as the coefficient of determination, or the
coefficient of multiple determination for multiple regression. The definition of R-
squared is fairly straight-forward; it is the percentage of the response variable
variation that is explained by a linear model. Or:

R-squared = Explained variation / Total variation. R-squared is always between 0

and 100%:

0% indicates that the model explains none of the variability of the response
data around its mean.
100% indicates that the model explains all the variability of the response
data around its mean.

In general, the higher the R-squared, the better the model fits your data.

The R-squared is .915, that means the data is explaining 91.5% of the variation,
this means the data is reliable.

The -2.822 shows that Export receipts have a negative relationship with the GDP
growth per capita. This is because export of cement is rising whereas GDP growth
per capita is decreasing. The reason for GDP growth per capita could be rapid
increase in population or some other factors affecting GDP growth that are not a
concern of this study.
 Ratio Analysis Graphs

Fauji Cement:

Net Profit Margin (%)

25

20

15

10 Net Profit Margin (%)

0
2011 2012 2013 2014 2015

Current Ratio (Times)

1.6
1.4
1.2
1
0.8
Current Ratio (Times)
0.6
0.4
0.2
0
2011 2012 2013 2014 2015
 Earning per share (Rupees)
3.5
3
2.5
2
Earning per share
1.5 (Rupees)
1
0.5
0
2011 2012 2013 2014 2015

Debt to Equity Ratio (Times)

0.6
0.5
0.4
0.3 Debt to Equity Ratio
(Times)
0.2
0.1
0
2011 2012 2013 2014 2015
Maple Leaf Cement:

Net Profit Margin (%)

25
20
15
10
5
Net Profit Margin (%)
0
-5 2011 2012 2013 2014 2015
-10
-15
-20

Current Ratio (Times)

1.2
1
0.8
0.6
Current Ratio (Times)
0.4
0.2
0
2011 2012 2013 2014 2015

Earning per share (Rupees)

8
6
4
2 Earning per share
0 (Rupees)
2011 2012 2013 2014 2015
-2
-4
-6
 Debt to Equity Ratio (Times)
5
4
3
Debt to Equity Ratio
2 (Times)
1
0
2011 2012 2013 2014 2015

Lucky Cement:

Net Profit Margin (%)

30
25
20
15
Net Profit Margin (%)
10
5
0
2011 2012 2013 2014 2015

Current Ratio (Times)

1.5

Current Ratio (Times)

0.5

0
2011 2012 2013 2014 2015
 Earning per share (Rupees)
50

40

30
Earning per share
20 (Rupees)
10

0
2011 2012 2013 2014 2015

Debt to Equity Ratio (Times)

0.025

0.02

0.015
Debt to Equity Ratio
0.01 (Times)
0.005

0
2011 2012 2013 2014 2015
 References

Kumar, P.K. , John, S.F., Senith, S., (2013). A STUDY ON THE PROGRESS OF INDIAN CEMENT INDUSTRY.
British Journal of Marketing Studies. Vol. I, No.1.

Hijazi, S.T. & Tariq, Y. (2006). The Determinants of Capital Structure: A case of Pakistan Cement Industry,
The Lahore Journal of Economics.