Analysis Report

Key Issues in Industrial Growth in Pakistan

Introduction
Although Pakistan is an agricultural country, industries have also played an important role in the
development of Pakistan since it got independence. Industrial sector is a major source of
country’s GDP and employment in Pakistan. It is also a source of foreign exchange for Pakistan.
But since the independence Pakistan has faced numerous challenges related to industrial sector
and till now Pakistan is facing many challenges in the development of its industrial sector which
include trade deficit, backwardness in technology, untrained professionals, security issues and
government policies which must be resolved to make industrial sector of Pakistan to prosper.

The manufacturing sector has expanded at rates of 14.1 and 12.5 percent in recent years, with
large-scale manufacturing growing at even faster rates of 18.2 and 15.4 percent. 1 These growth
rates are higher than the national average, more than double the rate of growth in the first three
years of this decade and more than three times higher than in the 1990s. Investment in the
manufacturing sector, on the other hand, has decreased at a rate of 2.6 percent-8.5 percent
growth in 2003-04 and 12.6 percent growth in 2004-05. In 2004-05, there was a decrease.
Investment as a percentage of GDP rose from 3.2 to 3.3. Percent in 1999-2000 to 3.6 percent in
2003-04, but then plummeted to 2.9 percent in 2004-05. The low levels of investment raise
serious questions about the manufacturing production growth rate's long-term viability. The low
and fluctuating rate of investment is concerning, and has been for some time responsible for the
manufacturing sector's slow and erratic development.

Because of high security rates, the manufacturing sector's value added at world prices has been a
fraction of what it has been at domestic market prices. In most manufacturing sectors,
productivity levels are still high to be low, making it more difficult for Pakistani producers to
compete in the global market the global marketplace. Import substitution industrialization has
left behind low-quality products, a lack of standardization, low-value-added products marketed
without a brand name, a lack of creativity, and low levels of productivity. Imply that the
manufacturing sector needs significant restructuring.

Current Industrial Problems:

Nowadays, Pakistan’s economy is facing many problems some of them are following
1. Government policies:
In Pakistan industries experience a lot of problem in understanding the policies of
government. Unequal burden of taxes on industry, increase in imports,
availability of smuggled goods, a fiscal policy that relies on imports for revenue
and fails to encourage capital formation and consolidation, together with
measures to meet tax revenue shortfall have thwarted the growth of industry.

2. Trade deficit:
Increase in imports and decrease in exports has disturbed the balance of trade.
This is because Pakistan has failed to generate and promote its industrial products
in international market. This imbalance in trade of exports and imports has also
affected the productivity of industries very badly.

3. Lack of technology:
In this modern era, technology has become an essential part of everyone’s life.
Likewise, the importance of technology in industries cannot be neglected. Each
productive unit needs several machineries to make work easier and faster. But
unfortunately, due to lack of resources, industries are not fully equipped in
Pakistan and due to this backwardness in industrial field, the efficiency of
industries and quality and quantity of products is being affected.

4. Lack of trained personnel:

Every field of life needs personnel excel in their work. But every person who
starts to work in the industries or any company does not have any training prior
to the job. Due to this reason industries cannot perform at their highest. Similarly,
employees of industries are also not trained to operate the machineries that are
used in the work and they do not make full use of the machinery and technology.

5. Corona virus and current situation:

Since 2020, Pakistan is also facing the effects of the pandemic due to which
industries remained closed for months due to lock down. For this reason, in this
economic year, the productivity of industries decreased to a great extent, as a
result, exports decreased, thus decreasing the country’s GDP.

6. Foreign policies:
No country lives alone on the earth. Each country must cooperate with others to
make its survival possible in this growing world. These relations that a country
has with others also affect its economy. Trade between countries is a source of
economic development of one country. Therefore, foreign policy of a country has
great importance in industrial and commercial world. Pakistan due to harsh
 relations with its neighbor India cannot develop good trade with it which causes a
lot of loss in industrial field. Similarly, trade with other countries like America,
Russia and other countries especially European countries has also being affected
due to different religious and political reasons. The agreements with IMF and
other world banks have also pressurized the industries’ policies.

7. Political instability:
In Pakistan, due to political instability, industries have suffered a lot nowadays,
due to recent changes in ministers related to economic affairs industries face
difficulty in understanding the policies of the new minister who have his own
goals and way of working. Likewise changes in government within a few years
also affect the industrial development. Some social and political protesters also
affect the industrial growth.

8. Energy crises:
Due to rise in petroleum and oil prices in world and devaluation of currency the
cost of production of products increases due to which industrialists face a lot of
problems in fulfilling the demands of the consumers and face a lot of loss in their
businesses. Power is like blood in the veins of human for industries.
Uninterrupted power supply means increase in industrial outputs and thus
increases in foreign exchange. But unfortunately, in Pakistan nowadays and
during winters especially shortage of LNG reserves has affected not only the
supply of industries but also GDP of the country but also affected the life of
ordinary man as well.

9. Pressure of inflation:
Due to inflation prices of raw materials has increased which cause increase in the
prices of industrial goods. Along with it, devaluation of currency has affected the
exports of industries.

10. Terrorism:
Economy of any country needs safe and secure environment to develop.
In the recent years, terrorism has affected the economy as foreign investors were
afraid that whether they would get the profit or not. This caused lack of country’s
income and thus also affected the promotion of Pakistani goods in the world.

11. Corruption:
Industrialists are also affected deeply by the corrupt employees and
administration. Due to corruption in industries their net profit also decreases.
12. Lack of infrastructure:
 Pakistan lacks proper roads, infrastructure due to which industrial development
of Pakistan also slows and investors do not show mush interest in investment in
Pakistan. The transport system of Pakistan is still under development. The
existing system does not cope with the industrial and commercial requirement
and as a result it effects the economic development of Pakistan.

13. Structural Problems Confronting the Manufacturing Sector:

A variety of factors have hampered Pakistan's manufacturing sector's success.
Industrial and trade policy distortions, a narrow industrial base, low productivity
levels, poor product quality, the position of public sector enterprises, higher
production costs, regulatory system issues, and poor infrastructure are just a few
of the issues.

14. Telecommunication Services:

While telecommunications quality has improved in recent years, there is still
room for improvement in terms of reliability and the expansion of fixed line
connections. The privatization of PTCL, as well as competition in wireless and
mobile telephones, has greatly improved the situation. Businesses all over the
world are increasingly dependent on the internet for connectivity and conducting
business operations, thanks to advances in information technology. Although
internet use in Pakistan is increasing, poor connectivity and slow speeds remain
major issues.

15. Weak Infrastructure

The manufacturing sector's success has been hampered by a lack of physical
infrastructure. Whereas a lack of repair and maintenance has caused physical
infrastructure to deteriorate, inefficiencies in public sector utilities have led to
high production costs, eroding domestic manufacturers' competitiveness.

Conclusion
The long-term euphoria of high growth rates has been generated by the large-scale
manufacturing sector's growth rates of 14.1 and 12.5 percent in 2003-04 and 2004-05,
respectively. Since investment rates have been fluctuating around a low level, the manufacturing
sector's expected sustained growth appears to be very optimistic. Furthermore, the manufacturing
sector is beset by a slew of systemic issues, including Bad quality, lack of diversification,
allocate, technological, and X-inefficiencies of services and merchandise Low levels of R&D
activity lead to slow productivity growth, rendering Pakistani goods uncompetitive in the global
market. Although Pakistan has consistently pursued an Import Substitution Industrialization
Strategy, it has been unable to diversify its industrial structure because producers have not
ventured into new import substitution industries, instead sticking to conventional import
substitution industries. Domestic and international demand has been a significant contributor to
the manufacturing sector's expansion. Although consumer credit can boost demand, it can also
have severe consequences for investible funds. It emphasizes the importance of taking
appropriate steps to accelerate the pace of development in terms of exports.

Smuggling has had a negative impact on the growth of many industries, especially consumer
durables. Since import duties on raw materials and intermediate products have been heavy,
domestic producers have been unable to compete with smuggled goods. Tariff rationalization has
been instrumental in the growth of consumer durables in recent years, but further tariff
rationalization is needed, as well as a long-term strategy. Higher power and energy prices, as
well as high transportation costs, are some of the other factors that appear to raise the cost of
production. Vocational training that offers skilled talent that meets the needs of the country's
labor force contributes significantly to the expansion of manufacturing industries. The private
sector should be encouraged to participate encouraged to increase its participation in skill
development. As an incentive, increased credit access and duty exemptions on training
equipment imported by accredited institutions and agencies may be provided. There's also the
possibility that the government provides the seed money for public-private partnerships.

References
https://ideas.repec.org/a/lje/journl/v11y2006ispp49-74.html

https://www.thenews.com.pk/tns/detail/713821-the-problem-of-industrial-
development

https://www.scribd.com/presentation/99499006/Key-Issues-in-Industry-in-
Pakistan