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Complete Analysis of Pakistan Industries
Complete Analysis of Pakistan Industries
BBA 7
Instructor: Prof. Zafarullah Siddiqui
E-mail: zafarktt@yahoo.com / Tel: 03088881953
Course Description
The main objective of this course is to provide an
understanding and familiarization with the concept of
comparative advantage and infrastructure of industrial
sector in the economic development of a country. The
course will also provide in-depth analysis on the issues and
challenges related to industrial development in Pakistan
which are: energy crisis, interest rate, poor governance,
security concerns etc. At the end of the course, students
will be able to understand the major industries which are
supporting the economic process of the country and how
further economic integration can bring a long-term
sustainability and accountability in the economic process of
Pakistan.
Overview of Pakistan’s Economy:
The economy of Pakistan is the 26th largest in the world in terms
of purchasing power parity (PPP), and 46th largest in terms of
nominal gross domestic product. Pakistan has a population of over 220
million (the world's 5th-largest), giving it a nominal GDP per capital of
$1,543 in 2020-2021,which ranks 181st in the world and giving it a
PPP GDP per capita of 5,964 in 2021, which ranks 174th in the
world for 2021. However, Pakistan's undocumented economy is
estimated to be 36% of its overall economy, which is not taken into
consideration when calculating per capita income. Pakistan is a
developing country and is one of the Next Eleven countries as having a
high potential of becoming, along with the BRICS countries, among the
world's largest economies . The economy is semi-industrialized, with
centers of growth. Primary export commodities include textiles, leather
goods, sports goods, chemicals, surgical Instruments, Cement and
carpets/rugs.
Ch-1 Historical Perspective
Since the country's independence in 1947, the economy of Pakistan has
emerged as a semi-industrialized one, based heavily on textiles, agriculture, and
food production, though recent years have seen a push towards technological
diversification.
Pakistan at the time of partition in 1947, had negligible industrial base.
Out of 921 industrial units operating in the British India, Pakistan got only 34
industries i..e 4%of the total industries established in the Subcontinent.
There was no steel industry worth the are in Pakistan, whereas India had a
sound industrial base at the time of Independence.
Since the division of the Subcontinent, the Government of Pakistan has been
utilizing all available resources domestic as well as external for rapid
development of the manufacturing sector.
GROWTH OF INDUSTRIAL SECTOR
FROM 1947 TO 1950
Out of 955 industrial units operating in the British India, Pakistan got
only 34 industries i.e. 4% of the total industries established in the
Subcontinent.
The rest were located in India. The industries which came to the share of
Pakistan were of a comparatively small size and were based on raw
material. These industries included small sugar mills, cotton ginning
factories, flour mills, rice husking mills and canning factories etc.
In 1947 it was suggested in the Industrial conference of Pakistan to
establish industries, which use locally produced raw material like jute,
cotton, hide and skins. The Government also set up an Industrial Finance
Corporation and an Industrial Investment and Credit Corporation in
1948. In the period from 1947 to 1950, the private entrepreneurs
invested in those industries which showed the highest profit.
The contribution of industrial sector was 6.9% to GDP in 1950.
GROWTH OF INDUSTRIAL SECTOR IN
1950'S
In 1952 the Government took the initiative and established Pakistan
Industrial Development Corporation (PIDC) to invest in those industries
which require heavy initial investment. PIDC major investment was in
paper and paper board, cement, fertilizer, jute mills and the Sui Karachi gas
pipeline. PIDC by June, 1971 had completed 59 industrial units and created
a base for self sustained growth in the industrial sector.
A large number of new industries were established. The production
capacity of the already existing units like fertilizers, jute and paper was
considerably expanded. The reduction of export duties and the introduction
of Export Bonus Scheme in 1958 increased export of the manufactured
goods.
There was all round development of industries particularly in agricultural
processing food products and textiles. The share of industrial sector to GDP
rose from 9.7% in 1954-55 to 11.9% in 1959-60
PERFORMANCE OF INDUSTRIAL SECTOR IN 1960’S
In 1960’s there was a shift in the establishment of
consumer goods industries to heavy industries such as
machine tools, petro-chemical, electrical complex and iron
and steel.
The industrial performance in terms of growth, export and
productivity increased during the Second Five Year Plan
period.
The share of industrial sector to GNP went up to 11.8%
from 1960 to 1965.
PERFORMANCE OF INDUSTRIAL
SECTOR IN 1970'S
The industrial performance in terms of growth, exports and production was
disappointing from 1971 to 1977. There were various reasons for the poor
performance of the manufacturing sector. One wing of the country (East
Pakistan) was forcibly separated. The Country had to fight a war with India in
1970. The suspension of foreign aid, loss of indigenous market (East
Pakistan), fall in exports, devaluation to the extent of 131%, nationalization of
industries labor unrest, unfavorable investment climate, floods, recession in
world trade and reduction in investment incentives caused a fall in the output
of large scale industries.
The annual growth rate fell to 2.8% in the industrial sector in this period.
From July, 1977 to 1980, the Government initiated a large number of
measures to revise the economy. Cotton ginning, rice husking and flour
milling were denationalized. The private sector was encouraged to invest in
large scale industries.
The annual growth rate in manufacturing sector was 8.2% in the 1989. The
growth of large scale manufacturing slowed down to an average of 4.7% in
the first half and further to 2.5% in the 2nd half of the 1990's.
1st Five Year Plan
The first five-year plan (1955-1960) involved outlays to
the public sector of Rs. 7.5 billion and Rs. 3.3 billion to
the private sector. The plan maintained that ‘while the
government cannot determine precisely the magnitude or
the kind of private investment that will actually be made.
It can, by suitable policies and its import licensing powers,
greatly influence the magnitude of private investment’.
The government selected sugar, cement, cotton textiles,
cigarettes and jute goods for protection. The policies, as
mentioned above, were guided by short-term demands and
as a result the economy remained consumption oriented.
2nd Year Plan
The second plan was almost twice the size of the first plan;
however, the sectoral allocations differed slightly with
agriculture receiving a greater share in the development
budget.
The overall political situation in the country was more stable.
The industries targeted by the government were sugar,
vegetable ghee, jute, super-phosphates, soda ash and caustic
soda.
Actual growth surpassed the planned growth rate. It should
be noted however that this period was also characterized by
massive inflows of aid , which led to the growth spurt, and a
more able government in office.
3rd Year Plan 1965-1970
The third year plan (1965-70) had aimed to achieve similar success of
the Second Plan; however, this period involved drastic deterioration of
Pakistan’s economy due to the Indo-Pak war in 1965.
Resources were diverted to defense expenditure and aid inflows were
interrupted which weakened productive capacity. The industrial sector
output declined due to the underutilization of capacity, raw material
shortages and reduced investment in capital equipment.
The rollback of import liberalization was reversed in 1966/67 and by
1968 over 90% of all imported raw materials was free of controls. The
reduction in aid inflows led the government to cut down the size of the
development budget.
By the end of the third plan productivity was declining due to large
and inefficient public sector enterprises (particularly in East Pakistan-
now Bangladesh).
4th Year Plan (1970-75): It was replaced with nationalization. The
third wave of industrial policy involved the nationalization of large
scale manufacturing under President Zulfikar Ali Bhutto’s
administration (1971-1973). Public sector corporations were set up to
finance the industrial sector which was the beginning of today’s deep
rooted public management distortions. Ahmed and Amjad (1984)
explain that the Board of Industrial Management (BIM) controlled 32
major manufacturing (nationalized) enterprises covering 10 sub-
sectors. BIM and Pakistan Industrial Development Corporation
(PIDC) together made the industrial sector more inefficient as new
projects were chosen on political and not meritorious grounds.
5th ( 1978-1983) and 6th (1983-1988) Year Plan: General Zia ruled the
Pakistan and it was longest rule done by anyone. In 1977, with the
return of military government under President Zia-ul-Haq, a State
Enterprises Review Commission and later Implementation Committee
on Reorganization of State Industrial Enterprises recommended the
abolition of the Ministry of Production, BIM, and sector-specific
corporations involved in commodity operations.
7th Year Plan 1988-1993
Post 1988 era was the era of structural adjustment undertaken under the close
supervision of IMF and World Bank The return of democracy in 1989 started
the fourth wave of industrial policy for the decade of the 1990s.
A few regulatory bodies were set up; however, they did not have much
autonomy to work effectively. This brief history shows that industrial policy
has been specific to how each government viewed different productive
sectors and has lacked a long-term consensus-driven vision.
Causes of Industrial Drawback
Political Instability
Lack of Capital
Limited Market
Peoples’ Liking to Foreign Goods
Under Utilization of Labors’ Potential
Communication And Transportation
Technical Know How
Energy Crisis
Economic Restrictions
Lack Modern Technology
New Competitors
Low Foreign Investment
High Interest Rate
Granting MFN Status To India
Reasons for Privatizations
Governments take privatization stance
To reduce its burden in terms of underutilization of
resources
Dismissed employment
Fiscal burden
Financial crises
Heavy losses and subsidies in order to improve and
strengthen competition
Funding to infrastructure
Methods of Privatization
Auction via Bids (financial and administrative bids)
Sale of Entire Entity
The target for this year was 8.1 percent. The present trend suggests that
full year LSM growth will remain below the target by a wide margin.
Year on Year (YoY), LSM growth witnessed sharp decline of 10.63
percent in March 2019 as compared to increase of 4.70 percent in March
2018.
sector over the five years has been 9.4 and the large and small scale industries growth rates have been 10.9
and 6.3 percent respectively.
Accelerated growth because of the demand stimulus in the form of credit for the purchase of consumer
durables
A sharp increase in exports after the quota restrictions were removed.
2017-18
Pakistan’s manufacturing sector is gradually reviving and flourishing.
With the improvement in energy, law and order situation, investment
opportunities, increasing government expenditure in infrastructure
development like Industrial Estates / Special Economic Zones (SEZs),
announcement of Automotive Development Policy (ADP) and New Textile
Policy, it is expected that Pakistan’s manufacturing sector would gain further
momentum in 2019-20.
Likewise proposed Industrial Parks / SEZs along-with CPEC route would
bring investment therein through shifting of some production units from
China, which would further improve the industrial output in coming years. To
enhance export competitiveness, the strategy is to increase the number of
products in the export-base so as to decrease dependence on textiles and rice,
the two major sectors.
Approach to be followed for the improvement of the Sector includes
exploration of lucrative and approachable markets and diversification along
with better competitiveness of our products through structural reforms.
Programs
The federal government has launched different projects to revive and
boost the industrial growth.
Major interventions to be undertaken these projects include developed
infrastructure, skilled workers, marketing facilities, and common facility
centers to attract and facilitate the investors.
Some of the important projects are listed below:
Manufacturing, mineral and commerce sectors 161 Annual Plan 2017-18
Light Engineering Up-gradation Centre for SMEs in Balochistan
(LEUC), Hub Lasbela
Water Supply Scheme for Hub Industrial Trading Estate (Phase-II)
Establishment of Bostan Industrial Estate (Phase-I), Bostan
Provision of Infra-structure in Quetta Industrial Estate (Phase-IV), Quetta
Establishment of Gems and Jewelers Training and Processing Centre in
Muzaffarabad, AJK.
Natural Factors:
Natural Disaster
Lack of Demand
Energy Crisis
Man-Made Factors:
Corruption
Terrorism
Lack of skilled labor
Institutional Factors
British Policy at the time of Partition, only 34 units given to Pakistan
out of 921.
Controversial Industrial Strategy
Shortage of Capital.
Limited Markets
Lack of Technical Know-How
Lack of Infrastructure
Lack of Industrial Research
Unbalanced Industrial Structure.
Labor Unrest.
Nationalization.
Lack of Specialization
Incentives and Policies
Import Substitution Policy
In order to encourage greenfield investment and industrialization, it
was proposed to grant exemption from payment of sales tax on
imported plant and machinery, falling in chapter 84 and 85 of PCT
excluding consumer durables and office equipment, to be used for
setting up new industry for production of taxable goods.
However, he said, increase in the Federal Excise Duty on imported
luxury cars / SUVs; and Levy of FED on local luxury cars / SUVs
was already imposed on imported cars and jeeps of engine capacity
exceeding 1800cc at 20 percent .
In order to further discourage the imports of such luxury cars and
jeeps, it was proposed to enhance the rate of Excise
Duty from 20% to 25%, for such cars and jeeps up to capacity
3000 cc and to 30% for cars exceeding 3000 cc.
Contd..
Removal of super tax and tax on inter-corporate dividend
will help in capital formation while getting away with
withholding tax on banking transactions will support the
ease of doing business reforms.
Similarly, reduction in the tax rate on interest income on
additional loans to small and medium enterprises (SMEs),
agriculture and low cost housing to 20pc from 39pc will
also push up lending to these less preferred sectors.
What is Industrialization?
The process in which a society or country transforms itself
from a primarily agricultural society into one based on the
manufacturing of goods and services. Individual manual labor
is often replaced by mechanized mass production and
craftsmen are replaced by assembly lines. Speed of production
fastens. Labor productivity and efficiency increases
Industrialization is the period of social and economic change
that transforms a human group from an agrarian society into
an industrial society. This involves an extensive re-
organisation of an economy, affordable energy and strong
Fiscal & Monetary Incentives for the purpose of competitive
manufacturing.
Pre/Post COVID imperative and scope of
online business
E-commerce had been steadily gaining momentum, the
world over and also in Pakistan much before COVID19
happened. By and large the onset of the pandemic and the
ensuing lockdown has thrown the progression of online
purchasing off balance because of restrictions on eligible
items to essentials and due to the limitations placed on
physical movement directly impacting deliveries.
Nevertheless, experiences of life during the lockdown
have resulted in nudging attitudes towards opting for e-
commerce once things are back to normal.
Business Cycle
Shows the periodic up and down movements in
economic activities.
Economic activities measured in terms of
production, employment and income move in a
cyclical manner over a period of time.
Cyclical movement is characterized by
alternative waves of expansion and contraction.
Associated with alternate periods of prosperity and
depression.
Characteristics of Business Cycles
Periodicity
Wavelike movements in income and employment occur at
intervals of 6 to 12 years.
Gap between two cycles is not regular or predictable with
certainty.
Synchronism
Impact is all embracing, i.e. large sections of the economy
experience the same phase.
Happens because of interdependence of various sectors of the
economy.
Self Reinforcing
Due to interdependence in the economy, cyclical movements
faced by one sector spread to other sectors in the economy; and
from one economy to other economies.
Thus the upward swing of the cycle is reinforced for further
upward movement and vice versa.
Phases of Business Cycle
Expansion: when all macro economic variables like
output, employment, income and consumption
increase.
Prices move up, money supply increases, self reinforcing
feature of business cycle pushes the economy upward.
Peak: the highest point of growth; referred to as boom.
Stage beyond which no further expansion is possible,
Sees the downward turning point.
1. Honesty.
2. Integrity.
3. Promise-Keeping & Trustworthiness.
4. Loyalty.
5. Fairness.
6. Concern for Others.
7. Respect for Others.
8. Law Abiding.
Corporate social responsibility help in
the growth of the business / Industry
Being a socially responsible company can bolster
a company's image and build its brand. Social
responsibility empowers employees to leverage
the corporate resources at their disposal to do good.
Formal corporate social responsibility programs can
boost employee morale and lead to greater productivity in
the workforce
CSR demonstrates that you're a business that takes an
interest in wider social issues, rather than just those that
impact your profit margins, which will attract customers
who share the same values. Therefore, it makes
good business sense to operate sustainably.