Political Economy of Industrialization in Pakistan

Muhammad Naseer Ahmad Taib

 What does
Industry mean
“Industry refers to that sector
of economy which is related
with manufacturing and
production of different
products”
Industrial sector Functions
 Industrial Sector is of great importance for economic
development of country.

 It is historical fact that countries with strong industrial

sector have showed more economic growth and
development.
 Industrial sector have shown improvement in national
income and promoted living standard of population.
 Introduction:
• The fundamental question in this regard is “Why have private industrial activities
fail to take off a significant scale in Pakistan”.
• It is unprepared to meet the local as well as global challenges.
• Private industrial development in Pakistan has a mixed track record.
• Variant industrial policies.
• One of the reasons behind industrial backwardness is that policies were
designed to give advantages to the elite and special group.
• The role of foreign aid has been disorienting industrial structures.
• The state is playing its role to create monopoly of some organization.
• This sector is prone to structural deficiencies.
• Over concentration on textile is also causing number of issues to the industrial
development in Pakistan.
• Yes it is good to have specialization but diversification must be made in its
products.
• In Pakistan textile was given special consideration but shortly it suffered
because of the above factors.
• Defective public infrastructure and unfavourable investment climate.
• Pre-colonial:
• 16th, 17th and 18th centuries have deep impact in the world politics.
• In India 18th century brought a social revolution that has impacted it
every spheres of life. There was a great violence and instability.
• Peasant and lower Zamindars gather against the authority.
• With the displacement of old elite, a new era of patron-client
relationship begin to strengthen the feudal system.
• There was connection between raw material (agrarian product),
industry (small scale) and market (local). Industry was quite enough to
meet the demands of the local market.
• They fail to capitalize their industry to expand their scope and
equipped with modern technology and innovation. Even they were
making innovation in their respective field.
• .

Historical background:
• Colonial formation:
• Colonialism is a system through which the whole Indian society
was re-order to strengthen the roots of the British in the sub-
continent.
• Patronage based model of governance was introduced by them.
There was not merit in their system.
• They consolidate power with the help of the civil military elite.
• This system divided the whole society between Patron and Client.
• New industry was developed at small scale and forced the labours
special those who were busy in their home or cottage industry to
work in the field
• It leads to dependent economy.
• Discouraged industrial and urban development. Focused on rural
development. They also strength rural elite rather urban mobilized
elites.
• Post-colonial:
• Pakistan at the time of partition in 1947 had a negligible industrial base. It got
only 34 industries out of total 955, while remaining were held by India.
• Such a small number of industries were not enough for a newly born country to
face the industrialized world.
• With the passage of time, Pakistan utilized it’s all available resources domestic as
well as external for rapid development of manufacturing sector
• Z.A Bhutto rightly said in his book ‘myth of independence’ independence of
Pakistan is just a myth not a reality.
• The unfavourable inheritance:
• Partition of India proves to be watershed for industrial and economic development
in Pakistan.
• It also leads toward industrial shock in the form of [out migration of merchant,
insignificant industrial and manufacturing development]
• Migration of commercial group:
• 80% industry belong to non-Muslim
• 80% foreign trade controlled by them
• In Bengal situation is more dismal [few Muslim were engaged in trade or
• A weak industrial base:
After independence only 1% was contributed by industrial development.
There was total absence of modern industry.
41.1% small scale [flour, rice, food grain, cotton ginning]
• Other Reasons:
[Long standing structures remained unchanged]Under colonial Raj
subcontinent got orientation that disorder the whole set up and push state
and society into new network of state and its institutions which helped the
colonial masters rather natives.
• From historical evidences one can easily trace out that the initial
conditions which were the hindrance in industrial development such as
low level of urbanization and out-migration of bourgeois at the time of
independence.
• At the time of independence different documented ways were used by
the elites to secure their interests.
GROWTH OF INDUSTRIAL SECTOR IN PAKISTAN
• The industries which came to the share of Pakistan were of a
comparatively small size and were based on indigenous raw
material. These industries included small sugar mills, cotton ginning
factories, flour mills rice husking mills, canning factories etc.
• Industrial Conference was held in December, 1947.
• Recommended the establishment of industries
• The industrial performance in terms of growth/productivity is
examined in the following periods of time:
1. Growth of industrial sector from 1947 to 1950.
2. Growth of industrial sector in 1950's.
3. Performance of industrial sector in 1960's.
4. Performance of industrial sector in 1970's.
5. Performance of industrial sector from July 1977 - 1997.
6. Performance of industrial sector from 1997 onward

GROWTH OF INDUSTRIAL SECTOR FROM 1947 TO 1950

• This period has mixed experiences. On one side there is boom of economic development while on
the other side there was an economic death.
• Initially, due to outmigration of the manufacturing and industrial class, market goes down.
• During (25 June 1950 – 27 July 1953) Korean War, there was constant increase of raw material
export in Pakistan. There was increase of price in international market. Traders melded lot of
money.
• 1949-1950 the growth rate was 34%
• Industrial Finance Corporation and an Industrial Investment and Credit Corporation was
established 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.
• Pakistan Industrial Development Corporation (PIDC) was established in 1950.
• Its purpose was to invest in those industries which require heavy initial investment.
• Major investment was in paper and paper board, cement, fertilizer, jute mills and the Sui Karachi
gas pipeline by PIDC.
• This helps the government to control the foreign exchange and issue licence. This gave powers to
bureaucrats to regulate economy.
GROWTH OF INDUSTRIAL SECTOR IN 1950'S
• They created monopoly of the few organizations such as Adamjee, Saigal, Amin and crescent etc.
• Absence of open competition among the organizations.
• The focus of such policy was individualistic rather collective. So, it discouraged
collective action and favoured individual and created the monopoly of few.
• PIDC by June, 1971 had completed 59 industrial units and created a base for
self sustained growth in the industrial sector.
• The production capacity of the already existing units like fertilizers, jute and
paper was considerably expanded.
• New industries were established
• In the First year Plan Year Plan 1955-60, a sum of Rs. 185.11 crore was
allocated of the growth of industrial sector.
• Reduction of export duties to promote exports
• 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.
• 1960 to 1970 covers two Plan periods
• In the Second Five Year Plan, 1960 to 1965, an allocation of Rs.
513 crore, 22.2% of the total outlay,
• 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.
• In the Third Five Year Plan from 1965 to 1970, development
expenditure amounting to Rs. 233.11 crore (against a target of
Rs. 1277.0 crore) was suffered for the growth of manufacturing
sector.
• The Plan could achieve only a partial success as it ran into
difficulties soon it was launched.

PERFORMANCE OF INDUSTRIAL SECTOR IN 1960'S

• The frequent floods, the successive years of deficiency, and the
political unrest resulted in slowing down the pace of development
in all the sectors of the economy
• The manufacturing sector could achieve a growth rate of 7.8%
against the Plan target of 10%
• Ayub Khan liberalized the economy that gave space to the new investors but it was
dominated by the big industrial companies.
• A strategy was developed by the government to control the monopoly houses. Banks and
insurance companies were given ample importance to control monopoly houses.
• 1: situation of the Banks:
• To achieve this objective PICIC [Pakistan industrial credit and investment corporation]
was established. Under this 17 banks were incorporated but out of them 7 were controlled
by the monopoly houses. These 7% were controlling 60% of total deposit while 50% loan.
[Means they were leaving space for others to grow.
• 2: situation in the insurance companies:
• While in 1969 there were 47 insurance companies were established but out of them14
were controlled by the monopoly houses. They also poses 50% share of the total assets.
• 3: representation in the financial institutions
• These seven monopoly houses do not only controlling the economic activities rather
representing in important governmental financial institutions. [in different boards of
PICIC and foreign aid and loan disbursing companies]. In 1970 there were 37 monopoly
houses but 13 were controlling the 70% of the total amount.
• 4: Green Revolution and its impact:
• It capitalized the agricultural sector and marginalized the small farmers. It also
encouraged the 20 families.
• Land reforms and its reality?
• The industrial performance in terms of growth, exports and
production was disappointing from 1971 to 1977.
• Reasons were:
• 1971 Pak-India war
• Separation of east wing of Pakistan
• Delay of foreign aid
• Fall in exports
• Devaluation to the extent of 131%
• The nationalization of industries in 1972
• Labour unrest

PERFORMANCE OF INDUSTRIAL SECTOR IN 1970'S

1970 election not only broke up Pakistan as a signal nation rather set back
large scale industrial development in Pakistan.
Z.A Bhutto and nationalization:
Bhutto made an alliance of Upper peasant of Punjab got power under the
Green Revolution, Landed magnates of Sindh and socialist intelligentsia.
1. Nationalization of the big industry. Discourage private and foreign
investment.
2. Imposition of state own enterprises on agricultural trade. (cotton, rice
and wheat)
3. Nationalized intermediate level of agro based industry and controlled
by state.
4. These police brought conversion from feudal to industrial capitalist
class.
unfavourable investment climate floods, recession
• Above mentioned factors 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.
• During this period there was Afghan War. Pakistan was supported by western powers.
• During this period incentives have been given to the industrial class.
• Textile got importance. New investment policies ware design to strengthen textile lobby.
• 2/3 exports of Pakistan was textile based.
• There was lack of diversification in textile.
• Bad loaning portfolios become a cause of Bankruptcy of Banks and financial
institutions.
• Some of the corrupt and default enterprises owner entered in politics such as
1: Sharif of Ittefaq group, 2: Chaudhary of Gujarat and 3: sons of generals). They
were given space by the military elite to get political legitimacy.
• Non state actors got importance.
• From July, 1977 to 1980, the Govt, initiated a large number of measures to revise the
economy.
• Cotton ginning and flour milling were denationalized.
• Encouragement of private sector to invest in large scale industries
• The investment climate was gradually building up in the country
• The annual growth rate in manufacturing sector was 8.2% in the 1989's.

Performance of industrial sector from July 1977 - 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.
• It fall further due to lack of government interest, political
instability and power battle between two political parties.
• Liberalized the economy to attract foreign investment
• PDP (privatization and de-regularization Programme) was adopted to create balance between
Public and private sectors.
• During this period private sector got share (1988: 48% while in 1999 was 57%)
• Private investment was increased up till 8 to 10 % of the GDP ( increase 4 time)
• 60% of export was textile based
• 7% increase per year in cotton production
• 3% increase in cloth production
• Pakistan captured 2% of world market in textile.
• Sugar industry got state patronage during this period. (1988: there were 45 sugar mills and in
1999 there were 75 sugar mills)
• During this period sugar got ample importance than rice, wheat and even cotton. Pakistan became
4th largest sugar producing country in the world and 5th in yield.
• Nawaz shrif made sugar production as centre of economic activities. (Banks and DFIs
development financial institutions) were busy to support sugar industry.
• 5 cement factories were privatized to mian Mansha who got MCB. Second beneficiary group was
Schon Group (Pak-china fertilizer, National Fiber Third Sikandar Jatio got Metropolitan steel,
Zeal Park cement and shikarpur rice
• Corruption and political unrest had slowed the process of economic development.[ Nawaz got was
dismissed on lack of transparency on privatization while Bebi govt. on high corruption charges.]
• Outstanding loan was (1988: 80 billion while in 1999 that was 300 billion)

Performance of industrial sector from July 1990 - 1999

• The share of industrial sector was 18.2% in GDP in
2003-04
• The main factors which contributed to rapid economic
growth supporting were monetary policy, financial
discipline, consistency and continuity of development
policies, strengthening of domestic demand continuously
improving macro economic environment a stable rate
global expansion of markets due to liberalization of trade
in 2005 etc.

Performance of industrial
sector from 1997 onward
• The overall manufacturing recorded growth of 9.9% in 2005-
06 and 8.45% in 2006-07.
• The decline in the froth of manufacturing sector is due to
multiple reasons like the reduced production of cotton crops
sugar shortage steel and iron problems and global oil prices.
• The industrial sector has recorded its weakest growth in a
decade during fiscal year 2008-
• 09.
•  Main contributors towards this broad based decline
were;
•  The impact of severe energy shortages.
•  Decline in domestic law and order situation.
• The economic development has been slowed down in 2008
because of the large price increase of some commodities
such as oil and food, global financial Crisis, and national
political issues that affect the industrial growth.
•  The trade deficit, which was 3.7 in 2007 may widen
further to about 17 percent in 2009 due to rise in domestic
demand.
•  The increasing trend in inflation also affected
consumers to curtail expenditure on
• durable goods
• The recovery came mainly due to supportive
macroeconomic policies, relatively lower inflation,
improved prospects of global economy, and relatively
better credit availability.
•  The growth in FY 2010-11 was the fourth highest
growth rate in the decade, but was still below the 10-year
average of 5.7 percent.
•  The industrial growth during FY2010-11 is mainly
from a rebound in manufacturing and construction sectors
as government reversed some taxes imposed last year.
• The growth rate of industrial sector for the year 2009-
2010 remained 4.9 percent.
Industrial sector contribution to GDP (Gross Domestic
Product) for the year 2009-2010 Remained 18.5%.
Industrial Sector is second largest sector of our economy.
• Industrial Sector is the second largest individual sector of
the economy accounting for 24% of the GDP (in 2015).
Sectoral share in GDP in
2010-2011
Comparison of Industrial Sector
Asian Countries
 Pakistan
23.93%
 India 26.3%
 Bangladesh 28.5%
 China 46.9%
 Contribution of Industrial
Sector to Economy
35%

30%

25%

20%

15%

10%

5%

0%

Pakistan India Bangladesh Sri Lanka

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