INDUSTRIAL DEVELOPMENT IN PAKISTAN

At the time of independence, Pakistan has inherited only 34 industrial units out of
921 industrial units in subcontinent.  They were cotton textile, cigarettes, sugar,
rice husking, cotton ginning and flour milling industries; and together they
contributed only 7% of GDP and employed a little over 26,000 employees.

Industrial development or history of industries in Pakistan can be divided into six

phases:

• PHASE 1 (1947-1957):
This phase started from 1947 ended to 1958.  During this period, the country
was newly born and politically immature.  During this 11-years period, 8
prime ministers came into power.  Not a single prime minister was strong
enough to pursue the industrial policy well.

During this period, the policy emphasis was on import substitution.

Government had established a committee to formulate industrial policy.

This committee emphasized on manufacturing industries, reduction of

imports, and net social and economic advantages to the country.

Pakistan Industrial Finance Corporation (PIFC) and Pakistan Industrial

Credit and Investment Corporation (PICIC) were established in 1948.

To create skilled labor, a Swedish-Pak Institute of Technology was

established in 1955.

Pakistan Industrial Technical Assistance Centre (PITAC) was established in

1956.
• PHASE 2 (1958-1969):
In 1958, a military government of Ayub came into power in Pakistan and
announces a new industrial policy in 1959.  This phase witnessed the
massive industrial growth in the country.

This industrial policy emphasis on private sector and the development of

agro-based industries.

During this period, the government gave emphasis on intermediate and

capital goods, i.e., electrical, chemical, machine tools, etc.

Various types of funds were established to promote the industrial

development in the country.

• PHASE 3 (1973-1977):
During this period, a new democratic government of Bhutto came into
power and adopted the principles of mixed economy.

Government ruthlessly nationalized 34 industrial units belonging to the

following basic units:

 Vegetable ghee and oil industries (26 industrial units)

 Shipping industry

 Iron and steel industries

 Basic metal industries

 Heavy engineering industries

 Assembly and manufacture of motor vehicles

 Tractor plants
  Heavy and basic chemicals

 Petro-chemical industries

 Cement industries

 Public utilities including electric generations, gas and oil industries.

The nationalized industries were put under the management of Board of

Industrial Management (BIM).

Pakistan Industrial Development Corporation (PIDC) was established.

Other reforms were taken by the government were:

 Labor reforms

 Abolition of bonus voucher system

 Reduction of sales tax on imported items

 Revision of import policy

 Establishment of industrial units in less developed / rural areas.

• PHASE 4 (1977-1988):
A new martial law government by Zia came into power in 1977.  The new
military government in 1977 announced the reversal of previous
government’s nationalization policy and introduced a new industrial policy.

The federal government offered for the transfer of shares of nationalized

industries to their former owners, under Economic Reforms Order 1978, and
thus the new open way for denationalization of industries.

Government announced tax holidays and revised import policy.

To boost private industrial development, following measures were taken:

  Reduction in interest charges by banks to 12.5% on all fixed
investments.

 Removal of taxes on issuance of bonus shares.

 Fixing standard rebates of excise duty on additional 17 items.

• PHASE 5 (1988-2008):
During the first half of this phase, i.e., 1988 to 1999 the country had faced
worst political conditions in the history of Pakistan.

Two governments had come into power for twice, i.e., Benazir’s
Government and Nawaz’s Government, and not even governed for more
than three years.  Therefore, the industrial policy was never the top priority
of those two governments.

Nawaz Sharif, however, lightly emphasized on infrastructural development

in Pakistan, but interrupted by the bloodless coup d’état by Musharraf in
1999.  Although Nawaz had adopted considerable economic policies, i.e.,
deletion policy, deregulation policy and privatization policy, which were
also pursued by succeeding governments.  Much of these policies were
influenced by IMF.

During the second half of this phase (i.e., 2000-2008), industries of Pakistan
faced greater influence of cheaper goods imported under WTO agreements.

The highlights of industrial policy of this phase are as below:

 Deletion Policy: Although this policy was announced during

Phase 4 in 1987 but also pursued by the governments in later
phase.  The objective of deletion policy was to obtain self-
reliance in engineering sector.

 Deregulation Policy: Almost the whole industrial sector was

exempted from the requirement of government sanctions
except:
 I. Arms and ammunitions

II. Security printing.

III. High explosives

IV. Radioactive substances

 ISSUES AND CHALLENGES IN PAKISTAN INDUSTRIES

With a population of 180 million, a geo-strategic location, the required human
resources and natural endowments, Pakistan has all the potential to grow as a
developed industrial national. Unfortunately, it is still a developing nation even
after lapse of more than six decades since it appeared on the world map as a
sovereign and independent nation. Having rich in natural resources, the country has
been going through major challenges and issues hitting the industrialization
include growing power crisis, chronic energy shortage, high interest rate,
administrative bottlenecks, bad governance, lack of institutional framework,
political wrangling and worsening law and order situation.

ENERGY CRISIS
Industry has virtually held hostage by the energy crisis. The country faces an
energy emergency. Gas load shedding has become a routine in major industrial
cities of the country. The officials have projected a gas shortfall of 10.34 billion
cubic feet per day by financial year 2015. The country’s demand for energy,
according to one estimate, is expected to rise at the rate of 10-12 percent annually
in the foreseeable future, which means that if this rate of increase continues,
demand for energy may well double before 2015. The acute energy crisis has
virtually suffocated the industry, causing widespread discontentment in the
business circles. This could result in closure of more industrial units and increase
in the unemployment rate in the war-torn country. The country is losing at least 2
percent of the GDP growth annually due to the power shortages.

Under IMF pressure, the government maintained one of the world’s highest
benchmark interest rates, in an economy hurt by terrorism and falling foreign
investment. The high interest rate has been one of the major reasons behind the fall
in the country’s industrial output. During the five-year tenure of the former
government of Pakistan People’s Party (PPP), the real gross domestic product
(GDP) growth averaged at 3 percent against the required rate of 7 percent,
according to the Economic Survey of Pakistan for the fiscal year 2013-14.

The reduction in discount rate to single digit could provide some relief to the ailing
industry.

Private sector can play a supreme role in the industrialization of the country. The
execution of any industrial program depends on investment of foreign capital,
coupled with technical skill. The central bank’s tight monetary policy has not
allowed the private sector to play its key part as engine of growth. The increased
interest rate has not only made doing business increasingly expensive but also
marginalized the private sector. High borrowing costs discouraged the demand for
private sector credit, which in turn decreased private investment adversely
affecting the prospects of economic growth.

POOR GOVERNANCE
The quality of governance is essential for the development of human resources for
industrial growth. The good governance ensures the transparency, efficiency and
rationality in the utilization of public funds and national resources, encourages
growth of the private sector, promotes effective delivery of public services and
helps establish the rule of law. There is a strong correlation between per capita
income and indicators of human development such as adult literacy, life
expectancy, infant mortality, political and civil rights.

SECURITY CONCERNS
Today, security is No.1 issue and the primary reason raising concern among the
foreign firms that have already invested in the country. The country direly needs
overseas investment to bolster industrialization process. The rising violence would
not only hamper the Islamabad’s efforts to attract foreign investment but also hit
industrialization in the country. It will also force the foreign firms to quit their
operations in the country.
The country’s industry and exports are worst hit by the unsatisfactory security
situation in Karachi, the country’s industrial hub. Extortionists, target killers and
dacoits have turned the country’s business hub into a crime hub. The law and order
problem in Karachi has affected the business and industrial activities causing a
slump in overall economic growth. The local businessmen have to pay money to
the extortionists to run their businesses in Karachi. Many businessmen and
industrialists have been killed for not paying the extortion money and many have
moved their manufacturing units abroad. But recently there are some positive
outcome as the law enforcement agencies have come out new tactics to tackle the
situation and had number of culprits killed and arrested. One can still hope and
look forward to normalcy.

SUGGESTIONS
The government’s industrial policy must focus on improving industrial
competitiveness, especially with regard to industrial enterprises including small,
medium or large. The industrial policy should be directed towards increasing the
share of the manufacturing sector in the total economy. An effective
Industrialization Policy should be formulated giving a vision for the industrial
economy for both the short-medium and medium-long term.

The government should not try to control industrial development but it must
formulate policies in consultation with the private sector, which must be
considered as engine of growth. What should the government do is to improve the
operating environment for private investments and sustainable industrial
development. It should encourage new investments, particularly the foreign direct
investments (FDI). It should improve competitiveness and enhance productivity
through macro-economic management and industrial governance.

The government must ensure that the basic physical infrastructure, capital
resources, human resources and knowledge resources are adequately developed
with special focus on the country’s industrial growth and competitiveness. The
government should formulate policies to promote the diversification of industrial
production. It must remove all the impediments to industrial development, which
include such government services, red tape, tax administration, commercial laws,
labor issues. It must ensure optimum utilization of existing industrial capacities
and bring about revival of sick and closed industrial units in the country. The
country’s industrial policy should be based on the principal aim of self-reliance.
The government should encourage close collaboration between public and private
sectors in setting up some of the large industrial ventures in the country.