PAKISTAN STUDIES

Current industrial problems/challenges and

solutions for Pakistan
(Assignment no. 3)

Submitted by
Mohammad Taffor ul Islam
(FA18-BAF-040)

Submitted to
Sir Waqas Ahsan
DEADLINE: 20th April, 2020
Department of Management Sciences
BS Accounting and Finance
COMSATS University, Park road,
Tarlai Kalan, Islamabad.
 Table of Contents
INTRODUCTION.....................................................................................................................................1
FINDINGS AND DISCUSSIONS...............................................................................................................1
Energy Crisis......................................................................................................................................2
Declining foreign direct investment..................................................................................................2
Poor management and corruption...................................................................................................2
Natural disaster.................................................................................................................................3
Technological backwardness.............................................................................................................3
Raw material and import tariffs........................................................................................................3
Political instability.............................................................................................................................4
Inconsistent policies..........................................................................................................................4
Issues of labor...................................................................................................................................4
Shortage of capital to install or maintain industries........................................................................4
Poor infrastructure............................................................................................................................5
Impact of covid-19 on industrial sector............................................................................................5
Textile Industry..............................................................................................................................6
Tourism Industry...........................................................................................................................6
Manufacturing Industry................................................................................................................6
Sport’s Industry.............................................................................................................................6
CONCLUSION AND RECOMMENDATIONS.............................................................................................7
REFERENCES..........................................................................................................................................8
Current industrial problems/challenges
and solutions for Pakistan
INTRODUCTION
The industrial sector of Pakistan contributes about 24% of the whole
country's economy and makes up to 20 percent of the GDP. The year 2018
recorded a growth of 5.80% as compared to the growth of 5.43% last year.
Pakistan is ranked as the world’s 55th country with the largest factory
output. Employment in industry (% of total employment) in Pakistan was
reported at 23.67 % in 2019, according to the World Bank collection of
development indicators, compiled from officially recognized sources.

Pakistan has a fast-growing local produce and manufacturing sector that

accounts for major percentage of its exports, and firms are competitive
with global exporters in terms of prices. The industrial sector majorly
comprises of;

 Surgical Goods
 Sports
 Textiles
 Automotive
 Pharmaceuticals
 Cutlery
 Cement
 Handicrafts
 Marbles & Gems
 Fruits & Dry Fruits
 Vegetables
 Seafood
 Livestock
 Financial Services
 It & Telecom
 Leather
 Tourism

FINDINGS AND DISCUSSIONS

Industries of Pakistan are not moving towards advancement and industries
are not being focused by the authorities. Pakistan is facing financial crises
since independence in 1947.

Following are the major problems Pakistan's industrial sector has been
tackling along with some solutions

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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.

The liabilities to the entire energy chain or circular debt continued to

increase in the absence of any plan for power sector reforms. The circular
debt has now reached Rs400 billion mark. The circular debt problem
emerged due to difference between production cost of electricity and the
tariff charged from consumers, which forced the government to provide
subsidy. The government failed to bridge the gap in power production
costs and the money paid by utility consumers. Higher cost of furnace oil
forced the government to raise power tariff, but the consumer tariff is still
believed to be less than the cost of power. The expensive power
particularly for commercial and industrial sectors will further fuel the
inflation pushing more people into extreme poverty in the country.

Declining foreign direct investment

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. Extortionists, target killers and dacoits
have turned the country’s business hub into a crime hub. The law and
order problems in some major cities have affected the business and
industrial activities causing a slump in overall economic growth.

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

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competitiveness and enhance productivity through macro-economic
management and industrial governance.

Poor management and corruption

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.

Natural disaster (decreases yield, destroys

infrastructure)
Natural disasters have a massive effect on social and economic welfare.
By using time series data from 1975 to 2010, effects of natural disaster on
Economic Growth (Growth in GDP, Growth in Industrial Production and
Growth in Agricultural Production) had been estimated. In this study, ADF
test was used to test the Stationarity of the series and then OLS method
was applied to estimate the impact of natural disasters. Results showed
that natural disasters turned down GDP growth 1.483 percent, Agricultural
Production Growth descended 1.625 percent, and Industrial Production
Growth declined 2.1 percent in the subsequently year. This happens
because the industrial yield decreases and also the infrastructure is
destroyed.

Technological backwardness
Whereas industries across the world have long been investing heavily in
most modern machinery to boost productivity, a large number of Pakistani
industries are apparently shy of following suit.

In the country, very old ginning machines, textile power looms, printing
presses, grain milling units and leather processing facilities are still in
operation. As a result, it faces higher-than-world average wastage and
lower per-unit production in all these areas of manufacturing.

Replacement of old machinery with the latest ones requires a timely

assessment of whether old machines are still worth keeping and a smart
projection of return-on-investment of the intended replacement. That, in
turn, not only requires capable engineering staff but also a farsighted
management.

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Raw material and import tariffs
Reduce high import tariffs on industrial raw material and machinery as it
has increased the cost of inputs for industry including export-oriented
industries and affected industrial competitiveness due to which
productivity and exports were suffering.

The applied weighted mean tariff in Pakistan was reduced from over 20%
in 2001 to around 9% in 2014, due to which exports during the same
period increased from US$ 9.2 billion to around US$ 25 billion showing an
increase of over 170 percent. However, since 2014, the tariff liberalization
has been reversed by gradual increase in the applied tariff resultantly the
exports have been declining. Government should bring down import tariffs
and regulatory duties on industrial raw material and machinery that would
enable the domestic industry to upgrade itself, produce value added
products and boost exports leading to fast economic revival.

Political instability
In Pakistan's history no government could complete its tenure except
the previous government. There is political instability in Pakistan. Due
to improper law and order situation, terrorism, bomb blasts, racial and
ethnic disturbances, inconsistent economic and industrial policies etc.
domestic and foreign investors are losing interest to invest in Pakistan.
Rather home investors are shifting their capital to Dubai and other
countries of the world.

This hampers industrial growth, industry and economy are overshadowed

by political dilemmas. The industrial success cannot be assured as long as
leaders keep aside their political interests and focus on the development
of Pakistan.

Inconsistent policies
Ministry of Industries and Production claims it has those details, it has so
far not bothered to share it with the nation. So, the second reason for
industrial backwardness is that the bureaucrats don’t feed policymakers
with the information they really need the most.

If a consistency is brought into the industrial sector’s policies and a well-

planned structure is formed, a smooth and developing industry can be
expected as along with a transparent and corruption free system foreign
investments will also be attracted.

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Issues of labor
Apart from low investment in traditionally modern machinery, the country
also lags behind in investment in business skills, tech skills and data skills
– the three components of Global Skills Index (GSI) that measures
productivity of a nation. Pakistan occupies a disappointing 57th position
among 60 countries whose GSI rankings were released in the 2019 GSI
report. China and India occupy 36th and 50th positions respectively.
Pakistan’s spending on education sector – which covers skills development
and vocational training as well – is abysmally low at 2.4% of GDP. The
public sector gross investment also stands at a humiliatingly low level of
4%, according to the recently released State Bank of Pakistan’s annual
report of FY19.

Obviously, there is a need to lift Pakistan’s GSI ranking and that is possible
only if investment is made in both human capital and machinery.

Shortage of capital to install or maintain

industries
Lack of capital is a major hurdle in the way of establishment of heavy
industries in Pakistan. There is shortage of both kinds of monetary and
physical capital. In Pakistan, savings rate is hardly 13% to 14% which is
very low. Pakistani society is basically consumption oriented.

The investors are not provided with sufficient and reasonable amounts of
loans. The banks follow strict conditions and tedious procedures while
advancing the loans. The bank loans are granted to big and affluent
persons while the small businessmen are discouraged by in a number of
ways, for example, by charging the higher interest rate.

There are numerous solutions which may help to generate capital. The
capitalists are often shy and hesitant in investing their capital in new
ventures. If marketing and technical services are provided for channelizing
their investment among competing industrial units, they can come
forward for investing the capital in different avenues.

Poor infrastructure
The transport sector, constitutes 10 percent of Pakistan's Gross Domestic
Product (GDP) and provides 6 percent of the employment in the country,
also plays a vital role in development of other industries. As most of the
industries require transportation of raw material or processed goods from
factories to ware houses and from ware houses to different stores and
then to the outlets. This transportation may be within cities or countries or

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continents or intra-continents. Hence to assure a ones part in market
share, Pakistan should ensure the development of infrastructure.

Impact of covid-19 on industrial sector

Corona virus has similar impact on Pakistan’s industries as it has on
human body. It has worsened the initial problems. While the developing
economies are suffering from huge financial blows, the total external debt
of Pakistan as of March 2019 is already $105 billion with additional burden
of bonds, whereas our currency is depleting drastically against dollar. The
year 2019 along had added the debt of over $13 billion, which is over 40%
of the total debt added in last 10 years.

In the wake of these crisis, Pakistan’s initial economic losses incurred in

different sectors of the country’s economy have been estimated at Rs1.3
trillion, on account of drop in the GDP growth because of reduction in
services sector including airline business, hotel business, retail
businesses, hoardings, FBR’s revenue loss, massive decline in imports,
exports, reduction in remittances, disruption in food, mask and sanitizer’s
supplies etc. the exports might face loss in the range of $2 to $4 billion as
export orders had got cancelled. E-commerce is the only factor which is
operating in this crises and can be improved for aiding many industries.

We can also say that consequences of short comings of our industrial

sector are intensified. Whether it’s the energy crises, lack of capital,
declining foreign investments, management disabilities, short comings of
raw materials or insufficiency of policies. Particularly the labor issues are
worst. As due to lockdown the laborers are directed to stay at home and
most of our industries cannot operate at all without laborers. This has
caused a strain in our industrial production. Then the lack of technological
advancements puts a barrier to the only possible way out of this crises.
While other countries are going for ‘working from home’, our industries
are not enough equipped for that.

The impact of Covid-19 on major industries is discussed below;

Textile Industry
The whole textile sector is in deep crisis due to unavailability of basic
requirements, cotton analyst Naseem Usman said. The ginners shared the
same ideas and said that the ginners were disturbed as mills were on the
sidelines due to prevailing crisis in the world, he added. Textile retailers
and outlets are closed and there is a complete disruption in entire
domestic textile supply chain, putting at risk jobs of thousands of factory
workers.

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Prime Minister Imran khan has rightly allowed certain construction and
textile industries to partially operate them. Similarly, partial opening of
textile outlets with extreme care should be allowed. Restriction on the
movement of the textile workers should be eased to reach them to
factories. Similarly, there is also a need on the part of the textile sector to
evolve and adapt themselves with the changing circumstances as well.
They should introduce online shopping facilities through android mobile
apps and website orders. Businesses need to understand that the future is
for those who are working with the pace of time. Digitalization has
become a need of the hour and in these unusual scenarios, it has become
even more inevitable to use digital tools in our businesses to keep them
afloat.

Tourism Industry
Due to halt in the air transport, the tourism industry which had a great
scope of improvement has totally crippled.

Manufacturing Industry
The large-scale manufacturing (LSM) had shown negative growth of 1.15
percent in February due to sluggish economic activities in the country. The
LSM, which constitutes 80 percent of manufacturing and 10.7 percent of
the overall GDP, had recorded negative growth of 3.03 percent during
eight months (July to February) of the current fiscal year.

In auto sector, tractors production went down by 35.98 percent, light

commercial vehicles 46 percent, trucks 48.9 percent, jeeps and cars 45.67
percent and motorcycles 10.27 percent during the period under review.

Sport’s Industry
Sports Industry’s 15% firms can be categorized as ‘Large’ establishments
and these cater to the global renowned brands including Adidas, Nike,
Puma and Reebok. The industry is export oriented, with 59% firms
exporting their products to international markets. Outbreak of coronavirus
has put this industry to a halt due to no import activities and cancellation
of many national and international sports events.

The government had set LSM target of 3.1 percent for the year 2019-20.
However, the government would not achieve the LSM growth target due to
the performance of major industries in first eight months of the current
fiscal year. According to the PBS, production data of 11 items from Oil
Companies Advisory Committee had registered a negative growth of 0.81
percent in July to February period of the year 2019-20. Similarly, the LSM
data, provided by the Ministry of Industries and Production for 36 items,
had also shown negative growth of 1.81 percent during the period under

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review. However, the data provided by the provincial Bureaus of Statistics
for 65 items had recorded negative growth of 0.42 percent over the same
period.

CONCLUSION AND RECOMMENDATIONS

 As there is no cure or preventive medications of Covid-19 similarly
its impact on industrial sector cannot be prevented. Though
measures to minimize it can be fruitful.
 By now we should be able to provide e-learning and through it we
can increase the workers who can work from home. By reducing the
on field workers, yet we need to mobilize our factories with all
preventive measures suggested by WHO. This should be considered
as an eye opener that how backward our industry is due to lack of
technological advancements.
 The Government must focus on improving current power, especially as for present
day endeavors including nearly nothing, medium or gigantic. The advanced game
plan should be facilitated towards extending the segment of the collecting zone in
the hard and fast economy. A reasonable Industrialization Policy should be point by
point giving a fantasy for the advanced economy for both the short-medium and
medium-long stretch.
 The Government must make an effort not to control modern turn of events yet it
must make sense of techniques in meeting with the private segment, which must be
considered as motor of development.
 Government ought to improve the working condition for private theories and
conservative mechanical unforeseen development. It should stimulate new theories,
particularly the outside direct Investment (FDI).

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REFERENCES
 https://www.coursehero.com/file/24790592/Problems-and-solutions-of-
industrial-sectordocx/
 https://www.google.com/search?
source=hp&ei=EwCcXo6wB6SHjLsPqoyEsA0&q=industrial+solutions&oq=
industrisl+sol&gs_lcp=CgZwc3ktYWIQ
 http://www.rcci.org.pk/wp-content/uploads/2012/12/igtip.pdf
 https://blog.pakistaneconomist.com/2018/02/08/industrial-
development-pakistan-issues-challenges/
 http://jworldtimes.com/magazine-
archives/jwt2016/october2016/industrial-sector-of-pakistan-situation-
issues-and-solutions/

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