Assignment NO 01

SUPPLY CHAIN MANAGEMENT

TOPIC : IMPACT OF ENERGY CRISIS ON

MANUFACTURING INDUSTRIES OF PAKISTAN

SUBMITTED TO : MISS WARDAH IRFAN

LECTURER, KARACHI UNIVERSITY BUSINESS SCHOOL

MADE BY : NIMRAH WAQAR

DATE : 24 APRIL
 ASSIGNMENT: SUPPLY CHAIN MANAGEMENT

IMPACT OF PAKISTAN’S ENERGY CRISIS ON

MANUFACTURING INDUSTRY

Energy crisis mainly refers to any kind of shortfall in the supply of energy resources to an
economy as compared to its demand. It usually refers to the shortage of oil and additionally to
electricity or other natural resources i.e. gas, diesel etc. As the world is changed entirely by
globalization, many issues have emerged among which the energy got considerable attention. It
can be seen that world’s energy resources are being depleted as the demand is rising. These kind
of crisis naturally have effects on the rest of the economy, slowing down the development of the
country and causing sufferings of different kinds such as unemployment and inflation. No one
can deny the importance of energy in today’s world. Manufacturing industry, service industry,
agriculture sector, domestic life, everything depends upon the supply of energy resources.
According to Wikipedia,

“An energy crisis is any significant bottleneck in the supply of energy resources to an economy.

In literature, it often refers to one of the energy sources used at a certain time and place, in
particular, those that supply national electricity grids or those used as fuel in industrial
development and population growth have led to a surge in the global demand for energy in recent
years”

The construction or assembly of components into finished products on a fairly large scale is
called manufacturing. Among the most main manufacturing industries are those that produce
aircraft, automobiles, chemicals, clothing, computers, consumer electronics, electrical
equipment, furniture, heavy machinery, refined petroleum products, ships, steel, and tools and
dies.

Traditional theories of economics considered just capital and labor as the most important
factors of production. But it is no more the case now. Recent studies have suggested that energy
is the most important component in the production and consumption function of every economy
in the world. Energy resources in today’s world are very important as the economy and progress
of the nation depends on their continuous flow. But crisis occur as the flow is stopped. There is a
major problem of energy crises today and the countries that possess such resources have stopped
supplying those resources. Only the contracts which were made over a decade ago are valid. This
situation, overall, affects the manufacturing sectors of the country (Pakistan) and its people.
Energy is considered as a backbone of any economy and plays an important role in the social as
well as economical progress of a country. Pakistan is also at that type of region where the supply
cannot meet the demand and hence it faces a huge crisis of electricity. If there is not enough
energy, industrialization will not take place, it is vital for running industries and output units, for
residual and commercial use and for transportation, etc. Hydro, oil, and natural gas are the three
major energy resources of Pakistan used to fulfill the energy needs of the economy. Due to
limited oil reserves and, Pakistan is importing huge quantity of petroleum products from Middle
East especially Saudi Arabia. As increase in energy is expected to result higher growth similarly
its shortage may hold back the growth process. In short, energy is fundamental for running all the
resources and energy crisis directly influence all the sectors of economy such as agriculture
sector, industrial sector, unemployment, poverty, lower GDP and higher inflation

The economy of Pakistan can be considered as an example of such cases where industrial
policies, liberalization reforms and the macro economic challenges faced by industrial sector
largely in the form of energy crisis and political instability has reduced the potential of industrial
sector. According to a recent study; the country has been facing deindustrialization since 1990s
due to the above mentioned factors and the efforts to put the sector back on its path are all in
ineffective. The share of industrial sector in GDP has remained stagnant around 25 % over the
decades. The declining growth rate of industrial sector is more pronounced. The manufacturing
sector, capturing 63 % share of the overall industrial sector, has been hard hit by power crises,
resulting in loss of working hours and lowering confidence of foreign investors. The
manufacturers will continue to confront serious financial burdens cause of the crisis. The acute
energy shortage, continuous power breaks down and government issues with Independent Power
Producers (IPPs) on payment have badly affected the sector‘s capacity in power generation and
distribution. Cotton textile production and apparel manufacturing are Pakistan's largest industries
contributing most of the country’s employment. The growth rate of manufacturing sector has
reduced from 19.9 percent in 2004-05 to 8.48 percent in 2007-08 [Pakistan, Govt. of (2011].
According to Global Competitiveness Index (2011-12) by World Economic Forum, Pakistan
placed at 133 and is now 16th least competitive economy out of the 148 countries.

Industrial sector helps government to generate revenue in form of taxes and make way better job
opportunities into economy in both viewpoints provincial and urban workforce. Since in
Pakistan serious power shortage is experienced due to high demand from
both household sector and industrial sector. Financial Overview of Pakistan (2008)
clearly shows that to meet current request concerned specialist ought to upgrade the power
generation capacity by 50%.

Moreover, the production, economic, industrial and trade activities of Pakistan are badly affected
by unemployment, price hikes, low sales, due to the current industrial, financial and energy
crisis. These burdens are falling on an industry trying to cope with massive losses:

 As industries continue shutting down the workers will get unemployed and penniless as
most of the people, apart from agriculture sector, earns from industrial sector.
 Due to energy crisis cost of production will also be affected i.e. increased which will
result in price hikes and inflation causing disruption in the economic growth as sales will
be low.
 Low sales affect the manufacturing industries in a way by blocking the chances of any
kind of foreign investment which is the necessary evil for progress of the country today.
  Insufficient supply of energy resources can also affect the economy negatively by
affecting exports of the country and in order for the country to grow its exports should
exceeds its imports.
 Exports are incredibly important to modern economies because they offer people and
firms many more markets for their goods. One of the core functions of diplomacy and
foreign policy between governments is to foster economic trade,
encouraging exports and imports for the benefit of all trading parties.

The energy crisis manufacturing sector is facing is not only in the form of power shortage but
recently many industries including exportable and non-export textiles, steel, fertilizer, food
manufacturers and CNG fuel stations who depend upon gas supplies were cut off from gas
supply as during the winter season demand for the fuel peaks in the wake of drop in temperature
across the country , a situation which carries serious implications for inflation and
unemployment in the country. According to a notification issued by SSGC gas supply of (non
export) industries was shut off to provide for the domestic use. Due to low gas pressure,
generators producing electricity, shut down and caused faults in the machinery, electronic
equipment and machinery programs got damaged due to power fluctuation.

In conclusion, in terms of overall economic performance, there has been a massive

decline in the GDP growth rate and Pakistan’s energy sector has become a major drain on the
economy and is impeding growth, both because of power shortages (which have affected small
manufacturing enterprises and services in particular) and because of the budgetary impacts of
energy subsidies, which divert much-needed resources from more productive sectors

Certain steps can be taken by the country and its government to meet up with the shortage of
energy resources.

 Renewable energy sources and technologies can be used to provide solutions to long-

standing energy problems faced by developing countries. 
 Pakistan is situated on such a blessed region where there are four seasons and a lot
of potential of renewable energy. The government should take steps to use alternating
source of energy (renewable energy) as the whole world take benefit from these resources
but we are still thinking on these sources. We have a lot of availability of wind in the
 coastal areas of Baluchistan and river side of Sindh. We have abundant of solar
energy all over the country and especially in the hot climate areas such as Thal, Thar,
Cholistan etc. If these renewable energy are used correctly we can reduce the supply
gap.
 The renewable energy sources such as  biomass energy combined with fuel cell
technology can be used to beat the energy crisis faced by manufacturing industries in
Pakistan.
 In place of importing oil and gas from foreign countries for industrial sector which, being
the largest import bill of the country, is quite expensive, the country can import coal and
use thermal energy for the manufacturing industries. This will also bring some sort of
price stability in electricity bills
REFERENCE

1. https://en.wikipedia.org/wiki/Energy_crisis
2. https://www.pide.org.pk/psde/pdf/AGM29/papers/Dr.%20Bushra%20Yasmin.pdf
3. https://hrmars.com/papers_submitted/4659/
Impact_of_Electricity_Crisis_on_Industrial_Growth_in_Pakistan_A_Multiple_Reg
ression_Analysis_Approach.pdf
4. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3431814#:~:text=For%20the
%20economic%20growth%2C%20the,overall%20GDP%20in%20the%20country.
5. https://tribune.com.pk/story/2278421/gas-crisis-crippling-industrial-activities
6. https://tribune.com.pk/article/10507/5-steps-to-solving-pakistans-energy-crisis