How Businesses and Industrial Sector

Got Affected or Shutdown Due to the

Current Economic Condition of
Pakistan
INTRODUCTION/ BACKGROUND
Pakistan's industrial sector generates only between 20 and 24 percent of the country's gross
domestic product. As opposed to 2017's growth rate of 5.43%, 2018 saw a growth of 5.80%.
Pakistan's manufacturing production places it at number 55 worldwide. Based on authoritative
sources, the World Bank's compilation of development indicators shows that in 2022, industrial
employment in Pakistan amounted to 23.67 percent of total work.

High unemployment

is an alarming indication of a nation's social and economic well-being. It leads to an economic

slowdown, increased crime, and societal discontent. Therefore, this is essential to thoroughly
address the problem and identify the root causes of unemployment. Major causes of the
country's high unemployment rate include a lack of available jobs and a reluctance to accept
the market pay rate. We may have all seen that many individuals are unemployed despite
having a college degree. Both emerging and wealthy nations face major macroeconomic issues
due to widespread and persistent unemployment.

Most of Pakistan's exports come from the country's rapidly expanding agriculture and
manufacturing sectors, and local businesses can compete with international exporters on price.
These are the main components of the industrial sector:

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

RESULTS AND DISCUSSION

Pakistani officials need to make an effort to progress the country's industries; hence those sectors need
to be improved. Since its independence in 1947, Pakistan has been plagued by repeated financial
problems.

The following are the primary challenges that Pakistan’s industry Sector has faced and some potential
responses:

Power Outage
The energy crisis has effectively held the industry captive. There is an energy crisis in the nation. Gas
load shedding has become the norm in the country's biggest industrial hubs. By the end of the 2015
fiscal year, the government predicts a daily gas deficit of 10.34 billion cubic feet. One estimate has the
country's energy consumption increasing at a pace of 10-12 percent yearly until at least 2015, implying
that if the current trend continues, the demand for energy might double by that year. There is
significant unhappiness among corporate elites because of the severe energy crisis that has all but
stifled industry. As a consequence, more factories may have to shut down, exacerbating unemployment
in that war-torn nation. The nation is losing at least 2 percent of GDP growth yearly due to power
outages.

In the lack of a strategy for reforming the electricity industry, debts to the whole energy chain,
sometimes known as circular debt, have increased. The circular debt has already crossed the Rs400
billion barrier. The government was obliged to subsidize the electric industry because of the gap
between the cost of producing energy and the rate paid to customers, leading to the cyclical debt crisis.
The government needed help to close the gap between the price of electricity and what customers paid
for their utilities. The government has to raise the electricity tariff to cover the higher cost of furnace oil,
but the increase is still expected to be cheaper than the cost of power to consumers. The high cost of
electricity, especially for businesses and factories, will contribute to rising prices and exacerbate poverty
levels.

Declining Foreign Direct Investment

The main factor is causing anxiety among the international corporations that have previously
invested in the country. Foreign investment is crucial to the country's industrial efforts.
Islamabad's attempts to attract foreign investment and industry will be hampered by the
escalating violence. As a result, international companies will be pressured to leave the country.
The country's economic capital has become a haven for extortionists, target murderers, and
dacoits. As a result of the law-and-order issues in certain major cities, commercial and
industrial operations have slowed, leading to a slowdown in economic growth.

Although the government shouldn't intervene too much in the private sector's ability to drive
industrialization forward, it should work with it to devise policies. For private investments and
long-term industrial growth, the government should work to create a more favorable operating
environment. It should stimulate new investments, notably the foreign direct investments (FDI)
(FDI). One would expect an improvement. macroeconomic management and industrial
governance to boost competitiveness and productivity.
Natural Disasters (That Reduces Yield and Ruins Infrastructure).

The social and economic well-being of a community is greatly impacted by natural catastrophes. The
impacts of natural disasters on economic growth were assessed using time series data from 1975 to
2010. This included increase in gross domestic product, industrial production, and agricultural output. In
this work, the ADF test was used to assess the Stationarity of the series, and then the OLS technique was
employed to quantify the effect of natural catastrophes. GDP growth was reduced by 1.483% due to
natural disasters, agricultural production growth was reduced by 1.625%, and industrial production
growth was reduced by 2.1%. As a result, industrial output drops, and infrastructure is damaged.

Deficit in technology

While most other countries' factories have long since invested extensively in the latest equipment to
increase output, many Pakistani factories are reluctant to do the same.

The countryside is home to several ancient devices, including ginning machines, textile power looms,
printing presses, grain mills, and leather processing facilities. Consequently, its industrial sectors suffer
from poorer output per unit and more excellent waste rates than the rest of the globe.

To make an informed decision on whether or not to scrap older equipment in favor of newer models, it
is important to calculate the expected return on investment of the latter on time. Consequently, this
calls for competent engineers and visionary leadership.

Costs of imported raw materials and finished goods

To improve productivity and exports, governments worldwide should lower import taxes on industrial
raw materials and equipment, pushing the cost of inputs for industry, especially export-oriented
companies.

When Pakistan's weighted mean tariff dropped from nearly 20% in 2001 to roughly 9% in 2014, exports
soared by almost 170 percent, from US$9.2 billion to over US$25 billion. However, since 2014, exports
have declined due to the progressive rise in the applicable tariff that reversed the liberalization. The
government should reduce import tariffs and regulatory charges on industrial raw materials and
equipment to revive the economy quickly.
Political Instability
No administration in Pakistan's history, including the current one, has ever lasted the full term elected
for it. Pakistan's government is in disarray. Domestic and international investors are losing interest in
Pakistan because of the country's poor law and order situation, terrorism, bomb explosions, racial and
ethnic problems, conflicting economic and industrial policies, etc. Instead, domestic investors are
redirecting their funds to Dubai and other international hotspots.

This slows economic development as political issues dominate the business world. Even if Pakistan's
political leaders put aside their agendas and priorities for the country's economic growth, more is
needed to guarantee the success of the country's manufacturing sector.

Inconsistent policies
Industry and Production Ministry officials say they have this information but have yet to make it public.
The second cause of industrial stagnation is that bureaucrats fail to provide policymakers with the
necessary data.

Foreign investors will be drawn to a country with a transparent and corruption-free system, increasing
the likelihood of a booming industrial sector flourishing without hiccups.

Business establishment
Lack of investment in business, technology, and data skills has left the nation behind the rest of the
developed world. The three factors make up the Global Skills Index (GSI), a metric used to assess a
country's level of productivity. Disappointingly, Pakistan's 2022 GSI rating places it at position #57 out of
the 60 nations for which results were available. Rankings place China at number 36 and India at number
50. Spending in Pakistan's education sector, including academic and occupational education, is pitifully
low at 2.4% of the GDP. According to the State Bank of Pakistan's recently issued annual report for FY19,
the public sector's gross investment is likewise at a humiliatingly low level of 4%.

Pakistan's GSI rating has to be raised, and this may be done by investing in the country's people and
physical resources.
Insufficient Funds for The Launch and Upkeep of Production
Facilities
A lack of funding hampers the creation of heavy industries in Pakistan. There is an inadequate supply of
both monetary and material resources. Even by developing country standards, Pakistan's savings rate of
13%-14% is pitifully low. The culture of Pakistan is heavily focused on material goods.

There need to be more adequate and fair lending amounts for investors. When extending loans,
financial institutions are notoriously stringent and take their time. Prominent and well-off people get
bank loans, but small company owners are discouraged in many ways (such as by being charged a higher
interest rate).

There are a variety of options that might aid in generating funds. Venture investors tend to be wary
about putting their money into unfamiliar projects. Investors would come forward to put money into
diverse sectors if marketing and technical services were available to help them allocate it across rival
manufacturing units.

Short infrastructure
The transportation industry contributes significantly to the growth of other sectors, accounts for 10% of
Pakistan's GDP, and employs 6% of the population. Because so many businesses rely on moving
materials and finished products between production facilities, storage facilities, retail locations, and
wholesalers, transportation is an essential part of most economic sectors. These means of travel may be
intercity or international.

Geographical regions, either between or within continents. As a result, Pakistan has to prioritize
infrastructure development if it wants to maintain a stable proportion of the market.

Covid-19 Effect on Businesses

The effects of the coronavirus on Pakistan's economy mirror those of the infection on humans. This
makes the original issues more pressing. Pakistan's total foreign debt as of March 2022 was $105 billion,
with the added weight of bonds, as our currency depreciated dramatically against the dollar and
emerging countries took severe hits. Over $13 billion in additional debt was incurred in 2022,
representing over 40% of the entire debt incurred over the previous decade.
The initial economic losses suffered by Pakistan as a result of these crises are estimated to be in the
neighborhood of Rs1.3 trillion. This is due to a drop in the GDP growth caused by a decrease in the
services sector, which includes the airline business, hotel business, retail businesses, hoardings, FBR's
revenue loss, a massive decline in imports, exports, reduction in remittances, disruption in food, mask,
and sanitizer supplies, and so on. Cancellation of export orders may cost the industry between $2 and
$4 billion. One of the few things that are still functioning and have the potential to help many different
businesses through this downturn is electronic commerce.

Moreover, we might claim that the repercussions of our industrial sector's flaws are becoming more
severe. No matter what the cause may be—an energy crisis, a shortage of funds, a drop in outside
investment, difficulties in management, a need for essential resources, or lousy policymaking—the
situation is dire. The problems during labor are very severe. Since lockdown means workers are told to
stay home, and most industries can't function without workers, we're in a bind. Pressure on our
manufacturing output has resulted from this. Then, the absence of technical progress blocks the only
possible path out of this crisis. Our businesses aren't set up to support "working from home," even if it's
becoming more popular in other nations.

Industries Relating to Fabrics

Cotton expert Naseem Usman said that the textile industry is in a grave crisis due to the lack of
availability of fundamental necessities. They were worried about the shutdown of mills because of the
global economic crisis. The whole domestic textile supply chain has been disrupted, closing stores and
threatening the livelihoods of thousands of industrial employees.

With good reason, Prime Minister Imran Khan has delegated specific management responsibilities to the
construction and textile sectors. The same logic should be applied to the textile industry, where only a
limited number of stores may be opened simultaneously. Workers in the textile industry need more
accessible access to factories. Thus restrictions on their travel should be loosened. Likewise, the textile
industry must develop and adapt to meet the challenges of the modern world. Android app and web
storefront integrations should be implemented for online purchasing. Companies must realize that
success will come to those who can keep up with the changing times. It is now more necessary than ever
to employ digital technologies in our companies to keep them afloat, as digitalization has become a
need of the hour.
Tourism Sector
There was a lot of room for growth in the tourist business, but that has been wholly stifled because of
the suspension of air travel during Covid, and Pakistan Airlines Standards declined over the years,
forcing passengers to travel on different airlines.

The Business of Sports

15% percent of businesses in the sports industry fall into the "Large" category; these companies provide
products for internationally recognized brands like Adidas, Nike, Puma, and Reebok. Approximately 59%
of the companies in this sector export some or all of their goods. Due to the widespread postponement
of national and international sporting events, the coronavirus outbreak has effectively shut down this
economic sector.

The official LSM goal for 2022–20 was 3.1 percent. Due to the underperformance of critical sectors over
the first eight months of the current fiscal year, the government is unlikely to meet the LSM growth
objective. As reported by PBS, the production figures for 11 Oil Companies Advisory Committee items
showed a decrease of 0.81 percent from July to February of 2022-20. The LSM statistics from the
Ministry of Industries and Production for 36 products revealed negative growth of 1.81 percent during
the period under consideration.

Review. On the other hand, the provincial Bureau of Statistics reported a decline in growth of 0.42
percent for 65 individual products during the same time frame.

Conclusions and Suggestions

Like the lack of treatment for or preventative measures against Covid-19, the effects of this virus on the
manufacturing sector are also impossible to forestall. Even so, taking steps to lessen it may pay off. We
should be able to provide e-learning by now, which will allow us to hire more people who can do remote
work—the decrease in the. On field staff, we still need to arm our factories with all the precautions the
WHO recommends. This should serve as a stark reminder of how technologically behind our business is.
For the time being, the government must prioritize enhancing the reliability of the nation's existing
electrical grid.

Expanding the tough economy's collecting zone should be a priority for the superior game strategy. To
be effective, an industrialization policy must lay out a vision for the advanced economy over the
medium to long term, with specific goals and targets for each time.
• The government should avoid stifling innovation while also understanding how to apply
methods to the private sector, which should be seen as the engine of growth.
 The government should make it easier for non-governmental theories and mechanically
conservative unexpected development. It's expected to spark fresh ideas, especially in foreign
direct investment (FDI).
 The opportunity cost of unemployment is the reduction in GDP that results when people who
are capable of working but choose not to do so cause the economy to suffer a loss of
production.
 A drop in government funds results from wasted tax money because the unemployed no longer
have a source of income. The government's revenue has declined, limiting its ability to provide
essential public services.

 Less money coming in means more going out in the form of unemployment benefits for the
jobless.
 Declining profits: Businesses that hire additional people often see an uptick in sales and income.
They may have less money to invest if they see a decrease in earnings due to the high
unemployment rate.

 The consequences of unemployment vary from person to person. Those without jobs have
options, including looking for new employment or just relaxing and enjoying their spare time.
However, most people would see a decrease in their discretionary income since unemployment
benefits don't compensate as well as regular work.
References
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• 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-
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