Industrial development in Pakistan has been declining for the second consecutive year, having registered negative growth of (minus) 2.94 percent during the current financial year (provisional), in comparison to nominal 3.2 percent growth during the corresponding period last year (2021-22). The industrial regression has been due to various reasons like impact of pandemic, diminishing demand in domestic and export markets, non-availability of raw materials & ancillary items, devaluation of local currency, inflation, political instability, and, above all, lower industrial productivity.
Industrial development in Pakistan has been declining for the second consecutive year, having registered negative growth of (minus) 2.94 percent during the current financial year (provisional), in comparison to nominal 3.2 percent growth during the corresponding period last year (2021-22). The industrial regression has been due to various reasons like impact of pandemic, diminishing demand in domestic and export markets, non-availability of raw materials & ancillary items, devaluation of local currency, inflation, political instability, and, above all, lower industrial productivity.
The industrial sector has about 25 percent share of the gross domestic product (GDP), employing a workforce of over 25 percent, whereas the manufacturing subsector constitutes 65% of the industrial sector with 12 percent share in the GDP. Its major component is large-scale manufacturing (LSM) with 74.3 percent sub-sectoral share. During 2021-22 manufacturing sector grew by 9.8 percent and projected to decelerate in 2022-23 to (minus) 7.98 percent. Production contracted mainly in the capital goods under categories of machinery & equipment, electrical equipment, automobiles and iron & steel. Steel provides the foundation for industry, but the large-capacity integrated steel plant in the public sector remains closed since June 2015. Industrial cooperation from China is not forthcoming as some of the CPEC (China-Pakistan Economic Corridor) projects, such as setting-up of special economic zones (SEZs), have been delayed and are still at under-construction or in-pipeline stage.
Industrial production index growth recorded in February 2023 was (minus) 11.6 percent. Pakistan is ranked one of the lowest in the world in factory output, at 82 among 152 countries (CIP-competitive industrial performance index) lagging behind many other countries in the region including Bangladesh, Sri Lanka, Indonesia, and Vietnam. Likewise, industrial productivity, which is a measure of the efficiency of production and value-addition and thus a crucial determinant of an economy’s growth, remains one of the lowest in the world that has grown only to 1.5 percent average during the last ten years or so. The situation is reflective of myopic industrial strategy, if there exists any, and ineffective fiscal and monetary measures to promote industrialization.
Indeed, the process of sustained industrial development is a precursor to strengthening allied and related sectors of economy. Industrial production is mainly dependent on import of capital goods. In the past import substitution and export expansion of capital goods played a key role in the growth of the manufacturing subsector but since long it is not part of industrial strategy any more. It is ironic that for decades we have not had an integrated industrial policy, ignoring the fact that countries with strong industrial sectors provide robust economic growth and development. The recent examples are that of the Republic of Korea, Malaysia, Singapore, Thailand, Indonesia, Bangladesh, Vietnam and others. According to the UNIDO (United Nations Industrial Development Organization), “Asia and the Pacific region is a key economic and manufacturing powerhouse accounting for approximately half of global manufacturing value-added”.
Lack of policy support is reflective of declining industrial development in Pakistan and lower utilization of existing industries. The Planning Commission churns out tons of papers covering plans, perspectives, and visions every year but without achieving desired results directing at real industrial development. Large volumes of experts’ reports and recommendations on long-term industrial development, industrial policy, capital goods industry, private-sector-led industrialization, and export promotion have been attracting dust in various ministries’ shelves for decades seeking attention of successive governments, without any consideration ever by the decision-makers.
Capital goods or engineering industry, termed as engine for growth, is vital for national development and industrial self-reliance, is the key to socioeconomic progress. The sector offers optimal opportunities in creating large scale employment, import substitution, high degree of value addition, forward and backward linkages with other economic sectors, and maximum utilization of agricultural, mineral and other natural resources. Thus, the engineering sector plays a critical role in contributing to the overall growth of the industrial sector. Domestic demand expansion should be the dominating source of industrial growth shifting to optimal import substitution for reducing reliance on imports. Measures were adopted in the past but the domestic market could not be developed for a variety of factors. Implementation of export-oriented strategy is the second source of industrial development but we have yet to achieve the same.
Given the present economic challenges the nation faces, the government should commit to achieve a strong industrial growth rate for revival of the economy, with focus on promoting capital goods industry, through implementation of a short-term and long-term perspective plan. Unless we streamline our resources in a judicious way and set our priorities right, following latest global industrial trends, the present economic situation is likely to further aggravate. Need of the hour is to go for structural reforms on priority, shifting from material-based production towards knowledge-based production. Policies of capital market and foreign investment need to be reviewed taking into consideration the changing economic scenario. Also, measures be taken to enhance industrial productivity and competitiveness.
The UNIDO Industrial Development Report 2022 recommends building back better (in our case achieving strong recovery) will require new approaches to industrial policies, adopting sustainability standards for the production of industrial goods, and supporting the digitalization of manufacturing. It suggests that industrial policies should promote a socially inclusive industrial policy aimed at creating jobs and increasing partnership of informal workers, youth and women in the manufacturing sector. The World Bank says: “Pakistan has important strategic endowments and development potential. The increasing proportion of Pakistan’s youth provides the country with a potential demographic dividend and a challenge to provide adequate services and employment”.
The writer is retired Chairman of the State Engineering Corporation
