Industrialization in Pakistan grapples with a multitude of challenges spanning technological, managerial, financial, marketing, and governmental policy issues. These hurdles have had a substantial impact on the sustained growth of the industrial sector. Presently, Pakistan faces both internal and external challenges, including political uncertainty, unfavorable economic policies, high inflation, deteriorating law and order situation, and a significant devaluation of the local currency. The government has started addressing these issues, albeit primarily with the aim of attracting foreign investments.
Industrialization in Pakistan grapples with a multitude of challenges spanning technological, managerial, financial, marketing, and governmental policy issues. These hurdles have had a substantial impact on the sustained growth of the industrial sector. Presently, Pakistan faces both internal and external challenges, including political uncertainty, unfavorable economic policies, high inflation, deteriorating law and order situation, and a significant devaluation of the local currency. The government has started addressing these issues, albeit primarily with the aim of attracting foreign investments.
The process of industrialization, a vital catalyst for economic growth, hinges on acquiring technological competence. Hence, the competitiveness of a country heavily relies on its level of existing technologies and its readiness to adapt and adopt both domestic and imported technologies for upgrading. Unfortunately, Pakistan has yet to make a substantial mark on the global technological landscape, despite the remarkable expansion of the Information Technology (IT) services sector. Regrettably, the state of technology and productivity in the industrial sector remains lackluster, posing concerns for policymakers and stakeholders alike. Pakistan ranks dismally low, standing at 87th among 144 countries in terms of technological competence, 110th in global competitiveness out of 141 nations, and a mere 92nd out of 100 countries in global skill development. Additionally, Pakistan is ranked 81st among 154 countries in the Competitive Industrial Performance (CIP) index for 2021 and 87th among 132 countries in the Global Innovation Index for 2022.
The United Nations Industrial Development Organization (UNIDO) emphasizes the role of the industrial sector as a key driver of technological advancement, which, in turn, promotes aggregate productivity growth, know-how, and innovation, benefiting the entire economy. Unfortunately, Pakistan has historically allocated minimal resources to science and technology (S&T), a trend that continues to persist. In the 2023-24 budget, the allocation for information technology (IT), science, and space technology amounts to just Rs18.5 billion, accounting for less than 0.13 percent of the total federal budget outlay of Rs14.46 trillion.
Furthermore, the Science & Technological Research Division has been allocated a mere Rs8 billion under the Public Sector Development Program (PSDP) for the current year, amounting to a paltry 0.84 percent of the total federal PSDP of Rs 950 billion for the current year. In real terms, the expenditure may be even less as the release of funds does not often correspond to the allocations made. To underscore the magnitude of the issue, the World Bank has reported Pakistan’s expenditure on research and development (R&D) in 2019 at just 0.20 percent of GDP, far below the global average of 2.63 percent in 2020. These statistics shed light on the underperformance of Pakistan’s S&T organizations and the shortsightedness of planners. To put this in perspective, the latest United Nations Yearbook for 2022 reveals that Pakistan has only 1,973 total patents (all kinds) in force.
The number of patents granted tells a similar story, with just 474 in 1995, 393 in 2005, 238 in 2010, and 201 in 2020, compared to global figures of 430,500, 633,100, and 914,200, and 1,592,000 patents in the respective years. In 2017, the number of people employed in R&D in Pakistan was 101,437, including 69,769 researchers. Science and technology play a critical role in the development of any country’s industrial and economic sectors, making it even more shocking that none of the thousands of industrial units (including the SMEs) in the manufacturing sector, except the MNCs (multinational corporations), have allocated a budget for R&D. An initiative launched in 2002-03, a joint program between the public and private sectors for technology-based production of high-value goods, failed to materialize.
The UNIDO’s International Yearbook of Industrial Statistics 2022 paints a bleak picture of Pakistan’s industrial competitiveness. Despite being classified as a middle-income industrializing economy, Pakistan does not fall into the category of emerging economies, unlike other developing nations such as Bangladesh, Ethiopia, Cambodia, Laos, Myanmar, Uganda, and Tanzania, among others known as Newly-Industrialized Countries (NICs) like Malaysia, South Korea and Thailand that have achieved significant strides in industrialization. This classification is influenced by Pakistan’s focus on low-tech industries, which are also export-oriented. Consequently, Pakistan’s gross value-added by industrial activity has seen a gradual decline in recent years, from 21.42 percent in 2005 to the current figure of 19.0 percent. In contrast, employment in the industrial sector has increased from 20.2 percent in 2005 to 25.2 percent in 2020.
As a result, Pakistan is not among the top ten leading manufacturers in Asia by technological intensity, whether in medium-technology or low-technology categories, as per UNIDO’s Yearbook of Industrial Statistics. Astonishingly, countries like Saudi Arabia and Bangladesh are included among the top ten leading manufacturers by technological intensity in the low-technology category, while Pakistan is absent. On the other hand, Taiwan, Turkiye, Thailand, and Malaysia are recognized as leaders in the medium-high technology and high-technology categories.
Although Pakistan’s manufactured goods constituted a substantial 77.7 percent of exports in 2020, its industrial value-added accounted for only 15.5 percent of GDP in 2021. Globally, industry represented 21.8 percent of GDP in 2021, with the manufacturing sector alone contributing over 77 percent of value added. A recent report by the Pakistan Institute of Development Economics (PIDE) in September 2023 underscores critical concerns hampering the growth and productivity of the indigenous engineering industry. It reveals that a majority of 328 industrial units surveyed have no plans to expand in the coming years due to various negative factors, with only a small number of enterprises considering investments in advanced technology.
Given that technology is at the core of any transformative growth engine, technology-based development must be a deliberate choice rather than a matter of chance. It should not be awaited; it must be actively pursued. To address these challenges and foster national development through technological advancement, the government must prioritize the promotion of science and technology, encouraging industries to optimally leverage both indigenous and imported state-of-the-art technology, processes, and materials. Achieving industrial competitiveness demands concerted efforts at both the national and enterprise levels, with the government playing a pivotal role.
– The writer is retired chairman of the State Engineering Corporation
