Manufacturing momentum

“For developing countries aiming to maintain growth while sustaining job creation, manufacturing offers an opportunity not only to rebalance the economy towards higher value-added sectors but also to provide a relatively wide employment base with higher labor productivity.” ---United Nations Industrial Development Organization (UNIDO)

It is universally acknowledged that the engineering sector plays a pivotal role in the growth and development of a nation’s economy, significantly impacting the lives of its citizens. Globally, the engineering sector, encompassing machinery, equipment, automotive products, light engineering, and intermediary goods, constitutes approximately 50% of the overall manufacturing sector. According to the World Trade Statistical Review 2022, manufactured goods, with a total value of $14.8 trillion, represent 68 percent of global merchandise exports. Despite this, Pakistan’s engineering industry, particularly in capital goods manufacturing, has been considerably neglected, with its global share so nominal that it doesn’t even feature among the listed 50 countries in the World Trade Statistical Review.

The Strategic Trade Policy Framework of Pakistan, as outlined in the “Pakistan Export Strategy for Engineering Goods 2023-2027,” is a critical initiative. Developed by the International Trade Center (ITC) in collaboration with the World Trade Organization (WTO), the United Nations (UN), and the Government of Pakistan, this strategy aims to boost exports and foster inclusive growth. Unfortunately, the current scope is limited, centering only on automobiles (including tractors, motor vehicles, motorcycles, spares & accessories) and electric fans (consumer/domestic), neglecting key sub sectors like machinery, electronics, electrical equipment, machine tools, surgical instruments, and others. This restricted sectoral coverage contradicts the vision of realizing the enormous potential of Pakistan’s engineering goods sector through high-quality products, innovation, and new markets.

The economic vitality of a nation is intricately tied to the strength of its industrial base, particularly in engineering and capital goods industries. Successful models in emerging Asian economies, such as Malaysia, Thailand, Indonesia, Vietnam, and Bangladesh, emphasize the pivotal role of a robust engineering sector. These nations, marked by visionary leadership and collaborative efforts, have embraced technological advancements, improved products, and developed skilled workforces, resulting in broad-based industrial growth.

In stark contrast, Pakistan’s engineering industry faces historical inconsistencies, ad-hoc government policies, and incomplete implementations. Challenges from foreign competition, due to concessions for machinery and raw material imports, coupled with insufficient support from government bodies and the private sector for indigenous manufacturers, have hindered growth. Technical constraints, such as a lack of design capabilities, research and development facilities, and technology upgrades, further impede the sector’s progress.

While Pakistan boasts a wide base for engineering goods production, recent years have witnessed regression, primarily due to the privatization of public sector engineering units. Unfortunately, these units have remained closed post-privatization, contributing to a decline in the sector. One of the indicators of the status of the engineering industry is the fact that Pakistan’s yearly imports of machinery and equipment are very high, amounting to an average of $8 billion, as import substitution remains very low. The per capita steel consumption growth rate, another key indicator of the engineering sector, stands at a dismal 23 kilograms compared to the Asian average of over 261 kilograms.

Unlike the strategies of developed and emerging economies, Pakistan’s policies have failed to boost industrial output, particularly in high-value areas within the engineering sector. A comprehensive report by the Pakistan Business Council on the “Engineering Industry of Pakistan,” conducted five years ago, highlighted constraints like cost competitiveness, dependence on imported raw materials, low profits, extended gestation periods, and the absence of an integrated industrial policy. The recommended measures, including long-term funding for technology improvement, facilitating technology transfer, skill enhancement, and product diversification, remain pertinent today.

To revitalize the engineering sector, Pakistan must create a favorable investment climate by addressing issues such as the high cost of doing business, dependence on imported raw materials, and the absence of an integrated industrial policy. Ensuring the availability of raw materials at competitive rates, developing human resources, and implementing quality assurance management are critical steps. The development of the engineering sector not only contributes to economic growth but also generates quality jobs on a large scale. Real change demands decisive and coordinated measures, with a sustained focus on promoting the engineering goods industry.

The “Vision 2030,” as envisioned by the Planning Commission, had a target to increase the share of the industrial sector to 30 percent of GDP by 2030, acknowledging that it was not possible to achieve without effectively promoting its engineering subsector. In this context, an expert report on the Engineering Sector published by the Ministry of Science and Technology provides valuable recommendations. Emphasizing entrepreneurship, industry-friendly policies, private sector-led indigenous industrialization, and the reduction of imports while maximizing exports, these recommendations offer a roadmap for sustainable development. To realize these goals, a commitment from the government to promote the engineering sector through targeted actions, policies, and projects is paramount. This includes supporting technology intervention, fostering entrepreneurship, and creating a conducive policy.

The writer is retired chairman of the State Engineering Corporation