etermining the features of the best industrial policy for an economy is often a subjective exercise depending on the criteria used for evaluating it. Pakistan has had no permanent industrial policy.

Over recent decades Japan, Germany and China have had some of the most successful industrial policies. Each of these country has tailored its industrial policy to its unique economic context, with varying degrees of government intervention, innovation focus and international competitiveness.

The effectiveness of an industrial policy is often judged by how well it aligns with a country’s economic goals, industrial structure and global economic environment.

The current industrial policy of Pakistan aims to revitalise the manufacturing sector, address energy constraints and promote export-led growth. In principle, these are laudable goals. However, the country lacks the infrastructure required to support some industries and its bureaucrats frequently act as inhibitors instead of facilitators of industrialisation.

The policy seeks to reduce dependency on agriculture and textiles by promoting other manufacturing sectors such as automobiles, pharmaceuticals, engineering goods, and information technology. The country’s economic planners want to enhance its infrastructure, particularly through projects like the China-Pakistan Economic Corridor, to improve connectivity and provide industrial zones.

The industrial policy looks to provide reliable and affordable energy to support industries, addressing the energy crisis that has historically hampered growth. Another aim is to attract foreign direct investment (FDI) by offering incentives, improving the ease of doing business and creating Special Economic Zones. However, FDI inflows amount to a trickle.

Providing financial and technical assistance to small and medium enterprises (SMEs) to integrate them into the industrial supply chain has been a stated objective of all industrial policies but no concrete steps have been taken to strengthen this sector so that it still lacks adequate financing and other facilitation.

Pakistan aims to encourage exports by offering rebates and subsidies and supporting market access through trade agreements. Unfortunately, exports have been stagnant for the last eight years. Incorporating environmental considerations and sustainable practices into industrial growth strategies has failed to improve environmental conditions in Pakistan

Over the decades

1947-1957: Early Post-Independence Industrialisation

After independence, Pakistan faced significant challenges, including the lack of industrial infrastructure, limited financial resources and political instability. The partition had left the country with a predominantly agrarian economy. The government focused on establishing basic industries, such as textiles, sugar and cement, through public sector investments. Import substitution industrialisation (ISI) was emphasised to reduce dependency on foreign goods. Establishment of the Pakistan Industrial Development Corporation in 1952 played a pivotal role in setting up industries across the country.

1957-1967: The Decade of Planning and Growth

This decade witnessed rapid industrialisation under the Ayub Khan regime. The introduction of the First Five-Year Plan (1955-60) and the Second Five-Year Plan (1960-65) aimed at industrial expansion and economic growth. The government encouraged private sector participation by providing incentives like tax holidays and import duty exemptions. Significant growth occurred in the textile, jute and sugar industries.

1967-1977: Nationalisation and Industrial Slowdown

The political instability following the fall of Ayub Khan and the 1971 war led to new economic challenges. Under Zulfikar Ali Bhutto, a large-scale nationalisation programme was implemented in the early 1970s. This involved taking over industries like banking, insurance and large manufacturing units. The nationalisation policy disrupted industrial growth, leading to inefficiency and stagnation. Industrial productivity declined, and private investment was discouraged.

Germany’s industrial policy is often highlighted for its focus on maintaining a strong manufacturing base and fostering innovation. Its main features include a focus on supporting small and medium-sized enterprises that are highly specialised and contribute significantly to exports. 

1977-1987: Liberalisation and Structural Adjustments

Gen Zia-ul Haq reversed parts of the nationalisation policy and introduced measures to liberalise the economy. The government undertook privatisation, deregulation and the return of some nationalised industries to the private sector. There was an increased focus on industries like textiles, engineering and cement and the establishment of Export Processing Zones (EPZs) to promote export-oriented industries.

1987-1997: Economic Reforms and Privatisation

This decade saw more economic reforms aimed at liberalisation, with a focus on privatising state-owned enterprises (SOEs) and reducing government intervention in the economy. Efforts to attract foreign direct investment (FDI) were intensified, particularly in the energy and telecommunications sectors. There was moderate industrial growth with significant development in the textile sector. However, political instability and governance issues continued to hamper sustained growth.

1997-2007: Globalisation and Export-Led Growth

The government continued to implement structural reforms, focusing on enhancing competitiveness and integrating with the global economy. The emphasis was on export-led industrialization. The textile sector was its main beneficiary. Trade liberalisation policies were implemented to increase exports. The period also saw challenges such as energy shortages, which began to impact industrial productivity.

2007-2017: Energy Crisis and Industrial Decline

A severe energy crisis during this period significantly impacted industrial growth, leading to reduced productivity and competitiveness. The government attempted to address the energy shortages through various measures, including significant investment in power generation and infrastructure projects. The launch of the China-Pakistan Economic Corridor in 2013 brought new opportunities for industrial development, particularly in infrastructure and energy.

2017-2023: CPEC and New Industrial Policy

Continued focus on CPEC as a major driver of industrial growth, with the establishment of SEZs and infrastructure projects aimed at enhancing industrial capacity. Efforts are on to revive the industrial sector by addressing structural issues, promoting SMEs and attracting foreign investment.

Best practices elsewhere

Industrial policies pursued by Japan, Germany and China have achieved great success despite having different cultures and governance models.

Japan’s industrial policy, particularly during the post-World War period, is credited with transforming the country into a global industrial powerhouse. The Japanese government played an active role in guiding the economy, focusing on key industries such as automotive, electronics and steel. Its Keiretsu system of interlinked businesses, often centred on a bank, allowed for coordinated investment and resource allocation. Significasnt emphasis was placed on research and development, fostering innovation and technological advancement. Japan employed selective protectionism to shield its nascent industries from foreign competition. There was a strong emphasis on education and skills training, ensuring a highly skilled workforce.

Germany’s industrial policy is often highlighted for its focus on maintaining a strong manufacturing base and fostering innovation. Its main features include a focus on supporting small and medium-sized enterprises (SMEs) that are highly specialised and contribute significantly to exports. Germany’s dual education system, combining vocational training with classroom education, ensures a skilled workforce aligned with industry needs.

There is strong emphasis on innovation, with substantial public and private investment in research and development. Germany’s policy is heavily export-oriented, with a focus on maintaining global competitiveness in high-value sectors like automotive, machinery and chemicals. This model balances free-market capitalism with social welfare policies, ensuring economic stability and social cohesion.

In recent years, China has implemented an aggressive industrial policy aimed at making the country a global leader in high-tech industries. The Chinese government has a central role in directing economic growth, with significant state ownership in key industries. The Made in China 2025 initiative of the government aims to upgrade China’s manufacturing base by focusing on high-tech industries like robotics, AI and electric vehicles.

The Chinese government provides substantial subsidies, tax incentives and low-interest loans to strategic industries. China has been criticised for its protectionist policies, including intellectual property practices that favour domestic firms. Massive investments in infrastructure, including transportation and digital networks support industrial growth.

Each of these countries has tailored its industrial policy to its unique economic context, with varying degrees of government intervention, innovation focus and international competitiveness.

The writer is a senior economic reporter