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Energy shortages, limited external demand and structural bottlenecks all constrained industrial growth

Published on 23th Nov, Edition 47, 2015

 

Industrialization is regarded essential for rapid development of the country while the nations, which gave weight to rapid development to industry achieved high rates of development. Pakistan at the time of partition in 1947 had negligible industrial base. Since the division of the sub-continent, the Government of Pakistan has been utilizing all available resources domestic as well as external for rapid development of the manufacturing sector. Pakistan has now attained a fairly diversified base in manufactures ranging from essential consumer goods of chemicals steel, heavy engineering and tool industries.

After missing the economic growth target in its first year because of a poor show by agriculture and services sectors, the PML-N government has set an ambitious target to expand the economy at a rate of 7.2 percent by the financial year of 2016-17.

The industrial sector was the major driving force behind 4.14pc GDP growth rate. It grew by 5.84pc during the current fiscal year against a target of 4.8pc. This showed a significant improvement over about 1.4 percent of the last year. Among the industry’s sub- sector’s, large-scale manufacturing grew by 5.31 percent against a target of 4.5 percent and last year’s growth rate of 4.1 percent. A major improvement was seen in the electricity sector which grew by 3.7 percent against a negative performance of 16.33 percent last year.

Pakistan has registered a plausible growth in its short history averaging around 6 percent year on year basis. Industrial fate of Pakistan heavily depends on cheap materials, easy tax policy, industrial infrastructure, political stability and ready and cheap finance industries have evolved, industrial revolution of Pakistan is yet to take place.

Geographically, Pakistan is situated at one of the best places of the world. Foreign investor can make their way to the landlocked Central Asian States and countries of the South Asia through making investment in Pakistan.

Hub of trade and economic activities

Pakistan is offering liberal investment policies allowing 100% foreign equity and equal treatment to local & foreign investors. Pakistan has a network of export processing zones and industrial estates ready to accommodate Chinese investors especially in Punjab province. Despite challenges, Pakistan is gaining the status of hub of trade and economic activities due to liberal economic policies of the present regime and days are not far when Pakistan will be top priority of the foreign investors.

Pakistan is 4th largest producer of milk & cotton, 9th largest producer of wheat, 10th largest producer of rice, 7th largest producer of fruits and ranked 10th as far as labor force is concerned.

Financial experts told PAGE that new technology and modern infrastructure were needed to increase industrial growth exports, making the country’s products more competitive in international markets.

Knowledge-based industrial revolution and equipment is needed for high value manufacturing to compete the world markets in an effective manner.

They urged the government to introduce reforms, which would help improve business and investment environment in the country, which came down by two points on the World Bank index of ease of doing business; however, the government must introduce reforms, which would help improve business and investment environment in coming years.

When the present government took over two and half years ago, inflation rate was about 12 percent, which came down to 1.6 percent last month on year-on-year basis while budget deficit decreased from 8.2 percent to 4.9 percent. Further interest rate reduced to 6 percent, i.e., lowest in 42 years.

INDUSTRIAL OUTLOOK – % CHANGE Y-O-Y
MANUFACTURING PRODUCTION 2011 2012 2013 2014 2015 2016
Germany 8.4 0.0 1.4 4.5 4.4 3.2
France 0.7 -2.3 1.1 2.6 2.6 2.3
Italy 1.8 -6.8 -0.9 2.1 2.8 2.5
UK 2.1 -2.0 1.1 3.2 3.0 2.2
Eurozone 5.4 -1.7 1.5 3.6 3.6 2.7
United States 4.3 4.7 3.3 3.7 3.4 3.0
Japan 4.9 1.6 2.6 4.3 3.3 2.3
Triad 2.5 2.1 3.8 3.5 3.1 2.7
Brazil 0.2 -2.2 5.0 5.9 5.4 4.5
Russia 9.1 5.4 6.1 7.1 6.5 5.9
India 4.5 1.8 7.5 10.1 9.9 8.3
China 10.6 8.8 8.9 9.0 8.4 7.8
BRICs 8.9 7.0 8.3 8.8 8.2 7.5
Eastern Europe 8.0 2.3 4.2 5.7 5.6 4.9
Developed 4.3 1.3 2.2 3.7 3.4 2.7
Emerging Markets 7.5 5.0 6.8 7.5 7.0 6.4
World 5.6 2.8 4.1 5.4 5.0 4.4
Source: PAGE-Research Department

Lack of complementary public investments and a weak investment climate are constraining private sector investment. Constrained fiscal space limits the government’s ability to make the necessary complementary public investments. In addition, inconsistent trade and industrial policies create disincentives for investors and contribute to a weak business environment, as evidenced by Pakistan’s ranking in most international surveys dealing with this issue, like the Global Competitiveness Ranking. Ongoing energy shortages, limited external demand and structural bottlenecks all constrained industry growth. The weak growth in the industrial sector also acted as a drag on related services sectors such as trade and communications, which also posted relatively slow growth.

The causes of industrial backwardness in Pakistan are varied and complex. The government is making efforts to develop industries and infrastructure facilities for the growth of industrial sector, yet it has not achieved success to the desired extent. In the last over three decades the main obstacles which have slowed and retarded industrial development in Pakistan are as follows:

Political Instability: The first and the foremost cause of the backwardness of the industry has been the political instability, which has led to instability of policies. Each successive government unveils its own policies and disposes of all policies of previous government after it takes over.

In the wake of such negligence from government’s part, the industrial sector is suffering a great setback.

Lack Of Capital: Furthermore the lack of capital is a major hurdle in attaining self-sufficiency in industrial sector. Every industry requires a large sum of capital to keep its wheel moving. But due to the lack of capital and loan facilities the progress of industry is lingering.

Limited Market: Limited market is also the major cause of industrial decline. Pakistan manufacturing sector have high costs, low labor productivity and inefficient production processes. There is a threat by the Chinese and Indian manufacturers to gain most of the market share. Owing to government’s indifference, our domestic markets have not expanded to an extent to accommodate the homemade goods.

Peoples’ Liking To Foreign Goods: Moreover our peoples’ liking to foreign goods is also giving a severe blow to our industry.

Under Utilization Of Labors’ Potential: The proper utilization of the capabilities of the labor plays a very vital role in the progress of the industry. By fully utilizing labor capabilities the production can be improved and increased. But unfortunately, under utilization of labors’ potential on right place is causing a great loss and industry is lagging behind to compete with the world.

Communication And Transportation: Communication plays a very important and vital role in industry’s progress. If communication is in disorder, industry fails to survive. Due to absence of basic infrastructure, our industry is lagging behind. Lack of basic infrastructure along with the expensiveness of means of transportation and communication is also contributing to industrial failure.

Technical Know How: The significance of technical knowledge to industry cannot be negated. Industrial progress is dissatisfied in the absence of workers equipped with technological knowledge. The scarcity of such technically experienced labor force makes the journey towards industrialization challenging.

Energy Crisis: Energy crisis is further a bolt from blue for our industry. Our country is starving in electricity, oil and gas which are the most essential requirements to run industry. In spite of having vast resources of gas, oil, coal etc. our country is unable to provide uninterrupted supply of fuel to industry, which is creating havoc to this sector.

Economic Restrictions: Economic restrictions imposed by donor countries and lacks of effective exploitation of the world market are contributing to our industry’s failure.

Lack Of Modern Technology: To a large extent, all segments of the textile sector from cotton cultivation to manufacturing of garments lack modern technology.

New Competitors: Pakistan is facing new competitors (Bangladesh, Vietnam and Turkey) in industrial sector. Though we cannot avoid competition but we can always stay ahead of them by reforming our strategies and educating our entrepreneurs so as to move one step forward in every aspect.

Low Foreign Investment: Low foreign and local investment is a matter of concern. Due to terrorism and security concerns the foreign investors are reluctant to invest in Pakistan industries.

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