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Retrograding Industrial Sectors in Pakistan: Causes and Remedies

Retrograding Industrial Sectors in Pakistan: Causes and Remedies

China-Pakistan industrial cooperation intended to develop Pakistan as a major manufacturing hub in the region, and establishment of Special Economic Zones (SEZ) would generate tremendous investment opportunities for local manufacturers and attract huge manpower. The shifting of industries from China to Pakistan would lead to export advancement, technologies transfers, import substitution, employment generation, and all these are the prime targets of the government.

Both the countries have concentrated to build nine prioritized zones in all provinces and federal areas of Pakistan. Work on SEZ’s namely Allama Iqbal Industrial Zone, Rashakai Zone, Faislabad, and Bostan Baluchistan was under process; where large number of foreign investors has shown greater interest for investment in these SEZs. The current phase of the China-Pakistan Economic Corridor (CPEC) is concerned with industrialization, agricultural cooperation, promotion, and development of the private sector. Both countries are working on the 10th joint action committee meeting of CPEC and the next phase would primarily focus on measures for the development of Industrial Parks, Gwadar Port, and technology.

Industrial backwardness is the most important factor in the performance of the industrial sector of Pakistan. The rate of growth in the Industrial sector averaged 5.01 percent from 1990 until 2021, reaching an all-time high of 67.60 percent in April of 2021 and a record low of -39.80 percent in April of 2020. In 2020, the agriculture sector contributed around 22.69 percent to the GDP of Pakistan, 17.69 percent came from the industry, and over half of the economy’s contribution to GDP came from the services sector. The advanced countries of the world including the USA, China, Germany, the UK, and Canada encouraged industrialization on a large scale. The industrial sector of Pakistan has expanded much as compared to the partition time.

There are several causes of the industrial slowdown in Pakistan: lack of technical know-how, the prevalence of high inflationary pressures, the policies of nationalization and denationalization of industries, the narrowness of the market, higher cost of production in the industrial sector combined with poor quality of labour, lack of infrastructure facilities, higher oil prices, lack of industrial consultancy firms, and declining investor confidence due to various economic factors. To improve the industrial sector of Pakistan, the remedial measures might include the allocation of more funds for industrial research, advanced infrastructure, provision of credit facilities, and use of advanced technology.

The prevalence of high inflationary tendencies and increased oil prices are severely affecting industrial efforts and raising the cost of production. Due to high dependence on the less innovative agriculture sector and higher prices of industrial goods, Pakistan cannot compete in the international market. Although the agriculture sector has a contribution of approximately 23% to GDP factors including lack of technology, pesticides, fertilizers, and appropriate marketing system and low per acre yield, short and expensive supply of agriculture raw material.

The core modern infrastructure for industrial development in Pakistan is inadequate. Transport and communication facilities are not enough to foster the mobility of labour and capital. It is need of the time to in line the resources for contemporary economic developments. Quality supply of the energy resources like electricity, gas, water, and fuel are deficient. Due to electricity shocks and high rates of electricity, industrialists are in trouble and are suffering from losses.

The higher cost of credit increases the cost of capital that is a disappointing factor for future entrepreneurs and businessmen. Due to disputable industrial strategies, the investors are always hesitant to make investment decisions. The major problem in Pakistan is the inefficient utilization of existing capital due to the lack of investment advisors across the country. Lack of technical and vocational education and universities lead to unsatisfactory research work for the industrial sectors. Entrepreneurial development and training programs should be designed to promote a climate of professional entrepreneurship. In this respect, entrepreneurship should be offered as a field of specialization in educational institutes. Quality enhancement cells should be introduced which might give proper guidance for quality maintenance and check on the quality of industrial products. Pakistan needs to make industrial development through the use of advanced technology, development in infrastructure, and provision of enhanced credit facilities. Being an agrarian country, Pakistan can use its agricultural products and mineral resources to boost up industrialization.

The industrial sector has an important contribution to the economy of Pakistan. Due to numerous reasons, the sector could not flourish in the country over the past years. It will be difficult without proper remedial measures to move towards the paramount objective of economic recovery or accelerating the overall growth of the economy. The purpose of prioritizing the development of SEZs is to attract foreign direct investment, provide opportunities to develop industries, set a milestone in industrialization and diversification, and supply cheap raw materials from China to most of Pakistan’s markets.

[box type=”note” align=”” class=”” width=””]Muhammad Abeer Farooq – Project Coordinator, Sustainable Development Policy Institute, Islamabad

Amir Mustafa – Assistant Professor, National University of Modern Languages, Islamabad[/box]

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