INDUSTRIAL DEVELOPMENT

IN PAKISTAN
Dr. Asghar Ali
 INTRODUCTION
• At the time of independence 1947,
Pakistan had negligible industrial base.
• Now Pakistan has fairly diversified
industrial base.
• It helps in import substitution and saves
substantial amount of foreign exchange.
 INTRODUCTION
• The East Pakistan produced 70 percent of
the world’s jute. But, there was not a
single Jute Mill
• The newly-emerged state of Pakistan did
not even have its own bank sand
depended on the reserve bank of India
• Similarly in 1947, Pakistan did not have a
single ordnance factory
 INTRODUCTION
• Therefore, rapid industrialization of the
country was a great challenge for
Pakistan.
• With the services of the patriot economic
experts, engineers and capitalists, the
country achieved high growth rates in
manufacturing in Pakistan for 1950-55
 Growth of Industrial Sector in
Pakistan
• Industrial performance in terms of growth
can be analysis in the following period of
time.
1. Growth of industrial sector from 1947 to
1950
2. Growth of industrial sector in 1950’s
3. Growth of industrial sector in 1960’s
 Growth of Industrial Sector in
Pakistan
4. Performance of industrial sector in 1970 to 1976
5. Performance of industrial sector from July 1977
to 1988.
6. Performance of industrial sector from 1988 to
1999.
7. Performance of industrial sector from October
1999 to 2007.
8. Performance of industrial sector from 2007 to
onward.
 Growth of Industrial Sector from
1947 to 1950
• At its inception in 1947, Pakistan had a
predominantly agrarian economy–agriculture
contributed 53% of GDP in 1947
• Pakistan had a population of 30 million with 6
million people living in urban areas
• 65% of the labor force working in the agricultural
sector, and
• Agricultural output contributing 99.2% of exports
and about 90% of Pakistan’s foreign exchange
earnings
 Growth of Industrial Sector from
1947 to 1950
• Out of 921 industrial units operating in the
British India, Pakistan got only 34
industries i.e 4% of the total industries
established in subcontinent.
• All industries were in small size like sugar
mills, cotton ginning factories, flour mills
and rice husking mills.
 Growth of Industrial Sector from
1947 to 1950
• Government of Pakistan Called an
Industrial Conference in December, 1947
to industrial growth.
• The Conference recommended to
establish such an industries which use
locally produced raw material.
• Private entrepreneur was encouraged to
set up industries.
 Growth of Industrial Sector from
1947 to 1950
• The infrastructure for the heavy industries was
also be established.
• Development board was established in 1948 to
implement these recommendations.
• The Government also set up an International
Finance Corporation (IFC) and Industrial
Investment and Credit Corporation ( IICC) in
1948.
• The contribution of industrial sector was 6.9% in
1950.
 Growth of Industrial Sector in
1950’s
• Private sector was shy to invest in heavy
industries due to
» Lack of capital
» Technical Know- how
» Absence of entrepreneurship
• Pakistan banned the imports of cotton textiles
and luxury goods in 1952 and regulated virtually
all imports in 1953
• Consequently, Pakistan joined the group of the
most rapidly growing countries in the 1950s
 Growth of Industrial Sector in
1950’s
• Government established PIDC in 1952 to
invest in those industries where heavy
initial investment required.
• PIDC invested in paper board, cement,
fertilizer, jute mills, shipyards, and Sui
Karachi gas pipeline
• PIDC completed 59 industrial unit by June
1971.
 Growth of Industrial Sector in
1950’s
• Woolen, cycle tyres and tubes, paint,
varnishes and glass industries were
established in First five year plan 1955-56.
• The reduction of export duties and
introduction of export bonus scheme in
1958 increased export of manufactured
goods.
• The share of industrial sector to GDP was
11.9% in 1959-60
 Growth of Industrial Sector in
1960’s
• This period covers two five year plan.
• The country achieved self sufficiency in
consumer goods industries.
• There was a shift in the establishment of
consumer goods industries to heavy
industries such as machine tools, petro-
chemical, electrical complex, and iron and
steel.
 Growth of Industrial Sector in
1960’s
• The industrial performance in terms of growth,
export and productivity increased during the
Second five year plan.
• The share of industrial sector to GNP went to
11.8% from 1960 to 1965.
• The large-scale manufacturing grew at a rate of
16% per annum during 1960/61-1964/65 due to
protection of domestic industry from imports and
subsidies for exporters
 Growth of Industrial Sector in
1960’s
• The third five year plan 1965-1970 could
not achieved success due to reduction in
USA aid, political unrest .
• The reduced Foreign Economic
Assistance caused the large-scale
manufacturing to grow at a lower rate of
10% per annum during 1965-70
Performance of Industrial Sector
from 1970 to 77
• This was the era of disappointment in
terms of growth ,productivity and exports
due to
• Fight with India
• Suspension of foreign aid
• Fall in exports
• Nationalization of Industries
• World recession
Performance of Industrial Sector
from 1970 to 77
• There was an increase in Pakistan’s import bill
due to the October 1973 world oil price shock
• A serious post-1973 global recession during
1974-77, failures of cotton crops in 1974-75
• Pest attacks on crops, and massive floods in
1973, 1974, and 1976-77
• Pakistan experienced the worst inflation during
1972-77
Performance of Industrial Sector
from July 1977 to 1988.
• Government initiated large step to revise the economy.
• The annual growth rate in manufacturing sector was
8.2% in 1980’s.
• Zia ul Haq Era
• Afghan War
• US Aid for Afghan War
• Growth is observed
• De-nationalization Started
• Structural Adjustment Program started then discontinued
Performance of Industrial Sector
from 1988 to 1999
• During 1985-88, the Government tried to
implement the Islamic interest-free banking
system, which introduced Islamic business
partnerships between entrepreneur and the
owner of capital based on the principle of
sharing profits and losses
• Massive inflows of worker remittances from the
Middle East
• Privatization took pace
• Right Sizing or Downsizing
Performance of Industrial Sector
from 1988 to 1999
• The 1990s: era of debt crisis
• During 1980-1995, the external debt/GDP ratio
increased from 42% to 50%
• External debt default emerged in 1996
• In reaction to Pakistan’s nuclear tests on 28 May
1998, the Western economic sanctions was
imposed
• Sanctions triggered massive capital flight
Performance of Industrial Sector
from 1999 to 2007
• Musharraf Era
• Front line member on War against terror
• American aid
• Introduction of Local Government System
• 2005 Independence from IMF
Performance of Industrial Sector
from 2008 to date
• Largest Growing Economy of Asia
• Major impetus came from improved performance
of services and agriculture sector. Industrial
sector also saw some recovery
• 18th Amendment
• greater share of revenues has been passed to
the provinces through the National Finance
Commission Award (NFC) in order to enable
them to perform these functions
Performance of Industrial Sector
from 2008 to date
• Present economic conditions in Pakistan are
much better than those of 1947
• Pakistan has a creditable ordnance factory,
vibrant steel, plastic and auto-industries. The
country is producing tractors, cars and
motorcycles, having a world class textile industry
—producing fertilizers, chemicals, sugar, and
cement
 Role of Industrialization
• Increase in National Income
• Higher Standard of living
• Economic stability
• Improvement in Balance of Payments
• Stimulates progress in other sector
• Increased Employment Opportunities
 Role of Industrialization
• Promotes Specialization
• Rise in Agriculture Production
• Easy to control Industrial Activity
• Large Scope for technological Progress
• Increased Saving and Investment
 Role of Industrialization
• Provision of Defence
• Lesser Pressure on Land
• Development of markets
• Increase in Government revenue.
 Causes of Industrial
Backwardness
• Controversial Industrial Development
Strategies: to improve BOPs
– Increasing exports
– Production of import substitution goods
 Causes of Industrial
Backwardness
• The slow growth in industrial sector mainly
due to rapid changes in the industrial
development strategies.
• Central issues:
– Sectorial balance between agriculture and industrial
sector
– Balanced regional development
– Growth versus Welfare strategies
– Small scale versus large scale
 Causes of Industrial
Backwardness
– Capital intensive versus labour intensive
– Public sector versus private sector
– Rural versus Urban
– The policies of nationalization versus
denationalization of industries.
 Causes of Industrial
Backwardness
• Lack of capital
• Narrowness of market
• Poor quality of industrial labour
• Lack of infrastructure facilities
• Lack of technical know how.
• The lack of industrial consultancy firm
 Causes of Industrial
Backwardness
• Racial disturbances
• Unfavorable industrial structure.
• Frequent break down of electricity
• Political Instability
 Industries in Pakistan
• Textile
• Sugar Industry
• Chemical Industry
• Fertilizers
• Cement
• Engineering goods industry
• Vegetable Ghee
 Industries in Pakistan
• Automobile Industry
• Paints and varnish Industry
 Importance of Foreign Direct
Investment
• Incentives to foreign investor:
• Foreign exchange control have been
relaxed for foreign investor.
• Invest in local projects on 100% equity
basis.
• Ceilings on payments on royalties and
technical fee have been abolished.
• No NOC is required from provincial
government.
 Importance of Foreign Direct
Investment
• IMPORTANCE:
• Bridge savings and investment gap.
• Bridge trade gap.
• Raising of revenue for development.
• Gap in Management.
• Encourage local investor
• Increase in production and generate local
employment
 Arguments against private
Foreign Investment
• Foreign investment in urban areas
• Inappropriate products and technology
• Influence on government policies.
• Suppress domestic investor
 Cottage Industry
• Cottage industry is meant the industry
which is generally carried on in the home
of artisan.
• Usually family owned business.
• Low power usage
• No usage of high tech machinery
 Small Scale Industry
• The firms employing less than 10 persons
are classified as small.
• A firm is of small scale if its fixed asset do
not exceed Rs. 2 million in Pakistan.
 Importance of SMEs
• Japan, Taiwan and Singapore first
developed SMEs
• According to the Economic census of
Pakistan 2005, there are 3.2 million
business enterprises operating
• It employed 78%of industrial labour force
and 35% in value addition.
• It contributes about 25% of manufacturing
exports earning.
•
 Importance of SMEs
• Employment Potential
• Generate Employment of women.
• Use of Industrial wastage
• Supply of indigenous
• Sources of foreign exchange earnings
 Importance of SMEs
• Widen outlook
• Extension of home markets
• Balanced growth
• Support to large scale industry
• Reduction of rural migration
 Importance of SMEs
• Reduction in inequalities of wealth
• Quick yielding
• Low import intensity
• Skill formation
 Problems of SMEs
• Financial constraints
• Production cost is high
• Use of outdated machinery
• Lack of standardization
• Shortage of trained and technical persons
• Lack of co-ordination
 Problems of SMEs
• Lack of marketing facilities
• Inadequate and irregular of electricity
• Short supply of raw material
• Provision of technical training
 ROLE OF THE STATE
• GOP took certain steps to develop SMEs
sector.
• SME Policy 2007: In this policy special
focus was given to agro based
enterprises.
• SME Bank: In 2002
• Role of SMEDA
 ROLE OF THE STATE
• Industrial Estate
• Technical services
• Handicraft Development Centers
• Carpet Centers
• Marketing Facilities
• Advisory Service
• Establishment of Corporations