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1. Introduction:
Industrial sector of Pakistan is suffering from various structural problems resulting in slow growth rate of output and export, low level of investment, high concentration of the industries, allocative, technical and poor quality of products, low level of Research and Development (R&D) activities resulting into slow growth rates of productivity making the Pakistani products uncompetitive in the world market etc. The levels of productivity in most of the manufacturing industries continue to be rather low making it increasingly difficult for Pakistani producers to compete in the world market. The need to restructure the industrial sector, therefore, is quite obvious. Accordingly, a long run vision of the industrial sector need to be defined and the strategy that facilitates realization of the objectives needs to be formulated.

1.1 History:
At the time of independence out of 921 industrial units, operating in sub continent, Pakistan got only 34 industries i.e. 4%of the total industries.1 During the 1960s and 1970s, light industry expanded rapidly especially textiles, sugar refining, fertilizers, and other manufactures derived from local raw materials. Large government investments in the 1970s established the country's first large-scale ship-building and steel milling operations; the production of chemical fertilizers was also given special government support. The Pakistan Industrial Development Corp., established in the early 1980s with IDA credit, developed industrial estates for small- and mediumscale industries, assisting their occupants in obtaining credit, raw materials, technical and managerial assistance, access to production facilities, as well as marketing support. Despite steady overall industrial growth during the 1980s, the sector remains concentrated in cotton processing, textiles, food processing and petroleum refining. The 1973 nationalization program, which placed 10 basic industries wholly within the public sector, was reversed in 1991 with the enactment of an ambitious privatization program. In 1992, the government began auctioning off majority control in nearly all public sector industrial enterprises, including those manufacturing chemicals, fertilizers, engineering products, petroleum products, cement, automobiles, and other industrial 1

products requiring a high level of capital investment, to private investors. In 1995, however, the speed of privatization began to slow as the sale of some large state-owned units were stalled and postponed. In 2002, the public industrial sector, under the Production Wing of the Ministry of Industries and Production consisted of eight public holding companiesPakistan Steel, the State Cement Corporation (PACO), Federal Chemical and Ceramics Corporation (FCCC), State Petroleum Refining and Petrochemical Corporation (PERAC), State Engineering Corporation (SEC), the Pakistan Industrial Development Corporation (PIDC), the state fertilizer corporation and Pakistan Automobile Corporation. The majority of the 74 production enterprises controlled by these holding companies have been privatized, and most of those remaining are scheduled to be sold. The public sector continues to dominate in steel, heavy engineering, automobiles, petroleum and defense-related production. Pakistans growth performance has been fluctuating over time, through the decades of 1960s, 1980s, with some high growth episodes but relatively low growth is observed in the decades of 1970s and 1990s. The first half of 90s, except for the year 92-93, posted reasonable growth rate however the growth performance during the 2nd half of 90s seems less than satisfactory. GDP growth, though low in the initial years of the ongoing decade, started picking up to reach a peak level of 8.6 percent in 2004-5 and declined again in the next year to 6.6 percent. The growth pattern observed overtime raises a number of questions including as to what constrains growth and what kind of reforms are needed to embark upon a high but

sustainable growth path.

2. Meaning and kinds:

"Industry is used as short hand term to describe the making and selling of goods as well as services"

Manufacturing Industry:
Manufacturing industry includes production of goods and Materials, e.g. the making or production of things in factories.

Service Industry:
Service industry includes services and assistance in daily life goods and products, e.g. a commercial activity that provides services by advertising/ hotel/ tourist/ entertainment.

2.1 Manufacturing Industry: 2.1.1 Share In Gross Domestic Product:

Manufacturing sector is the second largest individual sector of the economy accounting for 19.1 percent of the Gross Domestic Product (GDP), 2006-07. The activity in the manufacturing sector is comprised of large-scale and small & medium manufacturing sector. The percentage share of manufacturing sector in GDP was 17.7% during the year 1992-93 which fell down to 14.8% in 1999-2000 and reached around 18% in 2003-04. In 2005-06 overall manufacturing, accounting for 18.2 percent of GDP, registered a robust growth of 8.6 percent against the target of 11.0 percent and last year's achievement of 12.6 percent.

Industrial Performance of Pakistan: Manufacturing Share of Pakistan in GDP

Total Large Scale Small Scale





17.94 17.66



13.09 12.41 12.26 12.32 12.48 12.66

%a g es h a re


8.78 8.85

5.36 4.384.41 4.38 3.56 3.57 5.18 5.28 5.3

0 1950s 1960s 1970s 1980s 1990s 2000-01 2001-02 2002-03

Source: 50 Years of Pakistan Volume I Summary, Statistical Supplement of Economic Survey, 2002-03 and Economic Survey 2003-04.

2.1.2 Growth:
The large-scale manufacturing was originally targeted to grow by 6.5 percent in 2002-03 but the target was surpassed by a wide margin. Pakistans overall manufacturing sector registered a growth of 7.7 percent and largescale manufacturing grew by 8.7 percent during the current fiscal year. The improvement in the domestic demand and better macroeconomic environment have caused in significant turnaround in the manufacturing sector. In 1990s owing to host of problems like tariff reforms and escalating utility prices, In the backdrop of higher growth of 8.2 percent in the 1980s, the growth rate of 4.0 percent in 1990s was disappointing. The growth rate in the manufacturing sector was 4.4% in 1992-93 with a negative growth of 0.1% in 1996-97. It however touched the highest ever level of 13.4% in 2003-04 against a target of 7.8% and in 2005 growth of 6.9%. This impressive performance of the manufacturing sector was unprecedented and was largely attributable to the highest ever growth recorded in large scale manufacturing which accounted for were 68% of

overall manufacturing. the major industries that register double digit growth included sugar, cement, cooking oil, jeeps and cars, motorcycles, motor tyre etc. the growth in cement industry was only 2.84% in 1992-93 with negative growth in several years till 1999-2000 however the cement sector turned the corner by achieving a growth rate of 13.73% in the year 2003-04. In fiscal year 2006-07 manufacturing registered an impressive growth of 8.75%.2004 Fiscal year 2002-03 besides 2000-01 has become the best performing year for manufacturing sector since 1987-88. This year has seen manufacturing registering a stellar growth of 7.7 percent with major contribution coming from large-scale manufacturing which recorded 8.7 percent growth. The industry seems to have adjusted itself with the challenges emanated from trade and tariff rationalization of the 1990s and increased input cost due to escalating utility tariff.

Table 2.1: Growth rates of manufacturing sector.

Year 1950-51 1959-60 1969-70 1979-80 1989-90 1999-2000 2000-01 2001-02 2002-03 Period averages 1950s 1960s 1970s 1980s 1990s 1950-2003 Total 8.39 2.53 11.32 10.25 5.72 1.53 8.21 5.00 7.67 7.73 9.91 5.50 8.21 3.88 6.78 Manufacturing sector Large scale Small scale 23.42 2.34 2.75 2.25 13.95 2.98 10.96 8.40 4.73 8.40 (0.01) 5.31 9.46 5.31 4.87 5.31 8.65 5.31 15.75 13.39 4.84 8.16 3.54 8.78 2.30 2.91 7.63 8.40 5.06 5.06

Source: 50 years of Pakistan volume 1 Economic survey, various issues

Industrial Performance of Pakistan : Growth Rate of Manufacturing


10 8
% age

6 4 2 0 1950s 1960s 1970s 1980s 1990s 2000-01 2001-02 2002-03

Source: 50 Years of Pakistan Volume I Summary, Statistical Supplement of Economic Survey, 2002-03 and Economic Survey 2003-04.

Large scale manufacturing growth

Source: Pakistan Economic Survey 2007-08

3. Major Industrial sectors of Pakistan:

Followings are the main Industries of Pakistan; Textile industry; Sugar industry; Cement; Leather industry; Chemical industry; Fertilizers; Engineering industry; Telecommunication; Transport; Miscellaneous.

Table 3.1: Summary of Major Industrial Groups.

Industries Number of establishments Food, beverages and tobacco 935 Textile, apparel and leather 1701 Wood, wood products & furniture 68 Paper, printing & publishing 182 Chemicals, rubber & plastics 645 Non-metallic mineral products 139 Basic metal industries 170 Metal products, machinery, equipment 702 Handicrafts, sports, other MFG. 86 Total 4628
Source: statistical bureau of Pakistan.

3.1. Textile Industry:

Textile Industry is the most important industrial sub-sector in Pakistan. It is based on locally available raw cotton, provides largest employment to Industrial labor force and also the largest foreign exchange earner in the country. It contributes nearly 68% of our total exports. During the last boom period Pakistan has emerged as the major supply source of cotton textiles in the world market confirming its competitive strength. Pakistans share in world yarn trade is about 30% and the share of cloth is 8%.

The development of the Manufacturing Sector has been given the highest priority since Pakistans founding with major stress on Agro-Based Industries. For Pakistan which was one of the leading producers of cotton in the world, the development of a Textile Industry making full use of its abundant resources of cotton has been a priority area towards industrialization. At the time of independence there were only 6 Textile Units with 80,000 spindles and 3000 looms, which could only supply 8% of the domestic demand of its 76 Million populations. The Government set the objective of promoting Textile Industry first as an import substitution industry and later as an export oriented industry. This showed positive results and spinning and weaving sector had rapid growth during 50s & 60s. Its growth was such that by the end of 50s Pakistan was virtually selfsufficient in cloth requirement and then reached at the surplus stage to export yarn and cotton fabrics and had been progressing satisfactorily.

Table 3.2: Importance of textile industry in Pakistan' economy.

Share in Total Exports Share in Manufacturing Share in Employment Share in GDP Textile Exports Investment in Textile 2006-07 61.1% 46% 38% 8.5% $6.6 billion $6.4 billion 2007-08 (July-Feb) 53.8% 46% 39% 8.5% $6.3 billion $7.0 billion

Source: textile commissioners organization.

3.1.1 Importance of Textile Industry in Pakistans Economy

During the year 2006-07 the Textile Industry was confronted with problems both at local and global level. The input cost impacted almost all sub sectors. In spite of that the performance of Industry during the last five years has been satisfactory. The market was responsive, the Governments policy was supportive and inputs were viable. The industry made profits and re-invested in new machinery for balancing, modernizing and restructuring (BMR) and expansion. The industry made an investment of approx. $6.4 billion during the period 1999-2007. The Textile Industry in Pakistan has not been able to reap all benefits of quota phase out as compared to its regional competitors. China, India and Bangladesh are posing tough competition by virtue of their competitiveness in term of price and quality.

Table 3.3: Growth Of Textile Industry In Pakistan: Province - Wise

SINDH BALUCHISTAN PUNJAB A.KASHMIR Units Units Units Units 1971-72 76 1 45 0 1972-73 89 1 51 0 1973-74 87 1 56 1 1974-75 75 1 58 1 1975-76 79 1 57 1 1976-77 79 1 60 1 1977-78 90 1 69 2 1978-79 93 1 76 2 1979-80 95 1 76 3 1980-81 99 3 86 3 1981-82 100 4 90 3 1982-83 103 4 92 3 1983-84 103 5 92 3 1984-85 104 5 94 3 1985-86 106 6 99 4 1986-87 103 6 101 4 1987-88 101 8 102 4 1988-89 107 10 117 4 1989-90 109 11 132 5 1990-91 110 11 142 5 1991-92 111 11 171 5 1992-93 112 11 195 6 1993-94 124 12 271 6 1994-95 125 12 286 6 1995-96 128 13 297 6 1996-97 114 10 293 6 1997-98 114 10 295 6 1998-99 114 10 295 6 1999-00 114 10 296 6 2000-01 114 10 297 6 2001-02 115 10 302 6 2002-03 116 10 304 6 2003-04 116 10 307 6 2004-05 118 10 307 6 Source: All Pakistan Textile Mills Association (aptma). Period N.W.F.P Units 9 9 10 9 9 12 12 12 12 12 13 13 13 13 12 12 9 9 9 9 9 10 16 17 17 17 17 17 17 17 17 17 17 17 TOTAL PAKISTAN Units 131 150 155 144 147 153 174 184 187 203 210 215 216 219 227 226 224 247 266 277 307 334 429 446 461 440 442 442 443 444 450 453 456 458

3.2. Sugar industry:

The sugar industry plays an important role in the economy of the country. It is the second largest industry after textiles. At the time of independence in 1947, there were only two sugar factories in Pakistan. The output of these factories was not sufficient for meeting the domestic requirements. The country started to import sugar from other countries and huge foreign exchange was spent on this item. Need was felt to increase the production of sugar. Keeping in view the importance of sugar industry, the Government setup a commission in 1957 to frame a scheme for the development of sugar industry. In this way the first sugar mill was established at Tando Muhammad Khan in Sindh province in the year 1961. At present there are 76 sugar mills operating in Pakistan.

3.3. Cement industry:

At the time of independence in 1947, only one or two units were producing grey cement in the country. During the decade of 1948-58, the number of cement units increased to six. During the Ayub era the economy started to grow and the construction activities underwent a boom. To meet the growing demand of cement new units were set up. During the decade of 1958-68, the number of cement units increased from 6 to 9. During the following period of Zulfiqar Ali Bhutto all the industrial units, including cement industry, were nationalized, therefore, no new unit was set up during 1971-77. During the period of General Zia-ul-Haq, 1977-88, denationalization of industrial units boosted the investments. Housing and construction industries picked up and the demand for cement increased. Thus, the number of cement units increased from 9 to 23 and finally 29. The country at present has 29 cement plants with an installed capacity of producing around 37 million tones of cement mainly Portland cement. Cements demand side of the equation is pretty strong on the back of higher Public Sector Development Program, an increasing number of real-estate development projects for commercial and residential use, developing of an export market especially in Afghanistan, Sri Lanks, Bangladesh and Vietnam.


3.4. Leather industry:

Pakistan produces very fine quality leather which is recognized worldwide and a good quantity of Finished Leather is also sold locally to the Manufacturers of Leather Garments, Upholstery, Footwear, Gloves and other Leather Goods to enable them to meet their production requirements. Due to unfavorable business atmosphere and various Intl pressures the export of leather & leather products was drastically on the decrease. However, with passage of time and due to our exporters untiring efforts, extensive marketing strategy and quality improvement as well as through active participation in the international fairs, the sagging position has started improving satisfactorily. Now leather sector industry has come out of declining trend and started picking up gradually. About 90% of the leather products are exported in finished form. There are some 600 tanneries in the formal sector and an equal number of tanneries in the informal sector. These are concentrated in a few cluster of which Kasur {180 tanneries} Karachi {170 tanneries} and Sialkot {135 tanneries} are the most important. It is the second largest export earning sector after textiles. Currently, this sector is contributing around $700 million a year but has the potential to multiply volume of exports with the improvement of quality and diversification in different range of products, specially garments and footwear.

3.5. Chemical industry:

Every product or service used by mankind involves the use of chemicals in one form or another. The food we eat, the plants we grow, the consumer/durable goods and services we use to sustain the quality of life; indeed our very survival against disease is dependent on chemicals. Modern agriculture is heavily dependent on chemical fertilizers, insecticides, pesticides, micro-nutrients, soil treatment chemicals, etc., for improving productivity and meeting the demands of fast growing population, Similarly, all industries, such as, iron and steel, textile, leather, sugar, plastics, rubber, ceramics, glass, pharmaceutical, etc., are also heavily dependent on chemicals and will continue to be so in the foreseeable future Chemical Production. The chemical industry, comprising organic and inorganic chemicals and pharmaceuticals is of great significance to the economic development.


Whereas Pakistan has not been able to process the inorganic materials such as minerals, the petrochemicals could not be developed both because they are highly capital and technology intensive. The chemical industry in Pakistan is a small and medium sized whose production costs are high because they are increasing scale economies in the chemical industries. The large scale efficient units are quite few and with the tariff rationalization, a number of small chemical units have been closed because they were based on non economical poor technologies, non availability of basic raw materials and lack of strong R & D base know-how. Chemical industry contributes 21.2% to value added of the manufacturing sector. It is less capital intensive and its shape in employment is 8.9%. Pharmaceuticals, fertilizer, synthetic resins and petroleum refining and products constitute bulk of the sectors value added.

3.6. Fertilizers:
Fertilizer is the one of the important industry which increases the productivity of the agriculture sector. It includes urea, pesticides, and other chemical product. There are about six urea manufacturers in the country of which four are listed at the local stock Exchanges. These include Fauji Fertilizer Company Limited, Engro Chemicals, Fauji Fertilizers Bin Qasim (FFBL) and Dawood Hercules Company Limited. Fauji Fertilizer is the largest player in the fertilizer sector with a 59 percent market share while Engro, as the second largest urea manufacturer has about 20 percent market share Only one fertilizer manufacturer, FFBL, produces DAP in the country, with 71 percent of the DAP usage imported The fertilizer industry is still facing a urea supply shortfall problem, though its severity has declined. Over the last 5 years, the average urea off take growth was 2.1 percent. Urea manufacturers are running at 100 percent plus capacity utilization levels and FFBL and Fatima Fertilizer Company are also in the process to expansion. The share of domestic urea production in private sector was 100 Percent during 2006-07.

3.7. Engineering industry:

Pakistan inherited a negligible engineering base comprising small workshops producing diesel engines, lathe machines, cane crushers in and around Lahore, Sialkot and Gujranwala. The only large engineering unit, the


Moghalpura Engineering Workshop, was exclusively engaged in production of railway machinery and stock. During the first ten years of independence, engineering industry maintained a low profile in the unorganized sector through the indigenous efforts of mechanics, craftsmen and immigrants who had the employees of large industrial units in India. However, things improved in late fifties when a large unit such as Karachi Shipyard and Engineering Works (KSEW) was commissioned in 1956. While engineering industry has made a substantial progress over the years to produce such as tractors, motorcycles, electric transformers, switch gears, electric meters, air conditioners, refrigerators, sewing machines, cars, trucks, diesel engines within the country, the uncertain as well as nonavailability of right type of basic raw material steel and its alloys plus lack of precision needed for the manufacture of parts and machinery are one of the major constraints for the development of the engineering industry. While the necessity of a steel mill was felt soon after Pakistan gained independence, it took the country over three decades to have its first and only steel mill, the Pakistan Steel Mill near Karachi. The first blast furnace was started in 1981 and it went into full production in 1984. While Pakistan has the capacity to manufacture some key engineering items like diesel engines and machine tools the growth of the engineering industry has been restricted by a number of factors. The main constraint is the uncertain availability of the basic raw materials iron and steel. In addition, these basic raw materials are available over 30-40 per cent higher cost.

3.8. Telecommunication:
Telecommunication has now become one of the prime services which an economy needs for rapid growth, development and modernization of its various sectors. Government of Pakistan awarded status of industry to telecom sector in year 2003-04. Benefits that accrue to a declared industry are now available to Telecom Sector. Over the past two decades, the institutional and regulatory framework of the telecommunications industry has changed radically. In most of the countries, public telecommunication operators (PTOs) have been fully or partially privatized and regulations concerning access to telecommunication markets, provision of services to users and pricing mechanisms have been overhauled.


Telecom sector's contribution to GDP during 2004-05 has been to the tune of Rs.115, 026 million. The share of telecom sector in GDP has

increased from 1.5% to 1.8% during the year 2004-2005. Given the rising pace of its growth the contribution of the telecom sector in GDP is likely to reach 3% in the medium-term.

3.9. Transport industry:

A well performing Transport and communication structure is vital for a countrys development. Investment in a countrys infrastructure directly affects economic growth as producers find the best markets for their goods, reducing transportation time and cost, and generating employment Opportunities. The transport and communications sector accounts for about 10.0 percent of the Countrys GDP and 20.9 percent of Gross Fixed Capital Formation in FY07/08. It provides over 2.3 million jobs in the country (6% of all employment) and receives 12 to 15 percent of funds from the annual Federal Public Sector Development Overview of the Economy Program (PSDP). Apart from being a significantly large source of budgetary expenditure, the transportation sector imposes huge demand on Pakistans energy supply, absorbing approximately 35% of total energy annually. Pakistan, with 161 million people, has a reasonably developed transport infrastructure. The country generates a total domestic transport load of around 239 billion passenger kilometers and 153 billion tones kilometers annually. Road transport is the backbone of Pakistan's transport system. The 9,574 km long National Highway and Motorway network - which is 3.65 percent of the 14

total road network - carries 80 percent of Pakistan's total traffic. Recent initiatives and developments in sectors such as shipping, railways, and aviation are a welcomed step towards a more comprehensive, efficient, ad multi-modal transportation system. The total road network is about 260,000 km of which around 60% is paved. Road density is 0.32 km/ which is Asian countries (Bangladesh-1.7 km/km2, Sri Lanka-1.5 km/km2 and India-1.0 km/km2). The government intends to generate/ mobilize all possible resources to double road density to 0.64 Km/km2. Total roads, which were 229,595 KM in 1996-97, increased to 264,853 KM by 2007-08 an increase of 15.4 percent. During the outgoing fiscal year, the length of the high typed road network increased by 3.2 percent but the length of the low type road network declined by 2.8 percent Port traffic in Pakistan has been growing at 8 percent annually in recent years. Two major ports, Karachi Port and Port Qasim, handle 95 percent of all international trade. Gwadar Port, which was inaugurated in March 2007 and is being operated by Singapore Port Authority, is aiming to develop into a central energy port in the region. In addition, 14 dry ports cater to high value external trade. During the first six months of FY 2007-08 Karachi Port had handled a total of 20.5 million tones of cargo. From July to March of the current financial year, 2007-08, Port Qasim handled 19.76 million tones of cargo depicting a growth rate of 10% over the same period last year. Pakistan Railways (PR) suffered heavy losses and damage to property owing to violence and rioting around the country this year. The network carried 59.74 million passengers and 5.2 million tons of freight during July-March of the outgoing fiscal year. Pakistan Railways earnings stood at Rs. 13,954 million during the first nine months of FY 2007-08. PIA carried 5.415 million passengers in 2007 as against 5.732 million in 2006 showing a decrease of 5.5 percent. While having to deal with challenges of rising fuel costs and imposition of a ban placed by the European Union, the Airline suffered losses of Rs. 13.4 billion in the outgoing fiscal year growing mobile markets among the emerging telecom markets. This year the sector grew by 80%.

3.10. Miscellaneous:
Other industries include sports goods, food & beverages manufacturing industry, glass industry, paper and board industry, wood and furniture industry, pharmaceuticals and non-metallic mineral products industry.


4. Structural problems:
The performance of industrial sector in Pakistan has been marred by number of factors. Narrow industrial base; Discontinuity of industrial policies; Low productivity; Lack of diversification; Role of public sector enterprises; Problems in the regularity framework; Weak infrastructure.

4.1. Narrow Industrial base:

Pakistan is facing problems in industrial sector from very beginning. At the time of independence Pakistan was very weak in this sector, only 34 industries were located in Pakistan including small sugar mills, cotton ginning factories, floor mills, rice husking mills, tanning factories etc. There was no Steel and Paper industry in Pakistan at the time of partition.

4.2. Discontinuity of industrial policies:

The present industrial strategy is the amalgam of various policy measures taken at different points of time and therefore it is essential to trace out the policies pursued and the measure taken at various point in time. During the 1950s Pakistan in embarked on the import substitution industrialization by imposing quantitative and tariff restrictions on import. There were various controls including investment licensing price control etc. All the measures adopted in the 1950s to protect the industries continued in 1960s as well. A key development of 1970s has been the emergence of a strong small scale industrial sector comprising mainly the textile, leather, sports goods and surgical instruments created employment opportunities for the countries growing Labour force. The industrial policy during 1980's accorded high priority to the restoration of business confidence, which was eroded by the nationalizing policies of the 1970's. Though the initial response of the private sector to the reform package was Luke warm, but by the end of 1980's the share of private sector in the total investment in the manufacturing sector increased 16

from 48.8% in the 1980-81 to 93% by 1989-90. Even though the private sector investment increased from 1.63 to 3.46% of GDP, total investment in the manufacturing sector increased marginally from 3.34% to 3.72% of GDP.

4.3. Low productivity:

For any country to be competitive in the world market it is imperative that its industrial sector is efficient. However a large number of industrial activities in Pakistan suffer from gross inefficiency. Some industries are so inefficient that they do not only wasted labour, capital and non-traded inputs; there material cost also exceeded the value of output. For the period 1964-65 to 2000-01 total factor productivity manufacturing sector grew by 3.21% Due to inefficient use of factor of production, lack of modern technology and unskilled labor resulting poor and substandard quality of products or goods.

4.4. Lack of diversification:

A broad based industrial sector is essential for exploiting the opportunities offered by globalization. The economic growth can be achieved through the development of a well-diversified and export driven industries. Pakistans industrial structure lacks diversification in 2000-01; almost 38% of industrial value added was contributed by food and textiles. In the dynamic areas of electronics, machinery, and metal products, Pakistan has made hardly any progress, while the engineering sector is dominated by either assembly operations based on imported parts, or the production of basic and simple components. The share of engineering industries in total manufacturing is around 5%. Roughly 80% of the Pakistan's manufactured exports consist of just textiles, clothing, carpets and rugs.

4.5. Role of public sector enterprises:

Because Pakistani entrepreneurs were reluctant to invest in the nontradional industries Pakistan Industrial Development Corporation (PIDC) was setup in 1958 with the mandate to setup state entrepreneurs in the non17

tradional manufacturing industries and to transfer the profit making units to private sector. Nevertheless, most of the manufacturing activities until 1971 were carried out by the private sector and the role of the public sector was mainly restricted to the provision of basic infrastructure. Beginning 1972, a wide range of industries were nationalized including iron, steel, basic metals, heavy engineering, motor vehicles, chemicals and petrochemicals, cement, rice milling, flour milling, and cotton ginning. Consequently, the number of industrial public Enterprises (IPEs) increased from 22 in 1972 to 55 in 1977. The seventies also witnessed heavy public investment in steel mills, fertilizer and cement plants, and several sugar and textile mills. The nationalization drive accompanied by the increasing dominance of the public sector during the seventies severely dented business confidence which led to a sharp reduction in private investment. Though the role of public sector has been drastically curtailed as a result of deregulation and privatization policies initiated in the 1980s, some industries continue to be dominated by the state owned enterprises. Some of these enterprises produce primary raw materials and intermediate inputs and resultantly the inefficiencies of the public sector have an adverse impact on the downstream industries.

4.6. Problems in the regularity framework:

The industrial sector in Pakistan has long operated in a tight regulatory environment characterized by controls on entry and exit, prices, credit, foreign exchange, imports, investment etc. These measures were meant to promote resource allocation according to national priorities, to address market failure, and to protect consumers from anti-competitive practices. However, the heavy-handed state control introduces various distortions in the economic system and led to inefficiencies and corruption, all of which stifled private enterprises. Over the last two decades, Pakistan has significantly reformed its regulatory framework, though still more needs to be done. In particular, the incentive structure has to be so reformed that it promotes dynamic comparative advantage and ensures consistency between degree of protection and fiscal incentives.


4.7. Weak Infrastructure:

The provision of adequate infrastructural facilities including power supply, telecommunication, and transportation network is a prerequisite for industrial development. The availability of quality infrastructure lowers the transaction cause of firms and hence directly affects their ability to compete in the global market.


Power Supply:

Problem of power supply is a major obstacle to business expansion. Consumption of fuel and electricity has been increasing day by day, but unfortunately, Supply of power is decreasing rather than increasing. Due to power supply failure industrial sector is facing decline. Increase in prices and shortage of supply has increased the cost of production of finished goods in industry. The main cause for the low growth in recent year is due to shortage of power supply. The Government needs special attention to overcome the shortage of power supply.


Telecommunication Services:

Though the government has strived to upgrade the telecommunication services, but these services is still far from satisfactory. The utilization of information and communication technology is very low in Pakistani industry especially the small-scale industry. The most of Pakistani businesses have thus far been able to take advantage of productivity gains through the use of information and communications technology.



The poor quality of transportation network continues to be a major problem faced by the Pakistani industry. Lack of repair and maintenance of the existing roads have resulted in the rapid deterioration of the road network. It is estimated that 70% of the national road network is in "poor" condition. Poor road conditions not only lead to delays but also result in excessive wear and tear of transport vehicles contributing to high transportation costs. 19

The rail network is also riddled with inefficiencies. The unsatisfactory state of the transportation network has imposed enormous costs on the economy.

5. Facilitation by the Government:

The government has established several institutions to help the private enterprises in a number of areas including advisory services, marketing support, and export promotion.

5.1. Small and Medium Enterprises Development Authority (SMEDA)

Small and Medium Enterprises Development Authority (SMEDA) provide business development services to the SMEs through its help desks that have been set up in four regional offices. These help desks project briefs, pre-feasibility studies and information on regulatory procedures, along with advice on specific problems. It carries out extensive training need analysis of different SME zones and conduct training courses and workshops focusing on developing skills that are in demand.

5.2. Engineering Development Board (EDB)

` The Engineering Development Board (EDB) has been established by the government for the promotion of engineering industry in Pakistan. The main objectives of EDB are to formulate and coordinate government policies relating to the engineering sector and to develop an overall strategic engineering plan. The EDB has initiated several programs to help the engineering industries. The Technology Development program is designed to upgrade technological capacity and capability of the engineering industry through technology advisory services as well as Research and Development. The Skills Up-gradation program has been developed to provide technical skills training to raise efficiency and productivity of the work force.

5.3. National Productivity Organization (NPO)

The national Productivity organization (NPO) is the nodal agency for the implementation of Asian Productivity Organization (APO) program in 20

Pakistan. It also serves as a mediator, advisor, institution builder, and clearing house for productivity information to local institutions. Moreover, the function of NPO is to offer assistance through human resource development, technical expert assistance, and dissemination of knowledge and know-how on productivity.

5.4. Experts Advisory Cell (EAC)

The Experts Advisory Cell assists the Ministry of industries and production in policy formulation and in the evaluation of public sector manufacturing units under the control of the Ministry. The cell has developed a comprehensive data base of public and private sector industries, and maintains regular contacts with various industry associations.

6. Policy Recommendations:
Improvement in Business climate; Industrial diversification; Technological Advancement; Physical infrastructure; Industrial Zones and Cities; Human resource Development; Restructuring of Industries; and Tariff Rationalization.

7. Conclusion:
Industrialization plays a vital role in the economic development and growth of an underdeveloped country like Pakistan. The historic facts reveal that all the developed countries of the world broke the vicious circle of underdeveloped by industrialization. So Pakistan being a developing country also wants to achieve higher standard of living for its masses. Since 1947, Government of Pakistan is trying hard to develop infrastructure for growth of industrial sector, yet it has not achieved success to the desired extent. The study provides a comprehensive review of the existing industrial policy, and assuming that the industrial sector of Pakistan would be completely deregulated, investor would have no problem in implementing


their decisions and that the cost of doing business would be competitive, the study presents a vision of industrial sector of Pakistan. Achieving accelerated and sustainable industrialization is the foremost goal of the Government which can be met through capitalizing upon a nations strengths and mitigation of its weaknesses. The challenge for Pakistan is not to rediscover industrial policy, but to re-deploy it in a more effective manner in the national, regional, and global context. The provision of facilities for public testing laboratories, public R&D, vocational and technical training, infrastructure and Communications are all necessary inputs which are regarded as being imperative for the manufacturing sector. Value additions in products and processes also have to be strengthened through backward and forward linkages. The economy on the upright path while maintaining macro-economic stability is the key for any developing economy. This balancing act requires a holistic approach and prudent policies to reverse the current slower economic growth. Keeping the current global economic scenario in mind it is easily predicted that tough time is ahead for all developing economies including Pakistan. The new government will face multidimensional short (inflation, price hike, increase in utility bills, oil and gas prices, employment generation) and long term problems (widening current and trade deficits, budgetary borrowing, weakening of exports volumes, high prices of oil, poverty reduction and the last but not the least sustainability of macroeconomic growth). However, implementation and continuity of sensible and integrated policies seem to be the light at the end of the tunnel for Pakistan.


8. References:
1. http://www.statpak.gov.pk/depts/fbs/statistics/manufacturing_industry/p6pk.pdf 2. http://www.statpak.gov.pk/depts/fbs/statistics/manufacturing_industry/summary_repo
rt.pdf 3. http://www.accountancy.com.pk/docs/economic-survey-of-pakistan-2006-07.pdf 2665k 4. http://www.accountancy.com.pk/docs/Economic-Survey-2004-05-Part-III.pdf - 524k 5. http://www.finance.gov.pk/admin/images/survey/chapters/03-Manufacturing08.pdf 6. http://www.accountancy.com.pk/newsgen.asp?newsid=1707 7. http://www.paksearch.com/Government/STATISTICS/Survey00/CH_3.html 8. http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field (DOCID+pk0120) 9. http://www.nationsencyclopedia.com/Asia-and-Oceania/Pakistan-INDUSTRY.html 10. http://www.finance.gov.pk/admin/images/survey/chapters/01-gro.pdf 11. http://www.pakistan.gov.pk/divisions/economicaffairs-division/media/s8industry.ppt 12. http://www.aptma.org.pk 13. http://www.pakistan.gov.pk/divisions/ContentInfo.jsp?DivID=44&cPath=606_613& ContentID=5164