Analysis of Pakistan Industries

BBA 7
Instructor: Prof. Zafarullah Siddiqui
E-mail: [email protected] / Tel: 03088881953
Course Description
 The main objective of this course is to provide an
understanding and familiarization with the concept of
comparative advantage and infrastructure of industrial
sector in the economic development of a country. The
course will also provide in-depth analysis on the issues and
challenges related to industrial development in Pakistan
which are: energy crisis, interest rate, poor governance,
security concerns etc. At the end of the course, students
will be able to understand the major industries which are
supporting the economic process of the country and how
further economic integration can bring a long term
sustainability and accountability in the economic process
of Pakistan.
Overview of Pakistan’s Economy:
 The economy of Pakistan is the 23rd largest in the world in terms
of purchasing power parity (PPP), and 42nd largest in terms of
nominal gross domestic product. Pakistan has a population of over
220 million (the world's 5th-largest), giving it a nominal GDP per
capital of $1,357 in 2019,which ranks 154th in the world and giving
it a PPP GDP per capita of 5,839 in 2019, which ranks 132nd in the
world for 2019. However, Pakistan's undocumented economy is
estimated to be 36% of its overall economy, which is not taken into
consideration when calculating per capita income. Pakistan is a
developing country and is one of the Next Eleven countries as having
a high potential of becoming, along with the BRICS countries,
among the world's largest economies . The economy is semi-
industrialized, with centers of growth. Primary export commodities
include textiles, leather goods, sports goods, chemicals, Cement and
carpets/rugs.
Ch-1 Historical Perspective
 Since the country's independence in 1947, the economy of Pakistan has
emerged as a semi-industrialized one, based heavily on textiles, agriculture,
and food production, though recent years have seen a push towards
technological diversification.
 Pakistan at the time of partition in 1947, had negligible industrial base.

 Out of 921 industrial units operating in the British India, Pakistan got only 34
industries i..e 4%of the total industries established in the Subcontinent.

 There was no steel industry worth the are in Pakistan, whereas India had a
sound industrial base at the time of Independence.

 Since the division of the Subcontinent, the Government of Pakistan has been
utilizing all available resources domestic as well as external for rapid
development of the manufacturing sector.
GROWTH OF INDUSTRIAL SECTOR
FROM 1947 TO 1950
 Out of 955 industrial units operating in the British India, Pakistan got
only 34 industries i.e. 4% of the total industries established in the
Subcontinent.
 The rest were located in India. The industries which came to the share
of Pakistan were of a comparatively small size and were based on raw
material. These industries included small sugar mills, cotton ginning
factories, flour mills, rice husking mills and canning factories etc.
 In 1947 it was suggested in the Industrial conference of Pakistan to
establish industries, which use locally produced raw material like jute,
cotton, hide and skins. The Government also set up an Industrial
Finance Corporation and an Industrial Investment and Credit
Corporation in 1948. In the period from 1947 to 1950, the private
entrepreneurs invested in those industries which showed the highest
profit.
 The contribution of industrial sector was 6.9% to GDP in 1950.
GROWTH OF INDUSTRIAL SECTOR IN
1950'S
 In 1952 the Government took the initiative and established Pakistan
Industrial Development Corporation (PIDC) to invest in those
industries which require heavy initial investment. PIDC major investment
was in paper and paper board, cement, fertilizer, jute mills and the Sui
Karachi gas pipeline. PIDC by June, 1971 had completed 59 industrial
units and created a base for self sustained growth in the industrial sector.
 A large number of new industries were established. The production
capacity of the already existing units like fertilizers, jute and paper was
considerably expanded. The reduction of export duties and the introduction
of Export Bonus Scheme in 1958 increased export of the manufactured
goods.
 There was all round development of industries particularly in agricultural
processing food products and textiles. The share of industrial sector to
GDP rose from 9.7% in 1954-55 to 11.9% in 1959-60
PERFORMANCE OF INDUSTRIAL SECTOR IN 1960’S
 In 1960’s 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.
 The industrial performance in terms of growth, export and
productivity increased during the Second Five Year Plan
period.
 The share of industrial sector to GNP went up to 11.8%
from 1960 to 1965.
 PERFORMANCE OF INDUSTRIAL
SECTOR IN 1970'S
 The industrial performance in terms of growth, exports and production was
disappointing from 1971 to 1977. There were various reasons for the poor
performance of the manufacturing sector. One wing of the country (East
Pakistan) was forcibly separated. The Country had to fight a war with India in
1970. The suspension of foreign aid, loss of indigenous market (East
Pakistan), fall in exports, devaluation to the extent of 131% nationalization of
industries labor unrest, unfavorable investment climate, floods, recession in
world trade and reduction in investment incentives caused a fall in the output
of large scale industries.
 The annual growth rate fell to 2.8% in the industrial sector in this period.
From July, 1977 to 1980, the Government initiated a large number of
measures to revise the economy. Cotton ginning rice husking and flour
milling were denationalized. The private sector was encouraged to invest in
large scale industries.
 The annual growth rate in manufacturing sector was 8.2% in the 1989's. The
growth of large scale manufacturing slowed down to an average of 4.7% in
the first half and further to 2.5% in the 2nd half of the 1990's.
1st Five Year Plan
 The first five year plan (1955-1960) involved outlays to
the public sector of Rs. 7.5 billion and Rs. 3.3 billion to
the private sector. The plan maintained that ‘while the
government cannot determine precisely the magnitude or
the kind of private investment that will actually be made.
 It can, by suitable policies and its import licensing powers,
greatly influence the magnitude of private investment’.
The government selected sugar, cement, cotton textiles,
cigarettes and jute goods for protection. The policies, as
mentioned above, were guided by short-term demands and
as a result the economy remained consumption oriented.
2nd Year Plan (1960-65)
 The second plan was almost twice the size of the first plan;
however, the sectoral allocations differed slightly with
agriculture receiving a greater share in the development
budget.
 The overall political situation in the country was more stable.
 The industries targeted by the government were sugar,
vegetable ghee, jute, super-phosphates, soda ash and caustic
soda.
 Actual growth surpassed the planned growth rate. It should
be noted however that this period was also characterized by
massive inflows of aid , which led to the growth spurt, and a
more able government in office.
3rd Year Plan
 The third year plan (1965-70) had aimed to achieve similar success
of the Second Plan; however, this period involved drastic
deterioration of Pakistan’s economy due to the Indo-Pak war in 1965.
 Resources were diverted to defense expenditure and aid inflows were
interrupted which weakened productive capacity. The industrial
sector output declined due to the underutilization of capacity, raw
material shortages and reduced investment in capital equipment.
 The rollback of import liberalization was reversed in 1966/67 and by
1968 over 90% of all imported raw materials was free of controls.
The reduction in aid inflows led the government to cut down the size
of the development budget.
 By the end of the third plan productivity was declining due to large
and inefficient public sector enterprises (particularly in East Pakistan-
now Bangladesh).
 The third wave of industrial policy involved the nationalization
of large scale manufacturing under President Zulfikar Ali
Bhutto’s administration (1971-1973). Public sector corporations
were set up to finance the industrial sector which was the
beginning of today’s deep rooted public management distortions.
Ahmed and Amjad (1984) explain that the Board of Industrial
Management (BIM) controlled 32 major manufacturing
(nationalized) enterprises covering 10 sub-sectors. BIM and
Pakistan Industrial Development Corporation (PIDC) together
made the industrial sector more inefficient as new projects were
chosen on political and not meritorious grounds.
 In 1977, with the return of military government under President
Zia-ul-Haq, a State Enterprises Review Commission and later
Implementation Committee on Reorganization of State Industrial
Enterprises recommended the abolition of the Ministry of
Production, BIM, and sector-specific corporations involved in
commodity operations.
4th Year Plan (1970-75)
 The return of democracy in 1989 started the fourth wave of industrial
policy for the decade of the 1990s.

 It had 3 main components, namely;

deletion policy, deregulation measures and privatization.

 The deletion policy focused on achieving self reliance in the engineering

sector and the promotion of technology transfer. The democratic
administrations began privatizing large banks and enterprises. However,
since there was no effort directed at putting in place pro-competition laws,
the privatization efforts did not improve industrial activity.
 The most important development of this era was the Small and Medium
Enterprise Development Authority (SMEDA) which was established for
improving products, adopting new technologies and management
practices, and facilitating with cost benefit analysis at the firm and market
level.
5th Year Plan (1978-83)
 The fifth wave (1999-2008) resulted in the private sector gaining a very prominent role.

 Deregulation and adjustments to the tariff regime led to major developments in the
automobile / consumer electronics industries.
 In 2002-03 macroeconomic stabilization was carried out through prudent fiscal and
monetary policies followed by structural reforms; as a result, the GDP growth rate
increased to 5.1% in 2002-03, 6.4% in 2003-04, and 9.1% in 2004- 05. While
agriculture and manufacturing both displayed an increasing trajectory the overall
growth rate still remained below other comparable Asian countries.
 Pakistan’s ranking in the HDI and technological development continued to be low.
 6th five year plan was started in 1983-88, shift towards private sector and the economy
grew at the average of 6.5%.
 7th five year plan was started in 1988-93, energy and transportation sector was
privatized. Private invest was Rs. 292 billion
 8th five year plan started in 1993-98, (this plan was not announced)
 In June 2004 the five year plan was given a new name Mid Term Development Frame
work (MTDF). And MTDF 2005 and 2010 was announced.
 2008 Onwards
 Moreover, the 2008 fiscal crisis and the lack of domestic support for
innovation did not give entrepreneurs the confidence they needed. The
trade liberalization was successful but not sufficient to sustain Pakistan’s
growth.

 The lasting negative impact of industrial policies at the time of

entrepreneurship is clearly illustrated by the inability of the textile industry
to benefit from the end of the Multi-fiber Arrangement (MFA) in 2005.

 Although the Musharraf government attempted to encourage the private

sector, it did not provide the necessary regulation to protect consumers,
encourage competition across the board and enhance corporate efficiency.

 A few regulatory bodies were set up; however, they did not have much
autonomy to work effectively. This brief history shows that industrial
policy has been specific to how each government viewed different
productive sectors and has lacked a long-term consensus-driven vision.
Causes of Industrial Drawback
 Political Instability
 Lack of Capital and foreign direct investment
 Limited Market
 Peoples’ Liking to Foreign Goods
 Under Utilization of Labors’ Potential
 Technical Know How
 Energy Crisis and low labor productivity
 Economic Restrictions
 Lack Modern Technology
 New Competitors
 Low Foreign Investment
 High Interest Rate (unsuitable monetary and fiscal polices)
 High cost of doing business
 Low ease of doing business
 Currency rate of exchange fluctuation
 Narrow export base and limited export markets
Reasons for Privatizations
 Governments take privatization stance
 To reduce its burden in terms of underutilization of
resources
 Dismissed employment
 Fiscal burden
 Financial crises
 Heavy losses and subsidies in order to improve and
strengthen competition
 Funding to infrastructure
Methods of Privatization
 Sale of Entire Entity
(government sells entire public unit to private sector)

 Initial Public Offerings

(government issues share to public offerings to reduce its share)

Public private partnership

Employee offered to own the entity

Establishment of Privatization Commission

 The Privatization Commission is established as a corporate body

under the Privatization Act, 2005.
Nationalization
Advantages
 It ensures that a government can stay homogenized and the economy
top-to-bottom can be nationalized. This is great because it ensures that
everyone in the economy can benefit, and the industries are all united.
 This is an economic system that really benefits a lot of nations
because usually they cannot survive with all of the internal division
economically speaking. When you are able to nationalize, you ensure
that every part of the country regardless of where it’s from is able to
survive.
 Rather than ensuring that happens to you, you can do whatever you
want to make it a balanced system, which is where you have a fair
share of international economic income as well as nationalized
income, but together you can ensure that you’re making a good
balance of income.
Disadvantages
 One of the big problems with nationalization is that it
lacks a serious infrastructure.
 There is no doubt that when you have an economy
based around nationalization, there may be a serious
lack of diversity. This means that international
industries could easily poach domestic industry and
prices could be very high for consumers, leading to a
lower standard of living.
 There is also no doubt that when you have an
economy that deals with brutal nationalization, there
is no ability to diversify anything.
Ch 2- Issues and Challenges Faced by Pakistani Industries
 Manufacturing is the third largest sector of the economy, accounting for
18.5 percent of Gross Domestic Product (GDP), and provides employment
to 20.3% of the country’s labor force. Some major manufacturing industries
include cotton textile and apparel manufacturing, carpets, rugs, rice,
chemicals, sports goods and leather goods. Some other popular industries
are construction materials, mineral, paper products, food processing and
beverages. Around 51.4% of country’s exports include textile and apparel.
 Large Scale Manufacturing (LSM), at 12.2 percent of GDP, dominates the
overall sector, accounting for 66% of the sectoral share
 Small Scale Manufacturing accounts for 4.9 percent of total GDP.
 More worrying for the future prospects of the sector, the share of
Manufacturing in new fixed investment has declined sharply, from 22% to
16.2%.
 Note: - the figures are rounded and may vary according to period and
source.
2021-22
 The Large-Scale Manufacturing (LSM) has shown a declining
trend during July-March FY 2021 in contrast to growth during the
same period last year.

 The present trend suggests that full year LSM growth will remain
below the target by a wide margin. Year on Year (YoY), LSM
growth witnessed sharp decline in 2021 as compared to increase of
in 2020.

 There are a number of factors which have contributed to the

negative growth in LSM.
 Lower PSDP expenditures compared to last year,
 Muted private sector construction activities
 Lower consumer spending on durable goods amongst others.
Trends – 1970’s
 The growth rate of the manufacturing sector fell to 5.50% and for LSM
to just 4.84 % during the 1970s.
 The most important initiative was the nationalization of heavy industry
and a number of sectors including cement, fertilizer, oil refining,
engineering, and chemicals, which were exclusively reserved for the
public sector and the policy of divesting profitable public sector units
was discontinued.
 Moreover, the industrialists faced a number of restrictions including
price controls by the government under the Profiteering and Hoarding
Act.
 These measures created a considerable amount of uncertainty, resulting
in a fall in private investment and flight of capital. Moreover, these
policies had long run implications for the industrialization process
manifested in the reluctance of the private sector to invest, which
continues to date.
1980’s
 During the 1980s the process of de-regulation, de-control
and denationalization was initiated and various measures
were taken to restore the confidence of investors.
 Administrative controls were replaced with market-oriented
forces: the import policy was liberalized, and the tariff
structure was rationalized, the par value of the rupee was
brought nearer to its equilibrium value and it was made
convertible on the capital account, investment licensing was
abolished, prices were de-controlled, and the performance
of public enterprises improved due to the signaling system.
 The market friendly policies resulted in acceleration of the
growth rate to 8.21%.
 1990’s
While the process of deregulation continued and a large number of manufacturing public enterprises
were privatized, the growth rate decelerated to 3.88 percent in the 1990s.
The performance of LSM was even more disappointing which grew at a rate of only 3.54 percent.
A number of economic and non-economic factors have been responsible for the deceleration of growth;
 political instability
 worsening of the law and order situation in the major growth poles of the country
 reduction in protection rates resulting in the closure of a number of industries
 emergence of significant infrastructural bottlenecks in transport and other sectors
 inadequate power supply along with frequent breakdowns of power supply in the early part of the

90s
 sharp increases in the prices of power in the later years
 inadequate industrial investment.
The growth rate of manufacturing output has increased. The average growth rate of the manufacturing

sector over the five years has been 9.4 and the large and small scale industries growth rates have been
10.9 and 6.3 percent respectively.
Accelerated growth because of the demand stimulus in the form of credit for the purchase of consumer

durables
A sharp increase in exports after the quota restrictions were removed.
 Industrial Scenario
 Pakistan’s manufacturing sector is gradually reviving and flourishing.
 We need improvement in energy availability, facilitate raw material for export, law
and order situation, investment opportunities, increasing government
expenditure in infrastructure development like Industrial Estates / Special
Economic Zones (SEZs), announcement of Automotive Development Policy
(ADP) and New Textile Policy, it is expected that Pakistan’s manufacturing sector
gained momentum in 2020-21. however owing to political instability and global
recession and the risk of financial default due to low ranking by international
agencies growth is likely to be low in industrial sector and in overall economy.
 The Industrial Parks / SEZs along-with CPEC route would bring investment
therein through shifting of some production units from China, which would
further improve the industrial output in coming years. To enhance export
competitiveness, the strategy is to increase the number of products in the export-
base so as to decrease dependence on textiles and rice, the two major sectors.
 Approach to be followed for the improvement of the Sector includes IT sector,
exploration of lucrative and approachable markets and diversification along with
better competitiveness of our products through structural reforms.
 Programs
 The federal government has launched different projects to revive and
boost the industrial growth.
 Major interventions to be undertaken these projects include
developed infrastructure, skilled workers, marketing facilities, and
common facility centers to attract and facilitate the investors.
Some of the important projects are listed below:
 Light Engineering Up-gradation Centre for SMEs in Balochistan
(LEUC), Hub Lasbela
 Water Supply Scheme for Hub Industrial Trading Estate (Phase-II)
 Establishment of Bostan Industrial Estate (Phase-I), Bostan
 Provision of Infra-structure in Quetta Industrial Estate (Phase-IV),
Quetta
 Establishment of Gems and Jewelers Training and Processing Centre
in Muzaffarabad, AJK.
 Natural Factors:
 Natural Disaster
 Lack of Demand
 Energy Crisis
 Man-Made Factors:
 Corruption
 Terrorism
 Lack of skilled labor
Institutional Factors
British Policy at the time of Partition, only 34 units given to
Pakistan out of 921.
 Controversial Industrial Strategy
 Shortage of Capital.
 Limited Markets
 Lack of Technical Know-How
 Lack of Infrastructure
 Lack of Industrial Research
 Unbalanced Industrial Structure.
 Labor Unrest.
 Nationalization.
 Lack of Specialization
 Incentives and Policies
 Import Substitution Policy
 In order to encourage greenfield investment and industrialization,
it was proposed to grant exemption from payment of sales tax on
imported plant and machinery, falling in chapter 84 and 85 of PCT
excluding consumer durables and office equipment, to be used for
setting up new industry for production of taxable goods.
 However, he said, increase in the Federal Excise Duty on imported
luxury cars / SUVs; and Levy of FED on local luxury cars / SUVs
was already imposed on imported cars and jeeps of engine
capacity exceeding 1800cc at 20 percent .
 In order to further discourage the imports of such luxury cars and
jeeps, it was proposed to enhance the rate of Excise
Duty from 20% to 25%, for such cars and jeeps up to capacity
3000 cc and to 30% for cars exceeding 3000 cc.
Contd..
 Removal of super tax and tax on inter-corporate dividend
will help in capital formation while getting away with
withholding tax on banking transactions will support the
ease of doing business reforms.
 Similarly, reduction in the tax rate on interest income on
additional loans to small and medium enterprises (SMEs),
agriculture and low cost housing to 20pc from 39pc will
also push up lending to these less preferred sectors.
What is Industrialization?
 The process in which a society or country transforms itself
from a primarily agricultural society into one based on the
manufacturing of goods and services. Individual manual
labor is often replaced by mechanized mass production and
craftsmen are replaced by assembly lines. Speed of
production fastens. Labor productivity and efficiency
increases
 Industrialization is the period of social and economic change
that transforms a human group from an agrarian society into
an industrial society. This involves an extensive re-
organisation of an economy, affordable energy and strong
Fiscal & Monetary Incentives for the purpose of competitive
manufacturing.
Pre/Post COVID imperative and scope
of online business
 E-commerce had been steadily gaining momentum, the
world over and also in Pakistan much before COVID19
happened. By and large the onset of the pandemic and the
ensuing lockdown has thrown the progression of online
purchasing off balance because of restrictions on eligible
items to essentials and due to the limitations placed on
physical movement directly impacting deliveries.
Nevertheless, experiences of life during the lockdown
have resulted in nudging attitudes towards opting for e-
commerce once things are back to normal.
Business Cycle
 Shows the periodic up and down movements in
 economic activities.
 Economic activities measured in terms of
 production, employment and income move in a
 cyclical manner over a period of time.
 Cyclical movement is characterized by
 alternative waves of expansion and contraction.
 Associated with alternate periods of prosperity and
depression.
 Characteristics of Business Cycles
 Periodicity
 Wavelike movements in income and employment occur at
 intervals of 6 to 12 years.
 Gap between two cycles is not regular or predictable with
 certainty.
 Synchronism
Impact is all embracing, i.e. large sections of the economy
experience the same phase.
Happens because of interdependence of various sectors of the
economy.
 Self Reinforcing
Due to interdependence in the economy, cyclical movements
faced by one sector spread to other sectors in the economy; and
from one economy to other economies.
Thus the upward swing of the cycle is reinforced for further
upward movement and vice versa.
Phases of Business Cycle
 Expansion: when all macro economic variables like
 output, employment, income and consumption
 increase.
 Prices move up, money supply increases, self reinforcing
 feature of business cycle pushes the economy upward.
 Peak: the highest point of growth; referred to as boom.
 Stage beyond which no further expansion is possible,
 Sees the downward turning point.

Con traction/Recession: means the slowing down

 process of all economic activities.
 rough or Slump: the lowest ebb of economic cycle.
 Followed by the next turning point in the cycle, when new
 growth process starts afresh.
What is recession?
 Recession is a decline in a country's gross domestic
 product growth for two or more consecutive quarters of a
 year.
 • A recession is also preceded by several quarters of
 slowing down.
 • An economy which grows over a period of time tends to
 slow down the growth as a part of the normal economic
 cycle.
 • A recession normally takes place when
 consumers lose confidence in the growth of the
 economy and spend less.
 Investors spend less as they fear stocks values will
 fall and thus stock markets fall on negative sentiment.
Causes of Business Cycles
 Earlier Explanations of economic cycles:
  Climatic changes such as sunspots that may cause
 different moods.
  Psychological aspects of entrepreneurs and consumers,
 such as moods of optimism and pessimism.
  Monetary phenomenon like changes in money supply,
 rate of interest, etc.
  Economic factors, such as over investment, under
 consumption and over savings.
  Shocks in the conditions under which producers supply
 goods such as technological breakthroughs.
Effects of Business Cycles
 During Expansion
  High growth: large investments, increase in
 employment, income and expenditure
  Inflation: Increase in investment forces more
 money supply in the system, demand for factor
 inputs increases, hence their prices increase
 which increases cost of production. So wages
 and prices of goods also increase.
  Severe Competition: Firms resort to large
 amount of non productive expenditure on
 advertisements and publicity.
Effects of Business Cycles
 During Recession
  Excess inventory: Those firms which had
 produced in abundance during expansion phase
 face the problem of maintaining unsold items.
  Unemployment : in order to reduce investment,
 recession phase is marked by large scale
 retrenchment.
 Below capacity operations and liquidation of
 firms.
Localization of Industry
 Localization of industries is also called the geographical
or territorial location of industry. This means that certain
areas or towns come to specialize in the production of
certain commodities.
Factors of Localization of Industry
 One of the important problems in launching an industrial enterprise is the
choice of suitable location which will help in minimization of production
costs and maximization of profit. To select an optimum location, the
entrepreneur must carefully study the impact of the following factors:
Factors of Localization of Industry
 Availability of Raw Materials. The availability of the required
quality and quantity of raw materials at reasonable prices is an
important factor for determining the location of an industrial unit.
In many industries, the cost of raw material forms more than 50%
of the total cost of their products.
 Labour Supply. Every plant requires an adequate supply of labour
with appropriate skills. Weber deduced that an industrial unit will
deviate format eh point of minimum transpiration cost to the
cheaper labour centre if the additional cost of transportation at the
new centre is more than compensated by the savings in labour cost.
but this hypothesis has lost its significance in the recent years
because of many reasons. Labour is easily mobile concern cannot
go. Moreover, certain industries are capital intensive and they
require less labour.
Factors of Localization of Industry
 Proximity to the Market. Industrial units using non-weight losing raw
materials tend to locate near the markets because of so many advantages. A
manufacturer can improve his customer relations and render raid services to
his customers. Industries producing perishable commodities and those
producing for a local market are also draw towards the market, because it
would reduce the cost of transport in distributing the finished products. The
industrial units tend to disperse only if they find new markets for their
products.
 Transport and Communication Facilities. Transport services are required
for assembling of materials and distribution of products. Whole selecting the
location, it should be seen that transportation facilities are easily available at
reasonable rates. The junction points of waterways, roadways and railways
have the tendency to become industrial centers because of this reason only. It
an industrial unit is directly linked with the mans of transpiration, its
transpiration costs are lower. Besides transpiration, communication services
also play an important role in the location of industrial units.
Factors of Localization of Industry
 Power and Fuel. An adequate supply of power and fuel is an
important factor for the uninterrupted operations of any enterprise.
in the initial days of industrial revolution, industrial units were
located near coal deposits because coal was the major source of
power and fuel and is of weight losing nature and quite bulky.
 Supply of Capital. Finance is the life-blood of any industrial
venture. Availability of adequate funds at low rates of interest is an
important factor influencing industrial location. But these days,
capital has become a highly mobile factor of production. Despite
this fact, availability of funds at cheaper rates of interest is an
important consideration. For instance, there are State Financial
Corporations in various states which offer loans at a very low rate
of interest if the entrepreneurs start their projects in the notified
backward areas.
Factors of Localization of Industry
 External Economies. Sometimes, industrial units are located in those
caters where other industrial units are already located. It is because of
the fact that transportation, warehousing, banking communication and
other services are easily available. Secondly, the raw materials may be
easily available at cheaper rates. For instance, by-product of one unit
may be the raw material for other distilleries are located near the sugar
factories because molasses which is a by-product of sugar industry is a
raw material for the distilleries.
 Personal Factors. Personal preference and prejudice of an
entrepreneur may also play an important role in the choice of location.
For instance, Mr. Ford started manufacturing motor cars in Detroit
because it was his home town, and Lord Nuffield selected Cowley
because the school in which has father was educated happened to be
for sale. The success of the entrepreneur in such a location depends
upon his extra-personal efforts.
Factors of Localization of Industry
 Government Policy. The government policy encourages entrepreneurs
to set up industrial units in backward areas by giving various tax
incentives in the form of remission of excise duty and sales tax. It also
offers certain non-tax incentives like loans at cheaper rates, factory
sheds, etc. The Government has also put restrictions on granting of
licenses to certain industries to be set up in metropolitan cities with a
population of more than 10 lac and urban areas with more than 5 lac
population.
 Legal Environment. Legal environment determined by various laws
and court decisions also put pressure on the business and managers.
For instance, in 1992, several tanneries in Pakistan were ordered to be
closed down by the Supreme Court as they were polluting the River. In
August 1993, the Supreme Court passed an order for the closure of iron
foundries in Punjab because air pollution caused by them has an
adverse impact on the beauty of Surrounding.
Factors of Localization of Industry
 Miscellaneous Factors. Miscellaneous factors like
historical incidents and attitude of the community
influence location of industries. In Mughal days, cottage
industries thrived near the courts of rulers due to the
patronage of state. Industrial relations atmosphere in the
region may also affect the location of certain industrial
units.
Conclusion
 The Challenges of industrialization are of great magnitude
and complexity. Many social, political, economic and
psychological barriers have to be overcome. The problem
is extremely urgent to rapidly transform from essentially
Agrarian to Industrial Economy. Industrialization will help
to overcome poverty, Create jobs, Increase GDP, lower
inflation. The creation of wealth will help achieve over all
humanitarian and peace goals.
Agriculture Sector as an Industry
 Agriculture and industry are interlinked. Agriculture and
its subsectors e.g dairy, poultry, livestock, fishery,
orchards have become a full fledge industry. It draws
some raw materials, like chemical fertilizers, pesticides,
electric power, agricultural machinery and implements,
etc., from the industry. Agriculture is also dependent
on industry for the supply of materials for building up
social and economic overheads in the agricultural sector.
Value addition opportunities in Agriculture
 Value-added agriculture may also refer to increasing the
economic value of a commodity through
particular production process, eg., organic produce, or
through regionally branded, graded and packaged
products that increase consumer appeal and willingness to
pay a premium over similar but differentiated products.
 The key benefits to a business of adding value include:
 Charging a higher price.
 Creating a point of difference from the competition.
 Protecting from competitors trying to steal customers by
charging lower prices.
 Focusing a business more closely on its target market segment.
Modernization in Agriculture Sector
 Modernization of agriculture is a process of
transforming agriculture from traditional labour-
based agriculture to technology-based agriculture . It is
one of the fundamental issues in agricultural policies,
particularly in countries, where agriculture is less
developed.
 Agricultural modernization is the important foundation
of national modernization, the power source of sustained
and healthy development of the country and the long
period of stability, which is the fundamental way to
change the backwardness in rural areas and improve the
farmers' poor life.
Industry Manufacturing Sector
 The industrial manufacturing industry is responsible
for the fabrication of products intended for industrial use
from raw materials; it is the output of this industry which
has made further mass manufacturing possible in most
other industries.
 The manufacturing sector is part of the goods-
producing industries supersector group.
The Manufacturing sector comprises establishments
engaged in the mechanical, physical, or chemical
transformation of materials, substances, or components
into new products.
Services Sector
 The service sector is the third of the three economic sectors of the
three-sector theory. The others are the secondary sector, and the
primary sector. The service sector consists of the production of
services instead of end products. Services include attention,
advice, access, experience, and affective labor.
 The service sector makes an important contribution to GDP in
most countries, providing jobs, inputs and public services for the
economy. Trade in services can improve economic performance
and provide a range of traditional and new export opportunities.
 The services sector of Pakistan accounts for more than 54 percent
of the country's GDP and also employs a major portion of the
labour force and it includes Banking, Financial Sectors, Media,
Medical care, education, Communication, Avaitiaion, Tourism,
Retail etc
Tourism Industry
 In its broadest sense, the tourism industry is the total of
all businesses that directly provide goods or services to
facilitate business, pleasure and leisure activities away
from the home environment.
 Tourism industry is important for the benefits it brings
and due to its role as a commercial activity that creates
demand and growth for many
more industries. Tourism not only contributes towards
more economic activities but also generates more
employment, revenues and play a significant role in
development.
Tourism Industry in Pakistan
 According to the World Travel and Tourism Council, the
direct contribution of travel and tourism to Pakistan's GDP
in 2016 was US$7.6 billion (PKR 793.0 billion),
constituting 2.7% of the total GDP. By 2025, the
government predicts tourism will contribute ₨1 trillion
(US$6.0 billion) to the Pakistani economy.
Exports of Labours
 Pakistan has one of the largest labor and manpower
resources in the world, due to its large population, which
is the sixth largest in the world. According to data
produced by the CIA World Factbook, the total number of
Pakistan's labour force is 57.2 million, making it the ninth
largest country by available human workforce. About 43%
of this labour is involved in agriculture, 20.3%
in industry and the remaining 36.6% in other services.
 Along with other countries in the South Asia, Pakistan
extensively exports much of its labour to nearby Persian
Gulf countries of the Middle East.
Remittances
 Remittances are an important and growing source of
foreign exchange for Pakistan. Remittances have
quadrupled in the last eight years to more than $31 billion
in 2021. In 2022 owing to global recession and inflation
the remittances may remain flat.
 The recent increase in the flow
of remittances to Pakistan originates mainly from host
countries in the Gulf, USA, UK, Malaysia, Australia, etc.
 Almost 10 million Pakistani workforce works abroad and
on average per capita contribute US $150.
Medical Tourism
 Medical tourism refers to people traveling abroad to
obtain medical treatment. In the past, this usually referred
to those who traveled from less-developed countries to
major medical centers in developed countries. Now
developing countries are offering medical facilities at
affordable rates
Construction Industry an Engine of Growth
 Construction and engineering services industry play an
important role in the economic uplift and development of the
country. It also plays key role in generating income in both
formal and informal sector. It supplements the foreign
exchange earnings derived from trade in construction material
and engineering services.
 Prime Min­ister Imran Khan announced a big incentive
package for the const­ruction industry that inclu­des a subsidy
of Rs30 billion for the Naya Pakistan Hou­sing Project (NPHP)
so that people could build their dream house at an affordable
cost.
 Low Cost Loans, No Source of income Probe, Tax Incentives,
etc
Fiscal Policy
 Fiscal policy is the guiding force that helps the government
decide how much money it should spend to support the
economic activity, and how much revenue it must earn from the
system, to keep the wheels of the economy running smoothly.
 In economics and political science, fiscal policy is the use of
government revenue collection and expenditure to influence a
country's economy.
 Determinant of Competitiveness
The determinants of effective product differentiation are many,
but may primarily include the quality of human capital and
physical infrastructure, the effectiveness of technological
development and application, and the receptiveness
and competitiveness of consumer and intermediate markets.
COMPETITIVENESS CLUSTERS
 Competitiveness clusters are groups of small, medium and large companies,
research laboratories and training institutions. They are located in well-identified
areas and focus on specific themes, working in conjunction with national, regional
and local authorities.
Monetary Policy
 Monetary policy, the demand side of economic policy,
refers to the actions undertaken by a nation's central bank
to control money supply to achieve macroeconomic goals
that promote sustainable economic growth. Monetary
policy can be broadly classified as either expansionary or
contractionary.
Advantage and disadvantages of
SEZs/Exports Processing Zones
 The main advantages of export-processing
zones include tax incentives, lower land rentals,
exemption of import, export and value-added taxes and
reduced regulatory oversight in administrative and
customs procedures.
 SEZ or Special Economic Zone is an area in a country
that is selected by the government for its
development. ... EPZ or Export Processing Zone is just
like SEZ whose economic laws are different from the
laws of country but they are designed to help the
manufacturing companies that are exporting their entire
production.
Role of CPEC Projects in Economic
Development
 China-Pakistan Economic Corridor is a very Critical
Infrastructure project for both the countries. CPEC is a
mutually beneficial project which full fill the objectives
of both the countries. It provides an alternate secure route
to China to import Energy and find new markets for its
goods and services.
 CPEC is intended to rapidly upgrade Pakistan's required
infrastructure and strengthen its economy by the
construction of modern transportation networks, numerous
energy projects, and special economic zones.
CPEC Projects in Economic
Development
 CPEC special economic zones (SEZ). This is an area in
which business and trade laws are different from the rest
of the country. SEZs are located within a country's
national borders, and their aims include increased trade,
increased investment, job creation and effective
administration.
CPEC special Economic Zones
Impact of COVID-19 on Pakistani
economy
 Impact of COVID-19 on Pakistani economy and
MSMEs. It has been reported that Pakistan has lost one-
third of its revenue and exports dropped by 50% due
to COVID-19 outbreak and lockdown (Junaidi, 2020). ...
The biggest and most immediate impact of the lockdown
is the halt in business operations.
Impact of COVID-19 on Global
Economy
 The COVID-19 pandemic has had far-reaching consequences beyond the
spread of the disease itself and efforts to quarantine it. As the virus has
spread around the globe, concerns have shifted from supply-side
manufacturing issues to decreased business in the services sector. The
pandemic caused the largest global recession in history, with more than a
third of the global population at the time being placed on lockdown.
 Supply shortages are expected to affect a number of sectors due to panic
buying, increased usage of goods to fight the pandemic, and disruption to
factories and logistics in mainland China. There have been instances
of price gouging. There have been widespread reports of shortages of
pharmaceuticals, with many areas seeing panic buying and consequent
shortages of food and other essential grocery items. The technology
industry, in particular, has been warning about delays to shipments of
electronic goods.
 Global stock markets fell on 24 February 2020 due to a significant rise in
the number of COVID-19 cases outside mainland China. Global stock
markets crashed in March 2020, with falls of several percent in the world's
major indices.
Role of TDA in promoting Exports (Role of Commercial
Attachés in promoting Exports /Economic Relations)
 TDAP• The Trade Development Authority of Pakistan
(TDAP),was established on November 8, 2006.• TDAP is
the successor organization to the Export Promotion Bureau
(EPB).
 TDAP’s Profile• TDAP’s administration is under the
Ministry of Commerce.
 • TDAP is mandated to have a holistic view of global trade
development rather than only the ‘export promotion’
perspective of its predecessor.
 Designated as the premier trade organization of the country,
TDAP is a dedicated, effective, and an empowered
organization, which shall is professionally managed
Role of TDA in promoting Exports
 TDAP’s Activities• Participates in 40 to 60 international trade
exhibitions annually.• Sends 20 to 40 trade delegations abroad
every year.• Organizes the EXPO PAKISTAN annually in Pakistan,
which is well-attended by foreign buyers.
 TDAP’s Activities• Implements various Trade Policy Initiatives
announced by the Commerce Ministry.• Undertakes various sector
development projects from the Export Development Fund.• Runs
the Expo Centre, Karachi providing a permanent exhibition space
for holding trade events.
 TDAP’s MissionTDAP’s mission is to achieve a quantum-leapin
Pak export. To fulfill such a mission, TDAPshall employ the right
skills and competencies,professional management
techniques,advanced international marketing strategybacked by
competent market research andtrade analysis, supported by use of
latesttechnology.
TDAP’s Vision
 TDAP’s VisionThe Trade Development Authority of Pakistan
(TDAP) will develop and promote export holistically, through
focus, synergy, and with collective wisdom and counsel of its
stakeholders. In addition to aggressive , innovative, and
proactive marketing and promotional efforts, it aims to
achieve the objective of rapid export growth through
interaction and coordination with respective public and
private–sector stakeholders, and enhancing value of products
and services by broadening the export base of our products.
Enhancing capability and capacity of the supply base of
goods and services; by fostering supportive export culture and
facilitation; and by encouraging export oriented foreign
investment and jointventures.
Globalization and Liberalization
 Trade liberalization is the reverse process of
protectionism. After previous protectionist decisions,
trade liberalization occurs when governments decide to
move back toward free trade. The outcome of these
liberalizing and integrating processes is known
as globalization.
Economic Liberalization
 Economic liberalization (or economic liberalisation) is
the lessening of government regulations and restrictions in
an economy in exchange for greater participation by
private entities; the doctrine is associated with classical
liberalism.
 Thus, liberalization in short is "the removal of controls" in
order to encourage economic development
Financial Liberalization
 While there may be several different characterizations
of financial liberalization, in most studies financial
liberalization refers to official government policies that
focus on deregulating credit as well as interest rate
controls, removing entry barriers for
foreign financial institutions,
privatizing financialinstitutios
Factors Driven Countries/Efficiency driven
Countries/Research and Innovation Driven Countries
 Factor-driven Economies:
 Such countries principally compete based on their factor endowments,
primarily unskilled labour, and natural resources. Companies from factor-
driven economies compete on the basis of price and often sell basic
products and commodities with their low productivity reflected in low
wages.
 Efficiency-driven Economies
 Wages rise as a result of economic growth and countries are required to
develop more efficient production processes, thereby moving into the
efficiency-driven stage of development.
 Competitiveness is increasingly driven at this stage by higher education
and training, efficient goods market, well-functioning labour markets,
sophisticated financial markets, a large domestic and foreign market, and
ability to harness the benefits of existing technologies.
 Technology and Research driven economies
Financial Liberalization and Industrial
Growth in Pakistan

 A developed financial structure plays a vital function in the

process of economic growth. It is also an undeniable fact
that technology plays an essential part in the process of
economic growth, but technological absorption needs huge
investments that are funded by banks. In the early 1970s
developing countries emphasized infrastructural
development, assuming that such investments would open
the door to industrialization and economic development. So
they concentrated on building roads, bridges,
communication networks, etc. They believed that good
infrastructure would induce the private sector to invest in
new projects that would promote economic development.
Pakistan’s Debt to GDP Ratio
Year 2022 incomplete data
IMF and World Bank Policies for
Pakistan
 IMF
The International Monetary Fund is an international
organization, headquartered in Washington, D.C.,
consisting of 189 countries working to foster global
monetary cooperation, secure financial stability
 World Bank
The World Bank is an international financial institution
that provides loans and grants to the governments of
poorer countries for the purpose of pursuing capital
projects. It comprises two institutions: the International
Bank for Reconstruction and Development, and the
International Development Association.
IMF Policies for Pakistan
 Pakistan has been a member of the International
Monetary Fund (IMF) since 1950. Due to unpredictable
nature of the economy and heavily dependent on
imports, IMF has given loan to Pakistan on twenty-three
occasions since its membership, recent in 2019.
Renegotiated in 2022.
 GRA (General Resources Account ) is used to give loan
on stand-by arrangement.
IMF Policies for Pakistan
IMF Policies for Pakistan
 A $6 billion Loan Pacakge - 2020
 The International Monetary Fund (IMF) has
given Pakistan a $6 billion, three-year loan requested by
Prime Minister Imran Khan's government to help
resuscitate the country's ailing economy.
 Renegotiated in 2022 to $7 billion.
Common Conditionalities of IMF Loan
CSR and Ethical Ways of doing
Business Values
 Ethics vs. Social Responsibility. ... While ethics, in
general, are concerned with right and wrong, business
ethics focus on doing what is best for the shareholders and
stakeholders. On the other hand, social responsibility is
focused on the company's impact on the environment and
community.
 Corporate Social Responsibility: a business philosophy
which stresses the need for firms to behave as
good corporate citizens, not merely obeying the law
but conducting their production and marketing
activities in a manner which avoids causing environmental
pollution or exhausting finite world resources.
CSR and Ethical Ways of doing
Business Values
 4 types of social responsibility
The four types of Corporate Social Responsibility
are philanthropy, environment conservation, diversity and labor
practices, and volunteerism.
 Business Ethics for Executives
1. Honesty.
2. Integrity.
3. Promise-Keeping & Trustworthiness.
4. Loyalty.
5. Fairness.
6. Concern for Others.
7. Respect for Others.
8. Law Abiding.
Corporate social responsibility help in
the growth of the business / Industry
 Being a socially responsible company can bolster
a company's image and build its brand. Social
responsibility empowers employees to leverage
the corporate resources at their disposal to do good.
Formal corporate social responsibility programs can
boost employee morale and lead to greater productivity in
the workforce
 CSR demonstrates that you're a business that takes an
interest in wider social issues, rather than just those that
impact your profit margins, which will attract customers
who share the same values. Therefore, it makes
good business sense to operate sustainably.