INDUSTRIALIZATION

IN PAKISTAN

Fahad Qureshi
Muhammad Shariq
Ramish Safa
Ali Hamza
 Introduction
 In the statement of Industrial policy 1948 it was
stated:
“The most striking feature of Pakistan’s
present economy is the marked contrast between
its vast natural resources and its extreme
industrial backwardness”
 Industrialization:1947-1958
 Objectives:
• To manufacture its own products of its raw
materials.
• To meet requirements of the home market for
consumer goods for which Pakistan was
dependent on outside sources.
 Process of industrialization:
• Exchange rate.
• Trade policies.
 Exchange Rate
 In 1949 numerous countries devalued their
currencies but Pakistan did not devalue its
currency.
 After Korean war the prices of raw material fell.
with over valued exchange rate the conditions
changed in favor of industry because it
became cheaper to import industrial machinery
to produce manufactured goods.
 Trade policy
 Major aspects of trade policy to Favor
Industrialization:
• Quantitative controls on Imports.
• Tariffs on Imports to promote industrialization.
 The objectives of these trade policies were to
produce anything that can be reasonably produced
domestically.
 These control on the imports made industrial
sector look attractive and led to investment in
industrial sector which led to growth of industrial
sector.
 Average Rate of duty on Imported goods (%)
Source: Economic policy and industrial growth in Pakistan, George allen &
Unwin Ltd,London,1969

Description 1955/ 1956/ 1957/ 1958/ 1959/ 1960/ 1961/ 1962 1963/
6 7 8 9 60 1 2 /3 4

Consumer
goods

• essentials 35 35 35 35 35 55 55 55 56
• Semi 54 99 99 99 99 111 111 111 116
luxuries

• luxuries 99 99 99 99 99 140 140 140 142

Raw material
for consumer
goods

Unprocessed 26 26 26 26 26 27 27 27 30
Processed 43 43 43 43 43 50 50 48 51
 Outcome of Exchange rate and Trade
policy
 The decision not to devalue its currency put Pakistan on
the road to industrial development.
 There was significant growth in manufactured goods
produced from newly established industries e.g. cotton
and jute.
 Between 1949 and 1958 the growth rate of industry in
Pakistan was amongst the most rapid for any country in
the world.
 The establishment of Large scale manufacturing sector
with a Maximum annual growth rate of 28.7% in 1953/54
and minimum annual growth rate of 4.9 % in 1957/58.
 The investment rate doubled during 1950s.
Year Annual growth rate in Large scale
manufacturing sector (%)

1950/1 23.5

1951/2 18.7

1952/3 23.6

1953/4 28.7

1954/5 24.1

1955/6 17.5

1956/7 8.1

1957/8 4.9

1950-1954 (average) 23.6

1954-1958(average) 13.6

Source: government of Pakistan, Pakistan Economic survey,1984-85

 1958-68;The Decade of
Development
 Trade policy directing Industrialization:
• The new regime of Ayub Khan disbanded many of
the controls that had been imposed in 1950s and it
shifted form direct controls towards indirect
controls on imports.
• New trade policy in 1959:
 Open General Licence.
 Free list.
 Exports bonus scheme (EBS) or bonus voucher
scheme.
 Incresed tariffs on imports.
 Outcome of trade policy
 Both industrial production and investment
responded well to these trade policies.
 EBS boosted exports especially of
manufactured goods instead of raw materials.
 EBS also had a positive impact on imports,
making machinery imports easier and cheaper.
 High average growth rate in large scale
manufacturing sector of 13.3% for period
of 1960-65 and even after 1965-70,when
there was marked slowdown because
foreign aid curtailed average growth rate
was still impressive of Above 10%.
 The share of exports in total consumer
goods output rose from 15% in 1959/60 to
45% in 1969/70.
Year Annual growth rate in Large scale
manufacturing sector (%)
1958/9 5.6
1959/60 2.7
1960/1 20.3
1961/2 19.9
1962/3 15.7
1963/4 15.5
1964/5 13.0
1965/6 10.8
1966/7 6.7
1967/8 7.6
1968/9 10.6
1969/70 13.9
1958-1964 (average) 13.3
1965-1970(average) 10.4

Source: Government of Pakistan, Pakistan economic survey,1984-85

INDUSTRIAL POLICY OF
BHUTTO 1972-77

Fahad Qureshi
Industrial reforms
twofold;
 nationalization,
 and the improvement of workers' rights
nationalization
 In the first phase, basic industries like
steel, chemical and cement were
nationalized 1972
 The next major step in nationalization took
place on January 1, 1974, when Bhutto
nationalized all banks.
 The last step in the series was the most
shocking; it was the nationalization of all
flour, rice and cotton mills throughout the
country.
 Nationalization caused reversal of public
private investment
 Private sector investment was only 15%
 Public sector investment rose from 5% to
75%.
 Businessmen had little confidence
 Year Public investment in (%)

70 12.8

71 5.3

72 8.4
73 12.6

74 33

75 60

76 70
 Source naqvi snh and khwaja sarmad , Pakistan in the seventies ,PIDE ,Islamabad 1993 .
Currency devaluation
 The rupee was devalued by 131% in
may 1972
 1$ = 4.6rs to 1$ = 11rs
 Increasing the exports
 But the imports became much more
expensive
 Pakistan's imports were much more than
its export ( negative balance of
payments)
loss of east pakistan
 50% of west Pakistan's products found a
way to east Pakistan .
 18% of the imports of west pakistan
came from east pakistan .
 urgent need to find new markets
Two and a half years of industrial growth

 1972/3 Exports increased by 153% in over

the previous year (due to world demand
conditions of cotton textile )
 1973/4 manufactured exports grew by 19 %
 The growth in export was key factor in growth
of industrial output
 Also due to availability of credit to export
sector
 Export refinance scheme lending rate lower
than normal lending rate
1974
 World wide commodity boom caused the economic
boom of 1972-73
 The boom was short lived and the world was hit by
recession , which slowed the economic boom and
industrial growth .1974
 The prices of petroleum had a fourfold increase(oct
1973) , prices of inputs increased , prices of fertilizers
increased
 Positive balance of trade was wiped in one go as the
oil imports rose from $60m to $225m in one year 1973
to 1974 .

 Fertilizer imports increased from $40m
to $150m
 There was a huge failure of cotton crop
in 1974-75 when the international cotton
prices had risen , affected industrial
output .
 1976-77 floods destroyed agriculture
crops, excessive expenditure on public
goods , affecting industrial output.
Zia Ul Haq’s Era
1977-1988

Ramish Safa
 Industrial Challenges
 Result of Bhutto’s regime
 Nationalization
 Restoration of confidence of of private
investors.
 Restoration of private sector
involvement
 Motivating of investment in private
sector
 Highlights of the Zia era
According to the World Bank
manufacturing GDP in Pakistan grew at
an annual average rate of 9.6 percent
between 1977 and 1986.
Investment in medium and large scale
industries grew by an average rate of
18.2 percent per year.
While total private industrial investment
rose by 15.6 percent per year.
 According to World development report
1990, the growth in real wages during
the 80s in Pakistan manufacturing
sector was the fastest in the world at
6.2% a year.
 Pakistan’s manufacturing sector became
more capital intensive due to boom in
industrial activity between 1975 and
1986.
 Growth rates of some Industrial
sectors
Industry Sector Output Labor Capital Stock
Wearing Apparel 21 10.7 10.4
Wood and Cork 13.7 14.5 13.7
products
Furniture 13.3 11.8 23.6
Electric 13.3 5.7 11.7
Machinery
Non Electric 17.6 7.5 5.6
machinery

Total Of Whole 9.6 5.8 10.3

Industry
 Actions Taken
 Industrial Policy
 Earliest steps included a policy to
denationalize agro based industries that
were heavily ‘in the red’ during the time of
Bhutto. Rice husking, flour milling and cotton
ginning.
 Some small engineering units were also
denationalized.
 Basic and heavy chemical and cement
industries were opened to the private sector.
 Actions Taken
 Some incentives given to promote
industrialization by atrracting private investment
and the promotion of the private sector.
 Tax holidays
 Export rebates
 Reduction in interest rates in both agriculture
and industry.
 Growth in large scale manufacturing was
projected at a highly ambitious rate of 12 %
which was achieved.
 Actions Taken
 The Public/Private sector divide.
 It was highly anticipated that large scale
denationalization would take place. However this
did not happen with the exception of the few
afore mentioned industries.
 The private sector given a clear signal to
participate.
 Denationalization not done for political and
administrative reasons.
 The demand of original owners of nationalized
industries.
1988-Onwards

Ali Hamza
 INTRODUCTION

•Afteran economically stagnant decade of the 1990s,

the year 1999 brought a coup led by General parvez,
with an era of accelerated economic growth that led to
more than doubling of the national GDP, and expansion
in Pakistan's urban middle class.
•Pakistan's GDP more than doubled to $170 billion
(nominal) since 1999. It has reached $440 billion in
terms of purchasing power parity (PPP)
High-Lights
 Aziz was a consumer-finance man, he began
the deregulation of the banking sector, by
sharply cutting loan interest rates, and allowing
banks to engage more liberally in giving
consumer finance loans, and lifting restrictions
on the number of branches that foreign banks
could open in Pakistan.
 Easy access to low-cost consumer finance led
to a sharp rise in the sale of consumer goods
such as cars, motor cycles, cell phones and
home appliances.
 As a result the banking sector boomed and many
foreign banks from the Middle East and other parts of
the world came flocking to Pakistan and Pakistan
attracted over $5 billion foreign direct investment in the
2006-07 fiscal year, ten times the figure of 2000-01.

 The strong consumer demand in Pakistan drove large

investments in real estate, construction,
communications, automobile manufacturing, banking
and various consumer goods. Millions of new jobs
were created. The ranks of the middle class swelled in
Pakistan.
 Pakistan's information technology sector
revenue grew from almost nothing to about $2.8
billion in 2008.
 The telecom boom increased mobile phone
penetration from near zero in 1999 to over 50%
now, along with the expansion of Internet
access to double digits. The CNG sector
attracted over $70 billion in investment in the
past five years and created 45,000 jobs.
 The literacy rate improved by 11 per cent and
the Poverty rate decreased by 10 per cent.
 A revolution took place in the field of media. Many new
TV channels were introduced, giving freedom to media
and creating thousands of new jobs.
 Urbanization is an integral part of the process. With the
robust economic growth averaging 7% and availability of
millions of new jobs created there was an increased rural
to urban migration in Pakistan to fill the jobs in growing
manufacturing and service sectors.
 Pakistan's economy witnessed a major economic
transformation in the last decade. The country's real GDP
increased from $60 billion to $170 billion, with per capita
income rising from under $500 to over $1000 during
2000-07.
Criticism
 In the 51 weeks of 2009, Pakistan had suffered at
least 44 attacks. The death toll from this steady
stream of violence stood at more than 800.
 The absence of cell phone manufacturing plants in
the country meant that all the phones had to be
imported, adding to the country’s import bill and
widening the growing trade gap.
 Billions of rupees in revenue earned by the foreign-
owned cell phone companies and banks were
being remitted abroad because the government
had imposed no limit on such transfers.
 The increasing revenues earned by the
cell phone companies and other foreign
investments were automatically included in
the annual GDP. The government claimed
that its economic policies had boosted the
GDP growth rate to over 6% in contrast to
the average growth rate of below 4%
 The share of agriculture in GDP has
declined to about 27%
 The government had artificially propped up the
value of the dollar against the rupee by
directing the SBP to regularly buy dollars from
the open market. The SBP bought several
billion dollars from the open market over a four-
year period. The government claimed it had
propped up the rupee’s value to help exporters
resulting a higher rupee-dollar exchange rate
meaning that exporters would have earned
fewer dollars for their exports, putting pressure
on the country’s balance of payments.
 State Bank’s operations in the currency market
made imports more expensive in rupee terms,
fuelling inflation and driving up the prices of
many goods, including capital goods. Higher-
priced capital goods, in turn, increased the cost
of expanding manufacturing plants or setting up
new factories, resulting in a slowing down
industrialization process.
 Even after significant reduction in poverty, the
number of poor people earning less than $1.25
a day remains high.
 Rising inequalities – income and non-income –
have led to a weaker link between economic growth
and poverty reduction in the country widening of the
rich-poor gap, worsening law and order situation.
 Recurring and daily power outages are severely
impacting all business, economic and social
activities in Pakistan. Adding further to the public
pain are the multiple crises of sugar and wheat
shortage, food price rises, and water scarcity, and
deteriorating security situation making life extremely
difficult for ordinary people.