The Pakistan Business Council has drawn the attention of the government towards the challenges facing the country’s industrial sector. As we know, Pakistan’s manufacturing sector faces many problems including unstable energy supply, a skills gap, limited market access, infrastructure issues, and political instability, which hinder growth and competitiveness.

Chronic energy shortages and unreliable electricity supply adversely impact production efficiency and costs. As a result, businesses face frequent disruptions, reduced output, and higher operational expenses. At the same time, the workforce lacks the necessary skills to operate advanced manufacturing technologies and meet international standards. This limits the ability of the industry to compete in global markets and hinders innovation and growth.

On the other hand, our exports have limited market access. Trade barriers and limited access to international markets stifle export growth and hinder the sector’s potential. Our situation is really disappointing if compared with other countries that started their development process at the same time as Pakistan and with almost the same initial conditions. During the last two decades, China’s exports have increased over sixfold, and India’s exports have grown over five times. Similarly, Vietnam, Turkey, and even Bangladesh have also done well in their efforts to promote their exports. In comparison, Pakistan’s exports have increased only 2.7 times during this period, placing it among the lowest achievers on this score.

One of the biggest issues is an underdeveloped infrastructure, including transportation, telecommunications, and logistics, which hampers efficiency and competitiveness. Businesses face challenges in transporting goods, communicating with customers, and accessing resources. Lack of transparency and enforcement of labor laws and safety standards lead to social compliance issues and quality control problems, while difficulty in enforcing work instructions and managing quality management systems results in poor quality products. At the same time high business costs, including bureaucratic hurdles and lack of access to finance, deters investment and growth.

The manufacturing sector is heavily reliant on a few key products, making it vulnerable to external shocks. According to the PBC, Pakistan’s manufacturing sector stands at a crossroads, facing challenges that threaten its sustainability. In a recent statement the Council has voiced concerns over proposals to hastily reduce customs duties, saying that such measures, while seemingly beneficial in the short term, could exacerbate the underlying issues plaguing our industrial landscape. It has been pointed out that the root causes of our manufacturing sector are much bigger, including high energy costs, lack of  long-term financing, exorbitant  borrowing rates, scarcity of foreign exchange for capital projects, and burdensome taxation impeding reinvestment and innovation.

To tackle these challenges, the PBC has suggested a collaborative approach among the ministries of commerce, finance, and energy. The idea is to address these issues through coordinated policy-making and thus create an environment conducive to industrial growth. It is relevant to mention here that the commerce ministry’s Strategic Trade Policy Framework 2020-25 aims to harmonise regulations and support the private sector, reflecting an understanding of the need for cohesive strategies to boost trade and exports.

A significant flaw in Pakistan’s industrial policy is the neglect of the capital goods industry, essential for creating a self-sustaining industrial base. The focus remained on consumer goods, which, while initially successful, left the country dependent on imported machinery and technology, driving up production costs and limiting industrial diversification.

There is an urgent need for an industrial policy that promotes import substitution. But it will be counterproductive if we indefinitely protect domestic industries from global competition, which can hinder both domestic and international competitiveness. Without doubt, the biggest headache is our reliance on expensive, imported energy sources which  has led to soaring electricity prices, rendering manufacturing costly and uncompetitive. In these circumstances, we need comprehensive energy reforms to provide affordable and reliable power to industries.

As pointed out by the International Monetary Fund (IMF), it is time the government took urgent measures to implement structural reforms, encompassing an skewed taxation system, privatisation of loss-making state-owned enterprises, and public finance management. These long overdue reforms are essential to boost industrial efficiency and competitiveness. In the light of PBC’s recommendations, policymakers should adopt a holistic and coordinated approach to revitalise Pakistan’s manufacturing sector.

To revive Pakistan’s industrial sector, the government should formulate business-friendly economic policies that encourage the production of high-quality goods and services, providing targeted incentives for R&D and value addition. Within this broader framework, Pakistan needs to frame a comprehensive industrial and trade policy that should indicate the broad direction for this sector, create institutions and define their respective roles, make rules for coordination, set safety and quality standards, and provide an incentive and rewards system for various stakeholders. In this policy environment, the Government’s role should be confined to policy development, regulation, capacity building, and facilitation, while the private sector should take the lead in investment and value chain development on its own.