Checklist for Industrialization

Pakistan has prematurely deindustrialized. Investment as a percentage of GDP significantly lags the region. FDI is not export oriented and mainly in consumer products. Domestic investment was directed to guaranteed return projects. Pakistan’s share in world exports has declined. Exports are also narrowly based and over-reliant on USA and Europe. Agriculture, the bedrock of Pakistan’s economy and provider of livelihoods to the vast majority is struggling to feed the growing population at an affordable cost. It is also unable to provide enough cotton, the major input to the country’s largest export industry. With disproportionate burden of taxes, a long period of unrealistic exchange rate, unsupportive import tariffs, poorly negotiated FTA with China, power outages and now  ncompetitive energy cost, smuggling, under-invoicing, illicit trade and the crowding out of private sector from borrowing, the role of manufacturing in the economy has declined. Unable to meet domestic demand from local production of even basic goods, reliance on imports increased. As a result Pakistan suffers from recurring external account crises, leading to repeated IMF Progams.

The Pakistan Business Council (PBC), through its Make-in-Pakistan thrust has long advocated industrialization as the means to generate employment, promote value-added exports and encourage import substitution. Aside from broadening the tax base, it advocates for additional tax revenue to flow from higher profits of business, not from higher rates of tax or new taxes. PBC has also published a Charter of Economy to provide the basis of political consensus on the economy. This is essential to provide assurance of continuity and consistency in the policy framework.

Recently the government has embarked on a fresh impetus to revive industrial growth. This checklist is drawn from the PBC’s more detailed studies available on its web site: www.pbc.org.pk and provides an action toolkit for policy makers’ attention. It is split into four parts:

1. Checklist for Promotion Corporatization and Formalization: This sets out the basic enablers for the formal sector to gain scale and competitiveness togalvanize effective action
2. Exports Checklist: The main thrusts to promote exports
3. Import Substitution Checklist: The key actions to facilitate import substitution
4. Priority Sectors for Growth: The sectors to focus on to generate jobs, value added exports and import substitution