Enhancing the Competitiveness of Pakistan's Refrigerator Industry

To get a deeper insight into challenges faced by industry, the PBC has initiated a series of sectoral studies with the ultimate aim of increasing the competitiveness of sectors in which Pakistan has a presence. This report titled “Enhancing the Competitiveness of Pakistan’s Refrigerator Industry” is the first in the engineering sector series.

The refrigerator industry is a subcategory of the home appliance industry and is a part of the engineering sector. It got established in Pakistan in the 1980s and has undergone major shifts since then.

The Global Refrigerator Industry

The global refrigerator industry is segmented primarily into two types of refrigerators based on cooling technology i.e., direct cool and no frost/frost-free refrigerators. Direct cool refrigerators are generally more popular in South Asia, Africa and the Middle East while frost-free refrigerators have greater penetration in the Americas and Europe. Global demand for refrigerators has been witnessing a consistent increase with revenues expected to reach USD 114 billion in 2023 with a Compound Annual Growth Rate of 2.5 percent over the period 2020 – 23.

China is the largest refrigerator market with a 23 percent share in value terms followed by India (11 percent), and the USA (8 percent). In export markets, the top exporters for refrigerators include China with a market share of about 29 percent followed by Mexico (17 percent), Thailand (7 percent), Turkey (6.6 percent), Korea (6 percent), and Poland (4.5 percent). Top importers include the USA with a share of 21 percent in world imports of refrigerators, Germany (6 percent), France (4.5 percent), the UK (3.8 percent) and Canada (3.3 percent)1.

Pakistan’s Refrigerator Industry

The refrigerator industry in Pakistan contributed around 2.5 percent to the country’s GDP in 2018-19. Pakistan’s refrigerator industry is well established and has reached a level of maturity where some exports have taken place to regional markets and the industry is confident that given the right policy framework, they can capture a sizeable portion of the regional markets in the coming years. Domestic production of refrigerators in the last 10 years has been between 1 and 2 million units per annum with production in 2019 estimated at 1.03 million units. The current domestic demand for refrigerators has reflected the economic conditions within the country where an IMF program followed by the Covid-19 pandemic has brought the economy to a standstill. A policy framework that encourages domestic manufacturers to tap into growing regional markets will, therefore, potentially allow local producers to reduce their dependence on just the domestic market.

Pakistan is a market for direct cool refrigerators with a share of around 95 to 98 percent of all refrigerators sold. The demand drivers for the industry include rapid rural-urban migration, electrification of villages, and a general improvement in living conditions. The market is expected to grow further as a penetration rate at 42 percent is much lower than regional and global averages.

Pakistan had small exports of refrigerators i.e., USD 2.8 million in FY 2018-19 and exports have witnessed a downward trend since FY 2013-14. Imports of refrigerators were USD 257 million which is mainly driven by imports of components (such as compressors, heat pumps, and other parts).

Measuring Industry Competitiveness

This study uses a hybrid of top-down and bottom-up approaches for measuring competitiveness at the industry level. The top-down approach employs comparing global competitiveness indicators as well as calculating competitiveness indicators at the industry level while the bottom-up approach relies on interviews of individual manufacturers to understand their perspectives on the industry’s competitiveness.

Pakistan performed much poorly than India and China on global competitiveness indicators such as trading across the borders, logistics performance, and global competitiveness indicators. It reflects the relatively weak institutional framework available in the country and below-average governance. Factors such as time to import and cost compliance for imports are impacting the refrigerator industry in Pakistan because of the industry’s dependence on imported raw material. Improvements in the real effective exchange rate (REER) reflects the improvements in competitiveness for exports while imports become more expensive.

The industry-specific indicators also portray the current non-competitive position of Pakistan’s refrigerator industry in the global arena. A declining export market share, comparative disadvantage, and a low level of competitiveness on Vollrath’s indices of competitiveness when compared with regional and global competitors plagues the refrigerator industry of Pakistan.

The bottom-up approach used in this study includes interviewing individual manufacturers and aggregating their responses at the industry level. The responses were systematically recorded against attributes of the augmented Porter’s diamond model for firm’s competitiveness which are summarized as follows:

Factor Conditions

  • Absence of domestic raw materials: Lack of locally available raw materials increases import dependency with around 85% of the raw materials used needing to be imported including plastic, steel, and components including compressors.
  • Cost Components of Pakistan’s refrigerator industry: The breakup of the cost component for a refrigerator depending on the manufacturer ranges between (1) Utilities: 5 to 7% (2) Labor cost: 3 to 5 % (3) Raw material: 70 to 80%, and (4) Overheads 8 to 12 %.
  • Customs duties on raw material imports: Most of the imported raw materials and components are rightly classified and hence there is no duty on these products. However, glass is not classified as a raw material for the industry as it is an intermediate or finished product for other domestic industries.
  • The competitive advantage of cheap labor: The assembly line of a refrigerator plant is labor-intensive and the availability of cheap labor in Pakistan provides a competitive edge to the industry.

Demand Conditions

  • Domestic Market and Cyclical Nature: Pakistani market is estimated by the local manufacturers as between 1.3 to 1.6 million refrigerators per annum. A substantial decline in demand in recent years is evidence of the cyclical nature of the industry due to the demand’s correlation to the economy.
  • Consumer preferences: Demand is heavily concentrated in direct cool refrigerators which account for 98% of the overall refrigerator market in Pakistan. Direct cool as compared to no-frost refrigerators consume less energy and also ice formation in the freezer compartment is a plus in areas where load shedding is frequent and prolonged.
  • The demand for imported refrigerators: The demand for no-frost refrigerators is roughly 15 to 20 thousand units per annum in Pakistan which is entirely being met through imports.
  • Size ranges for refrigerators: Prevailing size range of refrigerators in Pakistan varies from 3.5 cubic feet to 22 cubic feet. The average size is 12 cubic feet comparable to that of India with an average size of 10 cubic feet.
    Related and Supporting Industries
  • Vendors for refrigerator industry: Components for refrigerators, other than direct imports, are being procured through local vendors. These components are up to the mark and manufacturers are satisfied with the quality of components.
  • The local steel industry complements the refrigerator industry to some extent: It complements the refrigerator industry to some extent but manufacturers utilize locally produced steel sheets for internal paneling and for the manufacture of rear parts of the refrigerator. For exterior design and aesthetics, pre-coated steel sheets are imported.
  • The domestic glass industry is unable to meet demands of the refrigerator industry: The refrigerator industry requires cold-rolled (CR) sheets coated with tempered glass which is very thin and technologically sophisticated. This is not manufactured by the local glass industry.

Firm Strategy, Structure, and Rivalry

  • Higher production lead time: Refrigerator manufacturers in Pakistan have to import most raw materials and components and lead time for importing these is higher than that of the remaining production cycle.
  • Lack of an internationally recognized Pakistani brand: Consumers of home appliances around the world are brand conscious whereas Pakistani manufacturers do not have an internationally recognized brand. This is a major handicap in export markets.
  • Competition and price wars: Pakistani refrigerators are competitively priced and are available to consumers at a lower price than that of India and Bangladesh. The market structure follows monopolistic competition as manufacturers offer products that are slightly different based on brand and quality.
  • Underutilized production capacity: The average production capacity utilization rate is between 75-80 percent.
  • Market Concentration: The market is concentrated with only a few major suppliers. The top four manufacturers account for nearly 90 percent of the sales of refrigerators.

Government Interventions

  • Policy focusing on the refrigerator industry is missing: The refrigerator industry has no preferential treatment by the government and the industry is not working under any special SRO.
  • A non-competitive corporate tax regime: The corporate tax rate of 29 percent in Pakistan is higher than that of India (22 percent and 15 percent for new companies) and China (25 percent).
  • An uneven playing field: The government provides tax holidays and other advantages for new entrants while heavily taxing existing companies. Chinese participants are seeking investment opportunities in Pakistan in the wake of CPEC. With tax advantages and an already relatively low-cost manufacturing advantage, they are expected to hurt the already established refrigerator manufacturers operating in Pakistan.
  • Regulation on Foreign Transaction: Manufacturers require international certifications for different products. On average, a certification costs USD 25,000 whereas SBP limits transactions to USD 10,000 a year.
  • 100% LC Margin: Nearly 18 percent of the raw materials required by the refrigerator industry face 100 percent LC margin.

International Factors

  • Potential markets for exports: Countries in SAARC, Africa, and the Middle East are potential markets for exports of direct cool refrigerators. Pakistani refrigerators can have a market in Afghanistan and Bangladesh in the near to medium term.
  • International Competitiveness: Pakistani refrigerators are internationally competitive in terms of quality but not in terms of prices relative to China. Economies of scale are tilted towards China because of large production volumes.
  • Risks in sourcing raw material: High import dependency on raw material exposes the refrigerator manufacturing industry in Pakistan to exchange rate and operational risks.


This report briefly covers government policies as applicable to the refrigerator industry. These policies are not specific to the refrigerator industry but focus on the engineering sector as a whole. The list of relevant SROs and policies are as follows:

  • Long Term Financing Facility (LTFF) for Plant & Machinery
  • Standard Duty Drawback Notification (S.R.O 211(I)/2009)
  • Local Taxes & Levies Drawback (Non-Textile) Order, 2018 (S.R.O. 711(I)/2018)


Strengths: The core strength of Pakistan’s refrigerator industry is the ability to competitively manufacture direct cool refrigerators which matches the demand of less developed countries. Unlike other engineering goods, Pakistan remains competitive in manufacturing refrigerators of international quality which are competitively priced.

Weaknesses: High dependency on imported raw material (around 85%) and technology reduce margins to a large extent, moreover, lack of an international brand restricts entry into international markets.

Opportunities: Lower penetration rate of appliances and improvements in power availability in the domestic market provide scope for further expansion of the market to cater to increased demand. A competitive exchange rate and surplus capacity of the domestic industry are favorable factors for entering regional markets.

Threats: Supply-side disruptions for imported raw materials are a continuous threat to the industry. Entry of large Chinese manufacturers with deep-pockets and enjoying duty-free access to plant & machinery can seriously impact the viability of current players. Exchange rate volatility and continuous economic slowdown also threaten the demand for refrigerators. Other threats including shifts in consumer preferences and unknown acts of nature like COVID-19.

Major Recommendations:

  • Government needs to promote the setting-up of primary industries.
  • Remove the anti-export bias in the trade policy
  • Suspension of minimum turnover tax
  • Consumer durables loan regime needs to be promoted
  • Participation in international trade fairs
  • Targeted subsidies/allowances for R&D
  • National brand-building program
  • High corporate tax rate, inconsistent tariff regimes and volatile exchange rate discourages FDI
  • Need to revisit incentives for Special Economic Zones (SEZs)
  • Focused investment strategy in home appliances sub-sector
  • Simplifying complex customs regimes and inefficiencies
  • National standards for engineering products need to be enforced
  • The government should encourage the utilization of e-commerce platforms


The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 83) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk