Scarcity of electricity creates hurdles for engineering firms to achieve production goals

ISLAMABAD-A number of engineering firms in Pakistan have recorded a tremendous growth of 745 percent— from 1,329 to 11,224; whereas, their production value has increased by 471 percent—from Rs1,642 billion to Rs2,593 billion— during the last 18 years. The Pakistan Institute of Development Economics (PIDE) has unveiled a report on engineering horizons— unraveling the state of industry, saying that the revenue contribution of the engineering firms to national exchequer has enhanced from Rs0.32 billion in 2005 to Rs242 billion in 2023.
The report is based on an extensive survey of 328 engineering firms from across the Golden Triangle of Lahore, Gujrat, and Gujranwala. It reveals compelling statistics that underscore the critical concerns affecting the industry’s growth and productivity.
According to the report, Pakistan is contributing only 0.16 percent of its GDP to Research and Development activities, while the contribution of the engineering firms to the GDP is mere 0.86 percent. A staggering 83 percent of surveyed firms expressed that the unavailability of electricity creates hurdles in achieving their production goals, resulting in a detrimental gap between demand and supply for the industry. Moreover, 78 percent of these firms reported that electricity scarcity hinders their operational efficiency, a crucial factor where economies of scale need to be achieved. Load-shedding and voltage fluctuations further exacerbate the challenges by increasing the risk of machinery malfunctions and damage, affecting 68 percent of the firms. The financial strain of arranging alternate supply, amounting to Rs71,000 per unit annually, adds to the burden on firms’ operations, impacting 72 percent of the surveyed companies.
The report underscores the significance of addressing these challenges. It recommends that engineering firms adopt international and national quality standard certifications to maintain quality standards, a move endorsed by 89 percent of the surveyed firms. Moreover, the government is urged to focus on enhancing the electricity supply in industrial areas, with smaller firms exploring backup power options to ensure uninterrupted operations, a sentiment echoed by 76 percent of the respondents. An interesting finding of the report is the lack of an online presence among Pakistani engineering enterprises. With a surprising 63 percent of surveyed firms lacking any online presence, there is an urgent need for businesses to establish themselves online to reach a wider customer base and enhance engagement. The study also reveals that while a significant portion of firms (63 percent) show no intent to expand in the coming years, a proactive minority plans to invest in advanced technology, machinery, land, and skilled labour to boost their business prospects.
Another critical issue highlighted in the report is the lack of access to credit for the majority of firms. The majority of firms lack adequate collateral to secure loans due to their small size. This reduces their marketability to commercial lenders and has resulted in only 5 percent of surveyed companies having loans or lines of credit. Limited access to finance this hampers the industry’s growth potential. To address this, the report suggests that financial institutions introduce special credit schemes for small and medium-sized enterprises to encourage business expansion and development.
The research also explores the complex landscape of international trade for Pakistani engineering firms, revealing obstacles related to tax implications, product quality, branding, and pricing. Most notably, a substantial 84 percent of firms source their raw materials domestically, emphasising a need to diversify suppliers and engage with international markets. The report emphasises the importance of a thriving relationship between businesses and the government for economic prosperity. However, political instability and unfavourable economic policies have led to a lack of trust and dissatisfaction among business owners, impacting productivity and profit margins.

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