A manufacturing-based economy

The answer to reviving the economy does not rest in levying more taxes or soliciting more loans

Pakistan through its 75 years of existence has numerous industri­al and economic policies. Howev­er, although industrial policy changed directions, economic policy has mainly remained primarily de­pendent, till today, on interna­tional aid, loans and grants.

Pakistan’s initial industri­al policy focused on large-scale manufacturing (LSM), thus resulting in industrialisa­tion in the 60s decade. But LSM is not a massive job creator and LSM set­ups can only be set up in places where required infrastructure, manpower, and other complementary options are available. Therefore, this industriali­sation and resultant job creation was limited to a few large cities such as Ka­rachi, and Lahore. LSM thrived but it took a massive hit with the national­isation policy in the 70s. Resultantly, LSM setups became more of bureau­cratic dens and these profit-making entities regressed into debt incurring nightmares, and now even to run these setups, massive public money is spent on a recurrent basis.

Slowly, as the population increased and on inputs from international de­velopment agencies, the government realised that it needed to support in­digenous small and medium enter­prises (SMEs) to create jobs, increase revenue and support the economy. Further, from the past nationalisa­tion experience, the government re­alised that it needed to liberalise the economy and allow private compa­nies to enter the market.

Resultantly, the late 1980s saw the entrance of international auto man­ufacturers in Pakistan. Also, various government institutes were set up to promote SMEs. These government de­partments were to devise policies and serve the interests of SMEs, helping them to integrate into the large firms’ value chains.

However, the economy was still pri­marily running on international loans and grants, and our nationalised LSM continued to haemorrhage. The 2000 decade saw a massive explosion of me­dia, internet and mobile service. New channels sprouted overnight, and con­sidering the large population, interna­tional mobile operators jostled to en­ter the market. Also, consumer goods companies entered the market sensing a large consumer base.

Consumerism flourished when banks started giving loans on anything and ev­erything, from microwave ovens to au­tomobiles. This truly turned our econ­omy into a consumer-based economy.

To aggravate the economic situation, most of the international firms entering the economy called themselves ‘manu­facturers’, while barely assembling their products in the country. There were weak industrial policies and even weak­er implementation and monitoring tools to monitor various industrial sec­tors to encourage them to localise their products and involve local SMEs in the production of their products. This re­sulted in a huge trade deficit with var­ious countries from which these firms were importing their products.

Thus, successive governments start­ed running huge deficits as imports massively outpaced exports.

This became only more obvious now when there are no more loans to sup­port a consumptive-based economy, which imports a major share of its needs and leisures from abroad. In the latest instance of solar power genera­tion policy, USD 1.2 billion of photovol­taic modules (PVMs) in the last fiscal year were imported, while it is predict­ed that USD 1.8 billion of PVMs would be imported in the current fiscal year, thus further straining the economy.

Presently, the government is cutting imports resulting in shutdowns of import-dependent industries (econ­omy) in the country, resulting in job losses, layoffs and loss of revenue to the government.

To compensate for the lost revenue, the government is squeezing the al­ready dying middle and lower mid­dle classes by imposing more taxes, which is further shrinking the already squeezed economy.

The answer to reviving the econo­my does not rest in levying more tax­es or soliciting more loans but shift­ing to a manufacturing-based economy, meaning more and more industrial sec­tors such as the auto sector, consumer goods, solar panels, and wind turbines industries need to be indigenised with greater participation of local SMEs.

Last but not least, emphasis on quali­ty and productivity should be positive­ly ensured through strict adherence to international quality standards, so that our industry is able to compete at international levels.

Ahsan Munir
The writer is a freelance columnist

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