Industrialisation in Pakistan INTRODUCTION First during the era of Ayub Khan focus was made on

converting mercantile economy into industrial economy

Second was the Bhutto’s era in which focus was made on the big push approach by the establishment of heavy industry like steel, chemicals, fertilizers and cement.

Third is characterised by the involvement of the private sector investing in sophisticated intermediate goods and capital goods industries under the neoliberal development models focusing on market economy – liberalisation, deregulation and privatisation.

Industrialisation in Pakistan Industrialisation as pillar of Pakistan’s development

strategy

Constructing the industrial base.

 At the time of partition, Pakistan was industrially barren.

It had rudimentary textile mills, an oil refinery and

some capacity in sugar refining, tea processing and cement.

The main industry was concentrated in India with whom Pakistan exchanged agricultural goods for manufactured products.

Industrialisation in Pakistan Pakistan did not have significant industry, nor

indigenous commercial class

To address the issue, Quaid Mohammad Ali Jinnah invited leading Muslim Industrialist of India, including Habibs and Isphahanis to come to Pakistan and build industry.

Major Business HousesIndustrial House Community Family Origin/Area Settled Business

Headquarter location

Adamjee Memon Kathiawar/Jetpur Karachi Calcutta

Dawood Memon Kathiawar/Bentwa Karachi Bombay

Saigol Punjabi Sheikh W.Pujab/Chakwal Lahore Calcutta

Valika Dawood/Bohara Bombay Karachi Bombay

Colony Punjabi Sheikh/Chinioti W. Punjab/Chiniot Lahore Lahore

Fancy Khoja Ismaili Kathiawar Karachi East Africa

Bawany Memon Kathiawar/Jetpur Karachi Rangoon

Crescent Punjabi Sheikh/Chinioti W. Punjab/Chiniot Lyallpur Delhi

Beco Punjabi E.Punjab Lahore Batala

Wazir Ali Syeds W.Punjab/Lahore Lahore Lahore

Amins Punjabi Sheikh W.Punjab Lahore Calcutta

Nishat Punjabi Chinioti W.Punjat/Chiniot Lyallpur -

Hoti Pathan Landlord Charsaddah Charsaddah Charsaddah

Feteh Marwari Gujrat Karachi Karachi

Isphani - Iranian Karachi Calcutta

Karim Bohras Bombay Karachi -

Industrialisation in Pakistan There were handful of industries such as Dalmia Cement

Factory in Karachi, Sir Sri Ram’s cotton mills in Lyallpur (now Faisalabad and the Premier Sugar Mills in Mardan

There was no foreign investment in the industry.

Indigenous capital was primarily engaged in trade, shipping and finance, with small mining interest. Engaged in efforts to convert the indigenous merchant capital in to industrial capital.

 The largest enterprise at the time was the Moghalpura Railway Workshop in Lahore, which was in the public sector.

Industrialisation in Pakistan State as main driver of the industrialisation

The drive for building industrial capital cam from Govt. as colonial mercantile bourgeoisie was slow to respond.

ISI was the main strategy to shift economy form Agriculture to Industry.

Convening of Industries conference in Sep. 1947 to coax and cajole and give fiscal incentive and various forms of assistance to Indigenous merchant Bourgeoisie to invest on industry.

In pursuance of that in 1949 Investment Enquiry Committee was formed.

Reluctance to invest in industry on the part of the merchant capital was described as ‘grave defect in national character’ by then Finance Minister.

Industrialisation in Pakistan However, in 1949 two important measures were taken to

foster industrial development. Pakistan Industrial Finance Corporation which later on became

Industrial Development Bank of Pakistan.

And in 1957 with state sponsorship, World Bank support and private participation, the Pakistan Industrial Credit and Investment Corporation was set up, as the premier investment bank in the country

The other development was that pound was devalued. But Pakistan decided to maintain the dollar parity of the Pakistan rupee, which about substantial appreciation in its exchange rate.

Internal tug of war Bureaucratic controls End of Korean war Establishment of Investment Bureau, which supported the merchant

capitalists.

Industrialisation in Pakistan And they filled the vacuum left by the departing Hindu

merchants.

Industrial development was the main priority of the govt. of the day and there was overriding opinion that with industrial development Pakistan can not survive.

Industry grows faster than agriculture and was considered to be the recipe for success.

According to Dr. Ishrat Hussain, one of the important decisions not to devalue its currency when both the pound sterling and India rupee was devalued.

Consideration behind that was the desire to obtain imported capital goods needed to establish industries at cheaper prices.

Industrialisation in Pakistan Korean War boom, resulted in a dramatic increase in

the prices of jute and raw cotton, created commodity boom whereby many traders rushed into the import/export business to make quick profits.

According to Dr. Ishrat Hussain, the combination of an overvalued exchange rate , a high tariff structure, a vacuum caused by the trade disruption with India and the fertile commodity market created Pakistan’s first class of nascent entrepreneurs.

According to Dr. Ishrat, these merchant capitalists bought raw materials from the agricultural sector at cheap prices and sold them in the foreign markets at very high mark up.

Industrialisation in Pakistan The end of the Korean war left these merchants

with reduced profits opportunities in the import trade.

The government which had adopted very liberal import policy re-imposed the administrative controls after facing crisis in the foreign exchange

The imposition of control resulted in to the increase in the prices of imported goods and set the terms of trade heavily in favour of industry and against agriculture.

The surplus made from the Korean War boom were re-invested and industry was established and manufacturing replaced primary commodities.

Industrialisation in Pakistan Govt. Initiatives

PIDC was established of which job was to initiate pioneering ventures in many new areas of industry and to supplement private enterprise

The main area of PIDC was to intervene in the establishment of heavy engineering (including iron and steel), shipbuilding and jute paper.

PIDC earlier also worked in the underdeveloped areas where roads, infrastructure and power projects had to be build.

In brief PIDC spearheaded the industrialisation drive.

Industrialisation in Pakistan It provided initial ‘Big Push’ and initial capital investment

with out which the private sector could not operate because of skill limitations and capital constraints.

In the second and third five years plans (1955-60 & 1960-65) consistent industrial development programme was formulated and industrial investment schedule was designed to provide guidelines fro investors.

Import licensing scheme was also introduced. It mainly focused on large scale industrial establishments and neglected small scale sector, which accounted for a significant amount of employment and income in Pakistan.

Pakistan adopted the policy of protectionism to protect the infant industry which resulted in the increase in the growth rate which was more than 9 percent.

Industrialisation in Pakistan Criticism

This policy produced inequalities between different classes and also created regional inequalities between East and West Pakistan.

Industrialisation in Pakistan Main feature of Bhutto’s industrial policy

Bhutto came on the basis of socialist agenda

He carried out nationalisation programme

He nationalised banking and insurance companies.

Thirty one manufacturing enterprises coving ten sub-sectors, including engineering, oil refining and the ghee industry.

A Board of Industrial Management (BIM) was set up to supervise the entire structure.

By 1974, ten public sector corporations were established to run various industries, including fertilizer, automobiles, steel and cement.

Industrialisation in Pakistan Justification for nationalisation

According Ishrat Hussain, Bhutto wanted state to take over the reign of the process of economic development.

The nationalisation campaign was response to the perceived failure of the ‘trickle down’ growth.

The reforms were meant to reduce the concentration of economic power among the leading industrialists, the famed ‘Twenty-Two Families

Industrialisation in Pakistan 1970 was marked by :

Indo-Pak war

OPEC oil shocks of 1973

Series of adverse weather conditions and disease related attacks on crops

Devaluation of currency in 1972 to remove distortions in the exchange rate regime.

Nationalisation proved bane for large scale industry but a boon to small scale enterprise.

Industrialisation in Pakistan Liberalisation, Deregulation and Privatisation:

Washington Consensus. Zia’s military regime carried out the de-nationalisation

policy

In 1977 the cotton, rice and flour mills were denationalised

In the Fifth five year plan, public sector investment was

confined to the completion of ongoing projects, and emphasis was placed on the self-financing of industry.

Expert Advisory Cell as add to the Ministry of Production to monitor public sector performance.

According to Dr. Ishrat, the divestiture and liberation was bit slow and the public sector continued to grow.

Industrialisation in Pakistan Post Zia

Same policy of Washington Consensus continued.

BB regime established Board of Investment, with the task to recommend the policy guidelines affecting the industry.

Moreover, the list of key industries was introduced, including the engineering, fertilizer and electronic industries, and these units were given tax holidays and exemptions from custom duties.

Industrialisation in Pakistan Nawaz Sharif regime.

Introduced range of reforms to stimulate investment in manufacturing, including the removal of the complicated licensing regime, the liberalisation of exchange controls, the facilitation of easy access to credit and granting of further tax incentives to industrialists (Noman 1994)

By 1991, privatisation of public sector industries had begun , with offer of sale of over 100 companies

By 1996 under BB’s second regime, over 80 units were privatised.

Between 1978 till today Pakistan polity has engaged itself in serious of measures to denationalize industry and provide strong incentives for the private sector to invest.

Industrialisation in Pakistan Musharraf Era. International comparisons

East Asian : Industrial policy was aimed at prompting productivity –based growth through a combination of learning, technological innovation and catching up to international best practices.

Despite all the ingredients of industrial policy – subsidized credit, preferential treatment in allocation of foreign exchange and import, tax holiday, exemption, industrial sanctions, publically provided infrastructure – were present in the case of Pakistan but the outcome was totally different from the Far Eastern Countries.

Cost of capital intensive approach - unemployment.

Industrialisation in Pakistan According to Dr. Ishrat following factors have

contributed towards the slow growth of industry in Pakistan.

Economic recession.

Sanctioning of loan on political grounds

Fiscal incentives have failed to divert industry to backwards due to the absence of infrastructure in these areas. Investment has been diverted from developed areas to industrial areas.

Industrialisation in Pakistan The allocation of Industrial licences and credit was

guided by consideration of patronage – crony capitalism

Finally, economic and industrial structure of Pakistan has remained decidedly oligopolistic; there is little room for new business to enter the market.

Industrialisation in Pakistan Future challenges.  Issues in industrialisation. Conclusion