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2. Significance of
Industrial Sector
• Rapidly growing industrial sector brings about
economy-wide structural changes that ensure
sustained GDP growth and promote employment.
• In Pakistan also the industrial sector has a great
potential to generate economic activity, boost
exports, and create jobs.
• We review the performance of industrial sector in
international perspective to identify challenges that
are needed to be addressed for improved industrial
performance and reducing cost of doing business in
Pakistan.
5. Main Conclusions
• With the exception of few textile segments, Industry
in Pakistan has not been a growth engine as has been
the case elsewhere
• Industrial production in general and exports in
particular are characterized by low technology
intensity
• Manufacturing sector has heavy domination of textile
sector – limited diversification
• Industry has failed to provide productive well-paid
jobs to rapidly growing labor force
• Thus the implication is that ‘industry has not played
its role in inculcating a contemporary, forward looking
and optimistic mind set among the young’
6. Analysis
• The principal lesson to be learnt is that
Pakistan's investment performance
requires high sustained capital
deepening. Capital deepening, in turn,
implies accumulation of physical capital
faster than labor growth. This in turn
implies that high investment is necessary
for growth.
• Given the importance of investment, it is
imperative to ask where it is headed
• (continued)
7. Analysis
• Comparing Pakistan's investment performance with
Asian experience is that high sustained growth with
its regional competitors is justified on two grounds:
• First, similarities in income levels, geography and
history make these countries Pakistan's natural
comparators; and
• Second, like most South Asian economies, Pakistan
has deregulated and liberalized its economy over the
past two decades. Therefore, it is instructive to
analyze how well Pakistan is faring compared to its
regional competitors.
8. 'investmentgap is defined as the difference
between Pakistan's rate of growth of
investment and the growth rate achieved by its
competitors '
9. Concerns
• There has been a secular decline in Pakistan's public
investment trajectory since the early nineties, which
is also the case for the trajectories of India and
Bangladesh.
• Pakistan's private investment trajectory departed
significantly from its1980s trend.
– In actual fact private investment
was unable or unwilling to step up
and fill the gap created by a
declining public investment trend.
10. There has been a secular decline in Pakistan's public investment
trajectory since the early nineties, which is also the case for the
trajectories of India and Bangladesh.
12. private sector manufacturing
investment was unable to take
advantage of the greater space
available to it as a result of a declining
public sector role in the manufacturing
sector.
13. Conclusion
• The analysis suggests that
Pakistan has been unable to
exploit its investment potential
over the last decade.
• Therefore a trend change in
investment is necessary in order
to bridge its investment growth
gap with its competitors.
14. Cost of Downward Trend Shift
• The costs of this downward trend shift are calculated
by comparing real private figures for Pakistan with a
projected 'potential investment trajectory'.
• Pakistan must push up its 'trend' investment rate
beyond the 1980s rate in order to return to its original
investment growth trajectory.
17. Why Stagnation?
• Political Risk
– Pakistan received extremely adverse risk rating on the
issue of security and political stability relative to its
competitors.
• High Cost of Doing Business
– Government risk
• Legal and Regulatory Risk
• Tax Policy Risk
• Financial Risk
• Low Labor Productivity (lack of required
skills)
• Power and Infrastructure Issues
• Poor coordination between federal and
provincial governments
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