In 1947 only some 5 percent of the large-scale industrial facilities in British India were located in what became Pakistan. The country started with virtually no industrial base and no institutional, financial, or energy resources. Three small hydroelectric power stations provided limited electricity to a few urban areas. Firewood and dung were the main sources of energy; commercial energy sources supplied only about 30 percent of the energy consumed. Further, there was a shortage of management personnel and skilled labor.
The pace of industrialization since independence has been rapid, although it has fluctuated in response to changes in government policy and to world economic conditions. During the 1950s, manufacturing expanded at about 16 percent annually; during the first half of the 1960s, it expanded at around 11 percent a year. The pace slowed to under 7 percent a year in the second half of the 1960s. Between FY 1970 and FY 1977, the index of manufacturing output increased an average of only 2.3 percent a year. Between FY 1977 and FY 1982, the index rose an average of 9.9 percent a year. Growth averaged 7.7 percent during the Sixth Five-Year Plan (1983-88) and 5.4 percent from FY 1989 through FY 1992. In FY 1993, manufacturing accounted for 17.3 percent of GDP at current factor cost, of which large-scale manufacturing accounted for 61 percent and small-scale manufacturing for 39 percent. Manufactured goods accounted for 64 percent of all exports by value in FY 1993, but the bulk of these exports came in the relatively low-technology areas of cotton textiles and garments.
Total fixed capital formation in manufacturing was estimated at Rs57 billion in FY 1993. During the 1980s, private investment became much more important than public investment. In FY 1982, private investment was 53.9 percent of the total, but in FY 1993 the proportion was 96.1 percent. Total investment in manufacturing was 5.1 percent of GNP in FY 1993.
In the early 1990s, the manufacturing sector was dominated by food processing and textiles. Provisional figures for FY 1992 indicated that sugar production was 2.1 million tons, vegetable ghee 819,000 tons, cotton yarn 862,000 tons, and cotton cloth 234 million square meters. Other industrial products included motor tires (647,000 units), cycle tires (2.2 million units), cement (6.1 million tons), urea (1.4 million tons), soda ash (147,000 tons), bicycles (364,000 units), and paperboard (13,000 tons).
Pakistan has one steel mill, located near Karachi, with a production capacity of 1.1 million tons per year. A major undertaking, the mill required the bulk of public industrial investment in the late 1970s and early 1980s, although the plant was designed and partly financed by the Soviet Union. It produced at 81 percent of capacity in FY 1993, and it was dependent on imports of iron ore and coking coal. As of early 1994, the mill had not achieved sustained profitability, but there were plans to expand it.
Public-sector firms produced about 40 percent of the total manufacturing value added in FY 1991, and they absorbed about 48 percent of gross fixed investment. The total value of publicsector industrial output in FY 1991 was Rs36 billion (in constant FY 1988 prices), but pretax profits were only Rs1.3 billion, reflecting the inefficiencies and overstaffing prevalent in these enterprises.
To improve the efficiency and competitiveness of publicsector firms and end federal subsidies of their losses, the government launched a privatization program in FY 1991. Majority control in nearly all public-sector enterprises will be auctioned off to private investors, and foreign investors are eligible buyers. In March 1992, twenty units had been privatized, but by 1993 only about 30 percent of the government's target number of firms had been sold because some of the enterprises were unattractive for private investors. In 1994 the government led by Benazir Bhutto was committed to continuing the policy of privatization.
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