EDITORIAL: It turns out that private investment in manufacturing has fallen to its lowest level in over a decade — from Rs706 billion in FY19 to just Rs377 billion in FY25 — a decline so severe that it no longer even covers the depreciation of existing assets.
This is not a short-term fluctuation but a structural retreat, signalling the erosion of the country’s industrial base. When fresh investment fails to replace worn-out capacity, production contracts, competitiveness declines, and the economy slips from growth to stagnation. So, these figures do not describe a bad year; they describe a sustained trend.
The industrial core is weakening in other ways too. Large-scale manufacturing contracted 1.5 percent in FY25 after only 0.92 percent growth in FY24. The combined share of manufacturing and mining in GDP has hovered at 13.2 percent for six years. These are clear signals of a system that has lost momentum. They will show up, predictably, in fewer jobs, thinner exports and a narrower tax base.
Executives and economists have long pointed to the same culprits. Borrowing costs have been high, import restrictions have choked inputs, and demand has been soft. Input prices have climbed, the currency has been volatile and policy has been inconsistent.
Yet none of this is novel, and that is precisely the problem. The drift has lasted long enough to change behaviour. Firms that might have invested now prefer to wait, or to park surplus cash in instruments instead of capacity. The decision is rational from the firm’s point of view and damaging from the country’s.
A glance at regional peers makes the decline impossible to miss. India reported industrial growth of 4 percent in FY25. Bangladesh recorded 3.98 percent in FY24. Both have paired export diversification with a steadier policy environment. Pakistan’s numbers are weaker because the fundamentals that guide investment decisions — policy stability, governance, and cost competitiveness — are low. Capital goes where rules are predictable and returns can be planned. This has been the broad script for a while now, yet nobody in Islamabad has yet been bothered to do much about it.
Industry’s own representatives have issued clear warnings. The Lahore Chamber’s view that investment is now below replacement level is not rhetoric; it is an accounting fact with strategic consequences. Once the capital stock begins to age faster than it is renewed, recovery requires more than a rate cut or a seasonal improvement. It requires a restoration of confidence that future policy will not negate today’s investment.
That restoration starts with coherence. Monetary stabilisation is necessary, yet it cannot substitute for an industrial strategy that reduces the cost of producing and exporting. Import management may ease pressure on the external account for a quarter, yet if it becomes a recurring tool it breaks supply chains and forces factories below capacity. A credible path back to expansion needs clarity on input availability, timelines for tariff rationalisation in energy, and assurances that rules will not reverse without consultation.
Policy consistency is not the same as policy inertia. It means publishing rules that investors can plan around and then measuring results against them. It means that incentives, where used, are tied to outcomes such as investment, jobs and exports, not to lobbying power. It also means that the state resists the temptation to announce schemes that are not backed by capacity to execute. Investors read follow-through, not slogans.
Credit conditions matter, but they are only one lever. The evidence presented shows that uncertainty and profitability have been the bigger deterrents. A serious revival plan therefore has to address reliability of energy costs and supply, timely access to inputs, and simple, stable tax administration. These are not favours to business; they are the preconditions for productive risk-taking. Countries that compete for capital understand this and act on it.
The alternative is visible in the data. When factories cut back, jobs disappear, exports stall and revenue weakens. The fiscal strain then tightens the screws further, and the cycle repeats. Breaking that loop requires a decision to privilege production over stopgaps. The window is not infinite. As others in the region continue to improve, the opportunity cost of delay rises.
The diagnosis is settled. Private investment has halved, output is flat to negative, and manufacturing’s share in the economy has not moved. The remedy is also well known. Restore confidence through predictable rules, rational energy pricing, reliable inputs and a clear path from stabilisation to growth. Publish the timelines. Hold the system to them. Until the state proves that plans survive the next headline, capital will remain on the sidelines and Pakistan will keep consuming the seed corn it should be planting.
Copyright Business Recorder, 2025
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