A Strategy for Reindustrialization
- Riazuddin, Member, Board of Directors, Employers’ Federation of Pakistan
Pakistan’s manufacturing decline is often dismissed as a grievance of formal-sector industry. It is a central macroeconomic problem driven by consumption, starved of investment and constrained by weak exports staggering from one balance-of-payments crisis to the next. Nearly half the population now lives below the poverty line, while independent estimates put unemployment at close to 10%. Pakistan lacks the productive capacity and export earnings needed to service its external debt. Each successive generation inherits the debt accumulated while productive capacity remained weak.
Five constraints explain the decline.
Policy. Pakistan has not implemented a comprehensive industrial policy since 1984. The National Industrial Policy (NIP) 2025–30 calls for greater competitiveness but provides limited mechanisms to achieve it. Tariff reforms do not amount to an industrialization strategy; they address one component of industrial policy without providing the broader framework needed to build productive capacity and competitiveness.
Institutional decay. Development finance institutions and specialist industrial bodies supporting steel, plastics, textiles, leather, packaging, design and tooling have all been defunded or shut down. The system rewards short-term rent-seeking rather than long-term investment.
Energy. Pakistani manufacturers pay about 15.7 US cents per kWh, compared with 11.6 cents in India, 10.1 in Bangladesh and 7.6 in Vietnam. When Pakistani manufacturers pay more than twice the energy cost of their rivals, they become uncompetitive.
Tax. The government taxes only a narrow segment and places a disproportionate burden on them. Industry faces at least 36 federal and provincial taxes, cesses and levies. High tax rates, presumptive taxation and a fragmented sales-tax system, combined with unadjusted input taxes, delayed and denied refunds, raise costs for formal businesses. These undermine competitiveness in export markets and against imports.
Capital. Borrowing costs have been near 21% in recent years; rates have eased, but long-term project finance remains scarce, and export refinancing is limited. Manufacturers struggle to finance and invest in modernization and expansion.
The industrial sector has its own share of failures. Exports remain heavily concentrated in textiles, automobiles, sugar, paper and construction, and have often relied on protection rather than improving competitiveness and productivity. Informal sectors outside the tax net undercut compliant businesses. Reforms are essential, but they do not justify abandoning industrial development as a national priority.
What would reindustrialisation require?
First, adopt a genuine reindustrialisation strategy. The NIP 2025–30 and Uraan Pakistan lack the policy architecture and implementation mechanisms needed to reverse industrial stagnation. Neither provides clear sectoral priorities, time-bound actions, measurable targets or clear institutional accountability. A coherent industrial framework supported by reliable infrastructure, labour and quality standards, testing facilities, technical skills and effective export promotions are essential. Success should be measured by investment, productivity, manufacturing depth and export growth.
Second, make energy competitive. The Government must industrialise electricity tariffs to a regionally competitive 7–9 US cents per kWh and ensure reliable gas supplies at competitive rates. Cross-subsidies and surcharges should be removed. Energy pricing should make industrial production competitive.
Third, reform taxation. Federal and provincial governments should adopt a ten-year framework to broaden the tax base, consolidate levies to keep industry and exporters regionally competitive, with advance taxes refunded within the same month. Import tariffs should follow a clear cascade: 0% on raw materials, 3–5% on components, 5–10% on assemblies and 20% on finished goods.
Fourth, restore industrial finance. The State Bank should provide long-term project finance and broader export refinance, with tenors and grace periods suited to plant construction, machinery upgrades and market entry. Support should extend to new entrants and smaller firms.
Fifth, demand more from Industrialists. Public support for Industry should require investment in training and technology, documentation, sales and taxes, safe workplaces, fair wages and career pathways into skilled work for young people.
What has been missing is the Conviction to act, the Commitment to stay the course, and the Courage to confront vested interests, both domestic and external.
Pakistan has paid dearly for stability. It has bought time, but failed to convert that time into growth. Manufacturing has proved to be the economy’s most resilient export engine. Will policy finally create the conditions to scale? Multinationals have voted with their feet. Local manufacturers remain, waiting for a credible reason to invest.
Copyright Business Recorder, 2026