Pakistan’s industrial policy - from ambition to competitiveness

The government’s National Industrial Policy (NIP) presents an important opportunity to strengthen Pakistan’s industrial base, increase exports and create a more competitive business environment. The real test, however, is not whether the country announces ambitious targets or provides relief to industry, but whether Pakistani businesses become more productive, develop higher-value products and compete successfully in international markets.

In May 2025, the government announced a target of $60 billion in export growth over the next five years and called for sector-based business plans with measurable targets. Yet Pakistan’s merchandise exports fell from $32.04 billion in FY2024–25 to $30.14 billion in FY2025–26, a decline of about 5.9%.

This contrast underlines the need to connect national ambitions with practical steps that businesses can act upon. The government should clarify the baseline and scope of its export target and publish a clear pathway showing how it intends to achieve it.

Growth is not enough

Pakistan has capable entrepreneurs and established manufacturing sectors, but its industrial potential has not translated into sustained export growth or sufficient diversification. The World Bank reports that exports declined from an average of 16% of gross domestic product (GDP) in the 1990s to approximately 10.4% in 2024. (World Bank, Pakistan Development Update, October 2025). The challenge is therefore not simply to produce more, but to improve productivity, quality and the value of what the country sells.

There are encouraging signs of recovery in manufacturing. Large-scale manufacturing grew by 4.98% in FY2025–26, according to provisional figures from the Pakistan Bureau of Statistics. However, higher output alone does not establish that industries have become more competitive internationally. Sustainable industrial growth requires firms to produce efficiently, meet international standards, deliver reliably and respond to changing market demand.

High energy costs, taxation, expensive financing, costly imported inputs and unpredictable regulations can undermine even a well-managed business. The government must address these constraints through predictable policies, efficient regulation and a business environment that encourages investment. But lower costs alone will not guarantee success. A manufacturer may receive cheaper electricity and still lose customers if product quality is inconsistent, delivery is unreliable or production methods are outdated.

Pakistan does not need to abandon established industries to build a stronger industrial base. It needs to help them move towards higher-value products. In textiles, for example, competing mainly on the price of basic fabric leaves manufacturers exposed to cost pressures and international competition.

Specialised fabrics, technical textiles, better-designed garments and products developed for particular markets can create greater value. Similar opportunities exist in surgical instruments, sports goods, leather products, food processing and engineering.

Moving in this direction requires modern machinery, technical skills, product design, quality control and a better understanding of international buyers. The government should work with industry associations, exporters and technical institutions to identify practical barriers to upgrading and help businesses overcome them.

Build capability, not dependence

One of the most useful roles for government is to provide industrial facilities that individual businesses, particularly smaller firms, cannot afford to establish independently. A manufacturer may have a promising product but lack access to specialised testing, certification, technical advice or modern equipment. Without these services, it may struggle to meet international standards or become a supplier to a larger company.

Industrial clusters could benefit from shared technology centers, testing laboratories, product development facilities and practical training programmes. These could be developed through partnerships among government, industry associations, universities and private institutions, with services designed around actual business needs. The World Bank has identified technology centers and common facility centers as ways to help smaller manufacturers access specialised equipment and technical services.

Industrial strength also depends on smaller businesses supplying components, packaging, maintenance and specialised services to larger manufacturers. The government can help these suppliers through technical training, certification and structured partnerships with major companies. The objective should not be to force firms to purchase locally regardless of cost or quality, but to help Pakistani suppliers become competitive enough to win business on commercial merit.

The same principle applies to financial incentives and protection. These can help businesses overcome specific disadvantages, adopt technology or develop new products, but they become counterproductive when firms depend on them indefinitely. Tariffs that make imported machinery, chemicals or intermediate goods more expensive can protect one producer while raising costs for other manufacturers and exporters.

Evidence from Pakistan reinforces this concern. A 2025 World Bank study of textile export subsidy schemes found that the incentives had a small overall effect on exports while shifting export activity towards products receiving higher rebates, particularly garments. This suggests that incentives can change what firms export without necessarily producing a comparable increase in total exports.

The lesson is not that all incentives should be abandoned. It is that support should address a clearly identified obstacle and help businesses develop capabilities they can sustain. Assistance for technology adoption, workforce training, quality certification and export development can offer a stronger long-term return than protection that simply shields firms from competition.

Turn ambition into delivery

The most important question is how the National Industrial Policy will be translated into practical, measurable action. An export target is useful only when businesses and government departments know which sectors are expected to contribute, what obstacles must be removed and when progress will be assessed.

The government should publish a clear implementation framework setting out annual export milestones, sector-specific priorities, the incentives available and the institutions responsible for delivery. The framework should also explain how progress will be reviewed and what corrective action will follow if targets are missed. The export ambition needs a credible route from the present position to the stated goal, not simply a headline figure.

Coordination across government is equally essential. Industrial energy costs, taxation, trade policy and investment incentives affect the same manufacturer, yet decisions are often handled by separate institutions. The government should assign clear responsibility for addressing the main barriers to industrial competitiveness and ensure that decisions across departments support a common objective: making production in Pakistan more competitive without undermining the financial sustainability of the energy sector.

Implementation should also be informed by businesses themselves. Regular consultation with manufacturers, exporters, smaller suppliers and industry associations can help identify which constraints are most damaging and which interventions are producing results. Reviews should focus on measurable improvements in productivity, investment, product quality and exports, rather than the number of meetings held or incentives announced.

Pakistan does not need an industrial policy that promises everything to everyone. It needs one that concentrates resources on removing genuine barriers to growth and building capabilities that individual firms cannot easily develop alone.

The real test of Pakistan’s industrial policy is whether it makes local industry competitive enough to succeed without depending indefinitely on government protection. Higher production is valuable, but stronger exports, better products, higher productivity and capable local suppliers would give industrial growth a firmer foundation. By turning its ambitions into clear priorities, accountable implementation and sustained support for industrial upgrading, the government can help build an industrial sector that contributes more reliably to exports, investment and long-term economic growth.

The article does not necessarily reflect the opinion of Business Recorder or its owners.