Fahad Qur Fahad Quresh eshii Muhammad Shariq Ramis Ram ish h Sa Safa fa Ali Hamza
Introduction In the statement of Industrial policy 1948 it was
stated: ³The most striking feature of Pakista n¶s present economy is the marked co ntrast between its vast natural resources a nd its extreme industrial backward ness´
Industrialization:1947-1958 Objectives:
To manufacture its own products of its raw materials. To meet m eet require requireme ments of the home market for consumer goods for which Pakista n was dependent on outside sources. Process of i ndustrialization: Exchange rate. Trade policies.
Exchange
Rate
In 1949 numerous countries devalued their currencies but Pakista n did not devalue its currency cy..
After Korea n war the prices of raw material fell. with over valued excha nge rate the conditions changed in favor of industry because it became cheaper to import i ndustrial machinery to produce manufactured goods.
Trade
policy
Major aspects of trade policy to Favor Industrialization: Quantitative controls on Imports. Tariffs on Imports to promote i ndustrialization. The objectives of these trade policies were to produce anything that can be reasonably produced produce d domestically domestically.. These control on the imports made industrial sector look attractive a nd led to investment in industrial sector which led to growth of industrial sector.
Average Rate of duty on Imported goods (%) Source: Economic policy and industrial growth in Pakistan, George allen & Unwin Ltd,London,1969 Description
1955/
1956/
1957/
1958/
1959/
1960/
1961/
1962
1963/
6
7
8
9
60
1
2
/3
4
esse ntials
35
35
35
35
35
55
55
55
56
Semi luxuries
54
99
99
99
99
111
111
111
116
140
140
140
142
Consumer
goods
luxuries
99
99
99
99
99
Raw material for consumer goods Unprocessed
26
26
26
26
26
27
27
27
30
Processed
43
43
43
43
43
50
50
48
51
Outcome
of Exchange rate and Trade policy The decision not to devalue its curre ncy put Pakistan on the road to industrial development. There was significant growth in manufactured goods produced from newly established industries e.g. cotton and jute. Between 1949 and 1958 the growth rate of i ndustry in Pakistan was amongst the most rapid for a ny country in the world. The establishment of Lar ge scale manufacturing sector with a Maximum a nnual growth rate of 28.7% in 1953/54 and minimum annual growth rate of 4.9 % in 1957/58. The investment rate doubled duri ng 1950s.
Year
Annual growth rate in Large scale manufacturing sector (%)
1950/1
23.5
1951/2
18.7
1952/3
23.6
1953/4
28.7
1954/5
24.1
1955/6
17.5
1956/7
8.1
1957/8
4.9
1950-1954 (avera ge)
23.6
1954-1958(avera ge)
13.6
Source: government of Pakistan, Pakistan Economic survey,1984-85
1958-68; The Decade of Development
Trade policy directi ng Industrialization: The new regim ime e of Ayub Kh Kha an disbanded many of the controls that had bee n imposed in 1950s and it shifted form direct co ntrols towards indirect controls on imports. New trade policy i n 1959: Open General Licence. Free list. Exports bonus scheme (EBS) or bo nus voucher scheme. cres esed ed ta tari rifffs on imports. Incr
Outcome
of trade policy
Both industrial production and investment responded well well to these trade policies. EBS boosted exports especially of manufactured goods instead of raw materials. EBS also had a positive impact o n imports, making machinery imports easier a nd cheaper cheaper..
High average growth rate in lar ge scale manufacturing sector of 13.3% for period of 1960-65 a nd even after 196570,when there was marked slowdown because foreign aid curtailed avera ge growth rate was still impressive of Above 10%. The share of exports i n total consumer goods output rose from 15% i n 1959/60 to 45% in 1969/70.
Year
Annual growth rate in Large scale manufacturing sector (%)
1958/9
5.6
1959/60
2.7
1960/1
20.3
1961/2
19.9
1962/3
15.7
1963/4
15.5
1964/5
13.0
1965/6
10.8
1966/7
6.7
1967/8
7.6
1968/9
10.6
1969/70
13.9
1958-1964 (avera ge)
13.3
1965-1970(avera ge)
10.4
Source: Government of Pakistan, Pakistan economic survey,1984-85
Faha Fa had d Qu Qure resh shii
Industrial reforms twofold; nationalization, and the improvement of workers' ri ghts
nationalization In the first phase, basic i ndustries like steel, chemical and cement were nationalized 1972 The next major step i n nationalization took place on January 1, 1974, whe n Bhutto nationalized all banks. The last step in the series was the most shocking; it was the nationalization of all flour, rice and cotton mills throughout the country.
Nationalization caused reversal of public private investment Private sector i nvestment was only 15% Public sector investment rose from 5% to 75%. Businessmen had little confidence
Year
Public investment in (%)
70
12.8
71
5.3
72
8.4
73
12.6
74
33
75
60
76
70
Source naqv qvii snh and khwaja khwaja sarma sarmad d , Pakista Pakistan in the seventies ,PIDE ,Islamabad 1993 .
Currency
devaluation
The rupee was devalued by 131% i n may 1972 1$ = 4.6rs to 1$ = 11rs Increasing the exports But the imports became much more expensive Pakistan's imports were much more than its export ( negative balance of payments)
loss of east pakistan 50% of west Pakista n's products fou nd a way to east Pakista n . 18% of the imports of west pakista n came from east pakista n . ur gent need to find new markets
Two
and a half years of industrial growth
1972/3 Exports increased by 153% in over the previous year year (due to world demand conditions of cotton textile ) 1973/4 manufactured exports grew by 19 % The growth in export was key factor in growth of industrial output Also due to availability of credit to export sector Export refinance scheme lending rate lower than normal lending rate
1974 World
wide commodity boom caused the economic boom of 1972-73 The boom was short lived and the world was hit by recession , which slowed the economic boom and industrial growth .1974 The prices of petroleum had a fourfold f ourfold increa crease(o se(oct ct 197 1973) 3) , pric prices es of of inputs increased , prices of fertilizers f ertilizers increased Positive balance of trade was wiped in one go as the oil imports rose from $60m to $225m in one year 1973 to 1974 .
Fertilizer imports i ncreased from $40m to $150m There was a hu ge failure of cotton crop in 1974-75 when the inter national cotton prices had rise n , affected industrial output . 1976-77 floods destroyed a griculture crops, excessive expe nditure on public goods , affecting industrial output.
Zia
Ul Haq·s Era 1977-1988
Ramish Safa
Industrial Challenges Result of Bhutto ¶s regime Nationalization Restoration of confidence of of pr priv ivat ate e investors. Restoration of private sector involvement Motivating of investment in private sector
Highlights of the Zia era According to the World Bank manufacturing GDP in Pakistan grew at an annual average rate of 9.6 perce nt between 1977 and 1986. Investment in medium and lar ge scale industries grew by an average rate of 18.2 percent per year. total private industrial investment W hile total rose by 15.6 perce nt per year.
According to World development report 1990, the growth in real wages during the 80s in Pakistan manufacturing sector was the fastest i n the world at 6.2% a year. Pakistan¶s manufacturing sector became more capital intensive due to boom in industrial activity betwee n 1975 and 1986.
Growth rates of some Industrial sectors Industry
Sector
Output
Labor
Capital Stock
21
10.7
10.4
13.7
14.5
13.7
Fur niture
13.3
11.8
23.6
Electric Machi nery
13.3
5.7
11.7
Non Electric machi nery
17.6
7.5
5.6
Total Of W hole Industry
9.6
5.8
10.3
Wearing
Apparel Wood and Cork
products
Actions Taken Industrial Policy Earliest steps included a policy to denationalize agro based industries that were heavily µin the red¶ during the time of Bhutto. Rice husking, flour milling and cotton ginning. Some small engineering units were also denationalized. Basic and heavy chemical and cement industries were opened to the private
sector.
Actions Taken Some incentives given to promote industrialization by atrracting private investment and the promotion of the private sector. Tax holidays Export rebates Reduction in interest rates in both agriculture and industry. Growth in lar ge scale manufacturing was projected at a hi ghly ambitious rate of 12 % which was achieved.
Actions Taken The Public/Private sector divide. It was highly anticipated that lar ge scale denationalization would take place. However this did not happen with the exception of the few afore mentioned industries. The private sector given a clear signal to participate. Denationalization not done for political and administrative reasons. The demand of original owners of nationalized industries.
1988-Onwards Ali
Hamza
After a n economically stagnant decade of the 1990s, the year 1999 brought a coup led by General parvez, with an era of accelerated economic growth that led to more than doubling of the national GDP, and expansion in Pakistan's urban middle class. Pakistan's GDP more than doubled to $170 billion (nominal) since 1999. It has reached $440 billion in terms of purchasing power parity (PPP)
High-Lights Aziz was a co nsumer-finance man, he began the deregulation of the banking sector, by sharply cutti ng loan interest rates, and allowing banks to engage more liberally in giving consumer finance loans, and lifting restrictions on the number of branches that foreign banks could open in Pakistan. Easy access to low-cost co nsumer finance led to a sharp rise i n the sale of consumer goods such as cars, motor cycles, cell phones and home appliances.
As a result the banking sector boomed and many foreign banks from the Middle East and other parts of the world came flocking to Pakistan and Pakistan attracted over $5 billion foreign direct investment in the 2006-07 fiscal year, ten times the figure of 2000-01. The strong consumer demand in Pakistan drove lar ge investments in real estate, construction, communications, automobile manufacturing, banking and various consumer goods. Millions of new jobs were created. The ranks of the middle class swelled i n Pakistan.
Pakistan's information technology sector revenue grew from almost nothing to about $2.8 billion in 2008. The telecom boom increased mobile phone penetration from near zero in 1999 to over 50% now, along with the expansion of Inter net access to double digits. The CNG sector attracted over $70 billion in investment in the past five years and created 45,000 jobs. The literacy rate improved by 11 per ce nt and the Poverty rate decreased by 10 per cent.
A revolution took place in the field of media. Many new TV channels were introduced, giving freedom to media and creating thousands of new jobs. Urbanization is an integral part of the process. With the robust economic growth averaging 7% and availability of millio ns of new jobs created there was an increased rural to urban migration in Pakistan to fill the jobs in growing manufacturing and service sectors. Pakistan's economy witnessed a major economic transformation in in the last decade. The country's real GDP increased from $60 billion to $170 billion, with per capita income rising from under $500 to over $1000 during 2000-07.
Criticism In the 51 weeks of 2009, Pakistan had
suffered at least 44 attacks. The death toll t oll from this steady stream of violence stood at more than 800. The absence of cell phone manufacturing plants in the country meant that all the phones had to be imported, adding to the country¶s import bill and widening the growing trade gap. Billions of rupees in revenue ear ned by the foreign-owned cell phone companies and banks were being remitted abroad because the gover nment had imposed no limit on such transfers.
The increasing revenues ear ned by the cell phone companies and other foreign investments were automatically i ncluded in the annual GDP. The gover nment claimed that its eco nomic policies had boosted the GDP growth rate to over 6% in contrast to the avera ge growth rate of below 4% The share of a griculture in GDP has declined to about 27%
The gover nment had artificially propped up the value of the dollar a gainst the rupee by directing the SBP to regularly buy dollars from the open market. The SBP bou ght several billion dollars from the ope n market over a four-year period. The gover nment claimed it had propped up the rupee ¶s value to help exporters resulti ng a higher rupee-dollar exchange rate meaning that exporters would have ear ned fewer dollars for their exports, putti ng pressure on the country¶s balance of payments.
State Bank¶s operations in the currency market made imports more expe nsive in rupee terms, fuelling inflation and driving up the prices of ma ny goods, including capital goods. Higher-priced capital goods, in tur n, increased the cost of expa nding manufacturing plants or setting up new factories, resulting in a slowing down industrialization process. Even after significant reduction in poverty, the number of poor people ear ning less than $1.25 a day remains high.
Rising ineq equa ualiliti ties es ± income and non-income ± have led to a weaker link between economic growth and poverty reduction in the country widening of the rich-poor gap, worsening law and order situation. Recurring and daily power outages are severely impacting all business, economic and social activities in Pakistan. Adding further to the public pain are the multiple crises of sugar and wheat shortage, food price rises, and water scarcity, and deteriorating security situation making life extremely difficult for ordinary people.