Transcript Industrialisation in Pakistan

Industrialisation in Pakistan
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INTRODUCTION
First during the era of Ayub Khan focus was made on
converting mercantile economy into industrial economy
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Second was the Bhutto’s era in which focus was made on the
big push approach by the establishment of heavy industry like
steel, chemicals, fertilizers and cement.
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Third is characterised by the involvement of the private sector
investing in sophisticated intermediate goods and capital goods
industries under the neoliberal development models focusing
on market economy – liberalisation, deregulation and
privatisation.
Industrialisation in Pakistan
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Industrialisation as pillar of Pakistan’s development strategy
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Constructing the industrial base.
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At the time of partition, Pakistan was industrially barren.
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It had rudimentary textile mills, an oil refinery and some
capacity in sugar refining, tea processing and cement.
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The main industry was concentrated in India with whom
Pakistan exchanged agricultural goods for manufactured
products.
Industrialisation in Pakistan
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Pakistan did not have significant industry, nor indigenous
commercial class
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To address the issue, Quaid Mohammad Ali Jinnah invited
leading Muslim Industrialist of India, including Habibs and
Isphahanis to come to Pakistan and build industry.
Major Business Houses
Industrial House
Community
Family Origin/Area
Settled
Adamjee
Memon
Kathiawar/Jetpur
Karachi
Business
Headquarter location
Calcutta
Dawood
Memon
Kathiawar/Bentwa
Karachi
Bombay
Saigol
Punjabi Sheikh
W.Pujab/Chakwal
Lahore
Calcutta
Valika
Dawood/Bohara
Bombay
Karachi
Bombay
Colony
Punjabi Sheikh/Chinioti
W. Punjab/Chiniot
Lahore
Lahore
Fancy
Khoja Ismaili
Kathiawar
Karachi
East Africa
Bawany
Memon
Kathiawar/Jetpur
Karachi
Rangoon
Crescent
Punjabi Sheikh/Chinioti
W. Punjab/Chiniot
Lyallpur
Delhi
Beco
Punjabi
E.Punjab
Lahore
Batala
Wazir Ali
Syeds
W.Punjab/Lahore
Lahore
Lahore
Amins
Punjabi Sheikh
W.Punjab
Lahore
Calcutta
Nishat
Punjabi Chinioti
W.Punjat/Chiniot
Lyallpur
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Hoti
Pathan Landlord
Charsaddah
Charsaddah
Charsaddah
Feteh
Marwari
Gujrat
Karachi
Karachi
Isphani
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Iranian
Karachi
Calcutta
Karim
Bohras
Bombay
Karachi
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Industrialisation in Pakistan
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There were handful of industries such as Dalmia Cement
Factory in Karachi, Sir Sri Ram’s cotton mills in Lyallpur (now
Faisalabad and the Premier Sugar Mills in Mardan
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There was no foreign investment in the industry.
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Indigenous capital was primarily engaged in trade, shipping and
finance, with small mining interest. Engaged in efforts to
convert the indigenous merchant capital in to industrial capital.
The largest enterprise at the time was the Moghalpura Railway
Workshop in Lahore, which was in the public sector.
Industrialisation in Pakistan
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State as main driver of the industrialisation
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The drive for building industrial capital cam from Govt. as colonial
mercantile bourgeoisie was slow to respond.
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ISI was the main strategy to shift economy form Agriculture to Industry.
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Convening of Industries conference in Sep. 1947 to coax and cajole and
give fiscal incentive and various forms of assistance to Indigenous
merchant Bourgeoisie to invest on industry.
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In pursuance of that in 1949 Investment Enquiry Committee was formed.
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Reluctance to invest in industry on the part of the merchant capital was
described as ‘grave defect in national character’ by then Finance Minister.
Industrialisation in Pakistan
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However, in 1949 two important measures were taken to foster
industrial development.
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Pakistan Industrial Finance Corporation which later on became Industrial
Development Bank of Pakistan.
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And in 1957 with state sponsorship, World Bank support and private participation,
the Pakistan Industrial Credit and Investment Corporation was set up, as the
premier investment bank in the country
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The other development was that pound was devalued. But Pakistan decided to
maintain the dollar parity of the Pakistan rupee, which about substantial
appreciation in its exchange rate.
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Internal tug of war
Bureaucratic controls
End of Korean war
Establishment of Investment Bureau, which supported the merchant capitalists.
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Industrialisation in Pakistan
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And they filled the vacuum left by the departing Hindu merchants.
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Industrial development was the main priority of the govt. of the day
and there was overriding opinion that with industrial development
Pakistan can not survive.
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Industry grows faster than agriculture and was considered to be the
recipe for success.
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According to Dr. Ishrat Hussain, one of the important decisions not
to devalue its currency when both the pound sterling and India
rupee was devalued.
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Consideration behind that was the desire to obtain imported capital
goods needed to establish industries at cheaper prices.
Industrialisation in Pakistan
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Korean War boom, resulted in a dramatic increase in the
prices of jute and raw cotton, created commodity boom
whereby many traders rushed into the import/export business
to make quick profits.
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According to Dr. Ishrat Hussain, the combination of an
overvalued exchange rate , a high tariff structure, a vacuum
caused by the trade disruption with India and the fertile
commodity market created Pakistan’s first class of nascent
entrepreneurs.
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According to Dr. Ishrat, these merchant capitalists bought raw
materials from the agricultural sector at cheap prices and sold
them in the foreign markets at very high mark up.
Industrialisation in Pakistan
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The end of the Korean war left these merchants with reduced
profits opportunities in the import trade.
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The government which had adopted very liberal import policy
re-imposed the administrative controls after facing crisis in the
foreign exchange
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The imposition of control resulted in to the increase in the
prices of imported goods and set the terms of trade heavily in
favour of industry and against agriculture.
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The surplus made from the Korean War boom were reinvested and industry was established and manufacturing
replaced primary commodities.
Industrialisation in Pakistan
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Govt. Initiatives
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PIDC was established of which job was to initiate pioneering
ventures in many new areas of industry and to supplement
private enterprise
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The main area of PIDC was to intervene in the establishment
of heavy engineering (including iron and steel), shipbuilding and
jute paper.
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PIDC earlier also worked in the underdeveloped areas where
roads, infrastructure and power projects had to be build.
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In brief PIDC spearheaded the industrialisation drive.
Industrialisation in Pakistan
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It provided initial ‘Big Push’ and initial capital investment with out
which the private sector could not operate because of skill
limitations and capital constraints.
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In the second and third five years plans (1955-60 & 1960-65)
consistent industrial development programme was formulated and
industrial investment schedule was designed to provide guidelines fro
investors.
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Import licensing scheme was also introduced. It mainly focused on
large scale industrial establishments and neglected small scale sector,
which accounted for a significant amount of employment and income
in Pakistan.
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Pakistan adopted the policy of protectionism to protect the infant
industry which resulted in the increase in the growth rate which was
more than 9 percent.
Industrialisation in Pakistan
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Criticism
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This policy produced inequalities between different classes and
also created regional inequalities between East and West
Pakistan.
Industrialisation in Pakistan
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Main feature of Bhutto’s industrial policy
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Bhutto came on the basis of socialist agenda
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He carried out nationalisation programme
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He nationalised banking and insurance companies.
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Thirty one manufacturing enterprises coving ten sub-sectors, including
engineering, oil refining and the ghee industry.
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A Board of Industrial Management (BIM) was set up to supervise the entire
structure.
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By 1974, ten public sector corporations were established to run various
industries, including fertilizer, automobiles, steel and cement.
Industrialisation in Pakistan
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Justification for nationalisation
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According Ishrat Hussain, Bhutto wanted state to take over the
reign of the process of economic development.
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The nationalisation campaign was response to the perceived
failure of the ‘trickle down’ growth.
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The reforms were meant to reduce the concentration of
economic power among the leading industrialists, the famed
‘Twenty-Two Families
Industrialisation in Pakistan
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1970 was marked by :
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Indo-Pak war
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OPEC oil shocks of 1973
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Series of adverse weather conditions and disease related
attacks on crops
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Devaluation of currency in 1972 to remove distortions in the
exchange rate regime.
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Nationalisation proved bane for large scale industry but a boon
to small scale enterprise.
Industrialisation in Pakistan
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Liberalisation, Deregulation and Privatisation: Washington
Consensus.
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Zia’s military regime carried out the de-nationalisation policy
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In 1977 the cotton, rice and flour mills were denationalised
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In the Fifth five year plan, public sector investment was confined to
the completion of ongoing projects, and emphasis was placed on the
self-financing of industry.
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Expert Advisory Cell as add to the Ministry of Production to
monitor public sector performance.
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According to Dr. Ishrat, the divestiture and liberation was bit slow
and the public sector continued to grow.
Industrialisation in Pakistan
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Post Zia
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Same policy of Washington Consensus continued.
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BB regime established Board of Investment, with the task to
recommend the policy guidelines affecting the industry.
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Moreover, the list of key industries was introduced, including
the engineering, fertilizer and electronic industries, and these
units were given tax holidays and exemptions from custom
duties.
Industrialisation in Pakistan
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Nawaz Sharif regime.
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Introduced range of reforms to stimulate investment in
manufacturing, including the removal of the complicated licensing
regime, the liberalisation of exchange controls, the facilitation of easy
access to credit and granting of further tax incentives to
industrialists (Noman 1994)
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By 1991, privatisation of public sector industries had begun , with
offer of sale of over 100 companies
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By 1996 under BB’s second regime, over 80 units were privatised.
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Between 1978 till today Pakistan polity has engaged itself in serious
of measures to denationalize industry and provide strong incentives
for the private sector to invest.
Industrialisation in Pakistan
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Musharraf Era.
International comparisons
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East Asian : Industrial policy was aimed at prompting productivity –
based growth through a combination of learning, technological
innovation and catching up to international best practices.
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Despite all the ingredients of industrial policy – subsidized credit,
preferential treatment in allocation of foreign exchange and import,
tax holiday, exemption, industrial sanctions, publically provided
infrastructure – were present in the case of Pakistan but the
outcome was totally different from the Far Eastern Countries.
Cost of capital intensive approach - unemployment.
Industrialisation in Pakistan
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According to Dr. Ishrat following factors have contributed
towards the slow growth of industry in Pakistan.
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Economic recession.
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Sanctioning of loan on political grounds
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Fiscal incentives have failed to divert industry to backwards
due to the absence of infrastructure in these areas. Investment
has been diverted from developed areas to industrial areas.
Industrialisation in Pakistan
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The allocation of Industrial licences and credit was guided by
consideration of patronage – crony capitalism
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Finally, economic and industrial structure of Pakistan has
remained decidedly oligopolistic; there is little room for new
business to enter the market.
Industrialisation in Pakistan
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Future challenges.
Issues in industrialisation.
Conclusion