The decline in Large-Scale Manufacturing (LSM) in Pakistan is a result of a confluence of multiple factors -- not just dwindling demand or cheaper imports but many factors which have reduced demand.
The decline in Large-Scale Manufacturing (LSM) in Pakistan is a result of a confluence of multiple factors -- not just dwindling demand or cheaper imports but many factors which have reduced demand.
Inflation tops the list of these factors as it has reduced purchasing power significantly. It is because of inflation that middle- and lower-income consumers are cutting back on discretionary spending (such as: home appliances, cars, textiles). High energy and fuel prices have also led to lower consumption of electricity-intensive or fuel-based goods.
The high cost of doing business compared with our competitors is another reason. The interest rates have remained in the high double digits (22 per cent a few months back and still 12 per cent), making borrowing for expansion or working capital extremely expensive. Energy prices for electricity are high and unreliable, hitting energy-intensive sectors like cement, steel, and textiles. Input costs (like raw materials, packaging, and chemicals) have surged due to the weak rupee and higher import duties.
SBP-imposed restrictions on the import of raw materials (especially in 2022–2023) due to foreign exchange shortages led to plant shutdowns or reduced capacity in sectors like auto, pharmaceuticals, and electronics. Frequent policy changes, shifting taxation, and poor enforcement also discourage investment in manufacturing.
The Pakistani economy definitely shows recession-like symptoms because of high unemployment, shrinking real incomes and falling retail sales. Export-oriented sectors (like textiles) have seen foreign demand shrink due to global slowdowns and have also lost orders to competitors like Bangladesh and Vietnam. Domestic sales for cars, cement, electronics and home goods have plummeted -- a clear sign of a deeper economic malaise.
While Pakistan has high tariffs on many items, undocumented or under-invoiced imports, especially from China or Iran, continue to flood the market. In some cases, smuggling or misdeclaration makes imported goods cheaper than local production, hitting domestic manufacturers unfairly.
The textile sector has experienced a decline, contributing to the overall contraction in LSM. Factors such as high energy costs, reduced foreign demand, and competition from regional players like Bangladesh and Vietnam have impacted performance
Another factor slowing down LSM growth is the reluctance of the manufacturers to upgrade their technology. Many LSM units are still operating with outdated machinery, leading to inefficiencies. Most of the local firms struggle to compete with global players due to no or limited innovation and very low investment in research and development. No incentives for modernisation, digitisation or climate-resilient production methods mean retarding the growth.
Poor logistics and infrastructure add heavily to the cost of doing business. High logistics costs due to poor roads, expensive diesel, and delays at ports increase the final cost of Pakistani goods. This makes local production less competitive both domestically and internationally.
A review of the recent performance of some leading LSM sectors shows that the automobile sector has shown signs of recovery, with a 62 per cent rise in tax contributions, indicating increased activity and profitability. Despite this uptick, the sector continues to face challenges such as high production costs and fluctuating demand.
The textile sector has experienced a decline, contributing to the overall contraction in LSM. Factors such as high energy costs, reduced foreign demand, and competition from regional players like Bangladesh and Vietnam have impacted performance.
The cement sector has seen a decline in production, reflecting the broader downturn in construction and infrastructure development. High energy prices and reduced public sector development spending have contributed to decreased demand.
We can say that dwindling demand is part of the problem, but it’s a symptom as much as it is a cause. The deeper issues lie in our structural inefficiencies, macroeconomic instability and a general economic slowdown. Until these are addressed, LSM will continue to struggle, and Pakistan’s goal of industrial-led growth will remain elusive.
The writer is a freelance contributor.
