LAHORE: The manufacturing sector has been in trouble since 2018, and subsequent events have continued to weigh it down. The recent turmoil in global trade has further compounded its woes, while the Pakistani government -- like many others -- has limited options for relief.
In the textile industry, the spinning segment has been devastated and is currently operating well below capacity. The apparel sector, however, has seen its exports grow reasonably over the past seven years. The tractor industry has experienced ups and downs, never regaining the peak achieved before 2018. The same is true for cars: a market once dominated by small vehicles is now led by medium and luxury models, though overall volumes remain far below previous highs and fluctuate year to year. The electronics sector -- particularly split air conditioners, mobile phones and televisions -- has performed better than other manufacturing segments.
While each manufacturing sector faces its own specific challenges, there are cross-cutting issues that have affected the entire industry. Persistent currency depreciation since 2018 has increased the cost of imported inputs, hurting pricing. Unreliable and costly electricity and gas supplies have impacted nearly every energy-intensive manufacturing segment. Investment and working capital finance have become prohibitively expensive, stifling expansion. Frequent changes in import/export regulations, tariffs, and tax regimes have made long-term planning difficult. The general economic slowdown, shrinking real incomes, and declining purchasing power have all reduced domestic demand.
A sector-wise analysis with plausible reasons for their current conditions is provided below.
In the textile sector, yarn production has been severely affected, operating well below capacity with around one-third of facilities shut due to obsolete technology. Inconsistent and expensive electricity and gas supplies have made spinning less competitive than in Bangladesh or India. Local cotton output has declined, and importing cotton became costlier after the rupee’s devaluation. Global fashion brands have increasingly shifted towards sourcing value-added goods rather than raw yarn. Additionally, preferential energy rates and rebates have favoured downstream apparel units over upstream spinning mills.
Garment exports have grown steadily. The global shift in demand towards finished goods has benefited Pakistani exporters with integrated value chains. Preferential EU access through GSP+ status has further boosted garment exports. Despite inflation, labour costs remain competitive compared to many regional peers. Modernisation and export-driven incentives have also encouraged apparel makers to expand.
In the automobile sector, tractor production has remained volatile and has never recovered to its pre-2018 peak. Contributing factors include sluggish farm incomes due to erratic weather, water shortages, and low crop support prices, which have reduced farmers’ ability to purchase tractors. Steep interest rates post-2018 made leasing or purchasing on credit more expensive. The rising cost of imported components further increased end prices, discouraging buyers. The absence of consistent support programmes -- such as tractor subsidy schemes -- caused demand to fluctuate. A large used-tractor market continues to meet demand at lower prices, eroding new sales.
In the car sector, there have been cyclical ups and downs, but overall volume remains low, with a shift towards medium and luxury vehicles. A key reason is that currency depreciation and inflation have pushed small car prices out of reach for middle-class buyers. The duty structure has favoured higher-end vehicles (often CKD/SUVs), while smaller cars have received less policy support. Import restrictions have led to erratic production due to dependence on imported kits and components. Car financing has become more difficult as interest rates rose and banks tightened auto loan conditions. With a shrinking middle class and increasing elite spending, manufacturers have focused on high-margin luxury cars.
The electronics sector (TVs, split ACs) has performed relatively better than other manufacturing segments because the government incentivised local assembly (for example, under the Mobile Device Manufacturing Policy), encouraging similar models for TVs and ACs. Middle-income urban consumers have continued to upgrade their living standards despite broader economic pressures. The entry of global and Chinese brands into local assembly has brought competitively priced options to the market. Better enforcement has temporarily reduced the influx of undocumented goods, benefiting local manufacturers.
