or developing countries, industrialisation is not just a road to prosperity, it is a necessity. It is among the most important pillars of economic development. Industrialisation drives exports, creates employment, increases government revenues and reduces trade deficits.

Countries like China, Vietnam, Bangladesh and South Korea have used improvements in manufacturing as a steppingstone to sustainable growth and global competitiveness. In Pakistan, the need for industrialisation is more critical than ever before. With a population of over 240 million and more than 2 million young people entering the workforce each year, the country requires large-scale employment generation. Agriculture and informal services cannot provide that.

As of 2024, the industry contributes around 20.7 percent to Pakistan’s GDP. The share has remained stagnant for over two decades. In contrast, Bangladesh’s industrial sector contributes over 34.6 percent to its GDP, driven largely by export-oriented manufacturing. Vietnam’s share of industry is 37.12 percent. Despite having set up Special Economic Zones and industrial estates, Pakistan has failed to attract sufficient investment.

According to the World Bank, in 1980, Pakistan’s per capita income was $287.4 and China’s $194.8. By 2023, China’s per capita income had grown to $12,614 and Pakistan’s $1,365. Clearly, Pakistan can learn from the Chinese experience to transform its economy.

Pakistan’s economy is trapped in a cycle of low exports and high imports. The country’s trade deficit exceeded $24 billion in 2024. Industrial underdevelopment is a major factor in this. Local manufacturing of solar panels, electric appliances, auto parts and agri-machinery can significantly reduce the import bill and support small businesses. This will also stimulate allied sectors like logistics, finance, education and construction, producing a broad multiplier effect.

Pakistan’s strategic location at the crossroads of South Asia, Central Asia and the Middle East allows it to become a regional manufacturing and logistics hub. However, this requires strengthening its industrial foundations. Poor infrastructure, inconsistent policies, expensive energy and bureaucratic hurdles have prevented the achievement of its potential.

The success of Special Economic Zones, introduced under the CPEC, has been limited due to inadequate utilities, weak investor outreach and speculation instead of genuine industrial activity. Take the Hattar SEZ. After 106 plots were allotted, 12 industries have become operational and six are nearing completion. Several op-tier industrial groups hold land in the SEZ but have yet to establish their factories.

The Rashakai SEZ has seen a similar trajectory. Although it was initially marketed as a destination for Chinese investors under the CPEC, only three of the 24 plots allotted so for in Phase 1 belong to Chinese businesses. Only 12 factories are under construction. These examples reveal a key challenge: when critical fundamentals are missing, even attractive policy frameworks struggle to attract serious investment. A major misconception that needs to be addressed is the overreliance on tax incentives.

While exemptions and duty waivers may sound appealing, research has shown that these significantly influence investor behaviour only after a country crosses a per capita income threshold of $5,100. In Pakistan, the focus needs to shift to basics: reliable infrastructure, affordable energy and market access. Coca-Cola’s recent decision to build a $50 million plant outside the Hattar SEZ, due to electricity supply delays, is an example of how certainty trumps tax relief.

Long-term industrial investment thrives on stability. Pakistan must create an environment where investors feel secure that their capital and effort won’t be swept away by political or economic tsunamis.

Regulatory uncertainty can deter many potential investors. According to the World Bank’s Ease of Doing Business 2022 report, businesses in Pakistan are subject to 34 taxes, significantly higher than the average of 26.8 in other South Asian countries. Frequent changes in tax policy, SEZ regulations and compliance procedures make long-term planning difficult. Many industrialists report that navigating the rigid requirements of the SEZ Act is complicated. Investors not seeking tax incentives should be allowed simpler procedures to operate within the zone under the developer’s rules and regulations, which are less complex.

Another serious flaw in Pakistan’s SEZ strategy is that the plots are allocated before essential infrastructure - electricity, gas, water and roads – is in place. This not only frustrates investors but also encourages property speculation, where plots are bought cheaply and sold for profit. The SEZ Act clearly mentions that the plots should be allocated on turnkey basis. This clause must be enforced by the authorities so that serious investors are ready to build and operate rather than speculate.

Marketing and outreach are another weakness. Pakistan’s investor engagement, especially at the SEZ level, remains weak. The Board of Investment and the SEZ developers have struggled to attract large-scale multinationals. In today’s competitive global economy, foreign firms - already wary of Pakistan’s economic challenges - need clear, proactive engagement.

Targeted roadshows, legislation-backed investor facilitation and confidence-building are essential to attract investors. Even CPEC SEZs, a flagship project, haven’t fully delivered in this regard. Several Chinese firms are holding back due to Pakistan’s uncertain economic climate.

However, fixing SEZs alone won’t be enough. Structural issues across the business environment also need attention. For instance, judicial delays create uncertainty for commercial contracts and disputes. These can take years to resolve. This discourages both local and foreign investors who need assurance that their legal rights will be protected in a timely and fair manner. High energy costs, poor logistics and excessive bureaucracy also stifle industrial development.

Unreliable electricity supply, inefficient road and rail networks and long delays in obtaining licences or clearing shipments make operations costly and frustrating. At the same time, smuggling and under-invoiced imports continue to flood the local market, leaving compliant domestic manufacturers at a disadvantage. These systemic issues create a playing field so uneven that even some of the most determined industrialists retreat.

Long-term industrial investment thrives on stability. Pakistan must create an environment where businesses feel secure that their capital and effort won’t be swept away by political and economic tsunamis. Pakistan also needs to tap into its domestic capital for industrial expansion. A carefully designed tax amnesty can encourage people to invest previously undeclared wealth. A tightly monitored tax amnesty tied specifically to industrial investment can help Pakistan formalise its economy and stimulate growth. However, it must avoid past mistakes. In the absence of robust checks, it risks becoming another round of legalised tax evasion and speculation.

It is also vital to incorporate sustainability into industrial planning. Pakistani industries must prepare for a future where green practices, climate adaptation and environmental standards will define competitiveness.

Pakistan can no longer afford to delay industrialisation. Jobs, exports and fiscal health all depend on a strong manufacturing base. SEZs can still be a powerful vehicle for industrial development, but only if the obstacles holding them back are addressed.

The current model, which overemphasises tax incentives while neglecting infrastructure, regulation and investor support, must change. It’s time to rethink industrial strategy not just for the sake of factories and exports, but also for the economic future of millions of Pakistanis. Industrialisation is indispensable for Pakistan’s economic future. The time to prioritise and realign industrial policy is now, before the country’s demographic and economic challenges become unmanageable.

The writer is the zone manager for Hattar Special Economic Zone.