Mehmood ul Hasan Qadir — Economist & Financial Analyst | Dubai, UAE

The Pakistan Ledger | Opinion

The dominant economic narrative of our era is reshoring, near-shoring, and industrial reinvestment. The United States has passed the CHIPS Act and the Inflation Reduction Act, committing hundreds of billions of dollars to rebuild domestic manufacturing. Germany is re-industrialising around green technology. India’s Production-Linked Incentive scheme is pulling semiconductor, pharmaceutical, and electronics manufacturing with genuine policy muscle. Even Vietnam — a country with half Pakistan’s population and far fewer natural resources — has become one of the world’s fastest-growing manufacturing export hubs. And Pakistan? Pakistan is de-industrialising. Quietly, systematically, and almost without national debate.

The Numbers Pakistan Should Be Ashamed Of

Manufacturing’s share of Pakistan’s GDP has declined from approximately 17–18% in the early 2000s to around 12–13% by the mid-2020s. The PBS Large-Scale Manufacturing Index — which tracks output across major industrial sectors — has shown a pattern of volatility that reflects crisis management rather than growth trajectory. Between FY2019 and FY2024, LSM recorded two major contractions (FY2019–20 and FY2022–23), with growth years largely driven by low base effects rather than genuine capacity expansion.

More alarming than the GDP share decline is the composition of manufacturing output. Pakistan remains heavily concentrated in low-value, low-technology sectors — cotton yarn, grey cloth, sugar, cement. High-value manufacturing — electronics, precision engineering, automotive components, pharmaceutical active ingredients — remains negligible. This is not where Pakistan was in 1970 relative to South Korea. South Korea was poorer. The divergence since then is a policy story, not a resource story.

The Energy Cost Kill Shot

Ask any Pakistani industrialist why they are not expanding capacity, and the answer is immediate and unanimous: energy cost. Industrial electricity tariffs in Pakistan reached Rs. 40–50 per kilowatt-hour in FY2023–24, inclusive of fuel adjustment charges, capacity charges, and sundry surcharges. In Bangladesh, comparable industrial tariffs were 8–10 Bangladesh taka per kWh (approximately Rs. 28–32 equivalent). In Vietnam, industrial electricity is provided at approximately 7–8 US cents per kWh (approximately Rs. 20–22 equivalent at current exchange rates).

A Pakistani textile mill competing with a Vietnamese or Bangladeshi counterpart faces an energy cost disadvantage of 40–60% on electricity alone, before considering gas prices, water costs, and logistics. This is not a marginal competitive disadvantage. It is a structural elimination of Pakistani manufacturing from global supply chains in energy-intensive industries. And the energy cost crisis is not a market outcome — it is the direct consequence of the circular debt disaster, the IPP capacity payment structure, and the transmission and distribution loss burden that NEPRA’s State of Industry reports have documented exhaustively without producing policy action.

FDI Into Manufacturing — The Missing Investment

Foreign Direct Investment into Pakistan’s manufacturing sector is not just low. It is structurally absent from the high-value categories that drive industrial transformation. Pakistan’s total FDI inflows — across all sectors — averaged $1.5–2.5 billion annually between 2018 and 2024. Vietnam attracted $18–22 billion annually in the same period, the overwhelming majority into manufacturing. Bangladesh attracted $3–4 billion, concentrated in textile value-chain upgrading and light manufacturing.

The reasons are interconnected: energy unreliability, regulatory complexity, intellectual property protection weaknesses, political instability premium, and the absence of functioning Special Economic Zones with genuine one-window service provision. CPEC was supposed to address this. The industrial cooperation component of CPEC — the SEZ investment pillar — remains largely aspirational, with operational factory counts in dedicated SEZs far below planned capacity.

The Reform Prescription

Pakistan needs an industrial policy — not a document, but a policy: a genuine, funded, institutionally backed commitment to manufacturing sector development with specific sectoral targets, measurable incentive mechanisms, and accountable implementation. The Ministry of Industries requires the same policy seriousness that the Ministry of Finance receives during IMF negotiations — because without a manufacturing base, the tax revenue that funds the state will continue to lag, the current account will remain structurally vulnerable, and employment for Pakistan’s growing working-age population will be generated elsewhere.

The world is re-industrialising. Supply chain resilience has become a national security imperative for major economies. This creates a window for countries that can offer reliable manufacturing environments. Pakistan has the labour force, the geographic location, and the raw material base to compete. What it lacks is the governance quality and the energy infrastructure to convert those assets into industrial output. Addressing those two constraints is not optional. For an economy with a 2% annual population growth rate and a youth unemployment crisis, it is existential.

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Mehmood ul Hasan Qadir is an Economist and Financial Analyst based in Dubai, UAE. He writes on Pakistan’s economic structure, policy failures, and reform pathways for The Pakistan Ledger.