Published: 12:04 PM, 09 August 2025
Pakistan’s Shrinking Industrial Base: A Crisis of Competitiveness and Vision
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Pakistan’s industrial sector, once a pillar of national economic ambition, is now in a state of prolonged decline. From contributing 26% to the GDP in 1996, its share has dwindled to a mere 18% in 2025, a stark reflection of decades of de-industrialization and policy inertia. Haroon Akhtar Khan’s observation of this erosion is not just statistical, it is symptomatic of a broader economic malaise that threatens Pakistan’s long-term growth and global standing.
Pakistan’s industrial policies have historically been reactive, fragmented, and rarely goal-oriented. The absence of sustained manufacturing output growth, coupled with stagnant or negative productivity, underscores a failure to nurture industrial competitiveness. The country’s ranking in UNIDO’s Competitive Industrial Performance (CIP) Index has dropped from 75th in 2006 to 81st in 2023, placing it at the bottom among regional peers. India ranks 37th, and Vietnam 30th, both demonstrating far greater industrial dynamism.
The garment industry, once a cornerstone of Pakistan’s export economy, has seen a staggering 30% of its factories shut down, resulting in nearly 700,000 job losses. This downturn is mirrored across other sectors. In pharmaceuticals, dozens of companies have ceased operations due to soaring production costs, currency depreciation, and import restrictions, leading to acute medicine shortages nationwide. The construction industry, which contributes 13% to industrial output and is the second-largest employer, is reeling from skyrocketing material costs and punitive taxation. Steel prices have doubled, cement costs have surged, and housing affordability has plummeted, pushing investors toward foreign markets and stalling domestic development.
The automotive sector presents a mixed picture: while electric and hybrid segments show promise, traditional diesel engine production is in decline, exacerbated by oversupply and flawed demand forecasting. The textile sector, Pakistan’s largest export industry is facing existential threats. High energy costs have forced 187 textile mills to shut down, particularly in Punjab, where entire districts like Faisalabad and Multan have seen dozens of closures. Compounding this crisis is the collapse in cotton production, which has dropped by 30% nationally and by 47% in Sindh alone, due to erratic weather, pest infestations, and poor seed quality. This has disrupted the entire textile value chain, from ginning to spinning, and forced mills to rely on expensive imports.
In key metrics, Pakistan lags significantly:
● Industrial export quality: 45%, compared to India’s 67%.
● Manufactured goods in total exports: 76%, trailing Vietnam (89%) and India (88%).
● Manufacturing value-added as a share of GDP: just 12%.
● Medium- and high-tech exports: a mere 11%, dwarfed by Vietnam’s 59% and India’s 38%.
These figures reveal a troubling dependence on low-tech, low-value production and a failure to transition toward innovation-driven industrial growth. Pakistan's industrial productivity continues to be severely hampered by chronic infrastructure challenges that undermine competitiveness and discourage investment. Among the most pressing issues are power outages, unreliable grid connections, and long wait times for electricity access. These disruptions are not occasional inconveniences, rather they are systemic failures. For instance, a nationwide blackout in January 2023 left nearly 220 million people without power and caused an estimated $70 million in losses to the textile industry alone. The country’s outdated and inefficient power plants, coupled with inadequate transmission infrastructure, result in frequent load-shedding that disrupts manufacturing schedules, damages equipment, and inflates operational costs.
The telecom sector fares no better. Pakistan’s internet infrastructure is fragile and frequently disrupted by submarine cable failures and government-imposed firewalls. In 2024, internet blackouts during politically sensitive periods, including a 13-hour shutdown on election day, paralyzed digital operations across the country. These disruptions have had a crippling effect on IT-enabled services, freelancers, and SMEs, many of which rely on stable connectivity for global contracts and digital commerce. The lack of fixed-line infrastructure and unreliable mobile broadband further stifles digital transformation in manufacturing, where automation and data-driven processes are increasingly essential.
Transport inefficiencies compound these problems. Pakistan’s logistics sector is dominated by road freight, with 94% of goods moved by a fragmented network of outdated trucks. The country has only 300,649 registered trucks, vastly fewer than India’s 12.5 million, highlighting a critical infrastructure gap. Congested ports, especially in Karachi and Qasim, handle 95% of the country’s trade but suffer from limited capacity and outdated handling systems. Warehousing and cold-chain logistics are weak, leading to over 40% losses in perishables due to inadequate storage.
These inefficiencies inflate trade costs and delay exports, making Pakistani goods less competitive in global markets. Together, these infrastructure deficits - power, telecom, and transport, form a web of constraints that choke industrial growth. They not only deter foreign investment but also prevent domestic enterprises from scaling, innovating, and integrating into global value chains. Without urgent reform and strategic investment, Pakistan’s manufacturing and industrial capacity will continue to shrink, leaving the economy increasingly dependent on low-value exports and vulnerable to external shocks.
Private investment in large-scale manufacturing has slowed dramatically, constrained by political uncertainty and a burdensome regulatory environment. Excessive discretionary powers among enforcement agencies foster harassment and corruption, eroding business confidence. High costs and poorly functioning infrastructure discourage even the most efficient enterprises from scaling operations. Pakistan’s innovation ecosystem is alarmingly underdeveloped. Per capita R&D spending ranks among the lowest globally, and enterprise-financed research is virtually nonexistent. The country trails its regional peers in every major indicator of scientific and technological advancement, from the number of researchers and technicians to the output of scientific journals and royalty revenues. This innovation deficit stifles industrial modernization and limits the country’s ability to compete in high-value global markets.
Rampant smuggling has further undermined domestic industries, particularly in consumer durables. High import duties on raw materials and intermediate goods make local production uncompetitive against illicit imports. While recent tariff rationalization has offered some relief, a comprehensive and long-term policy framework is urgently needed to protect and revitalize domestic manufacturing. This industrial stagnation is compounded by its overwhelming reliance on fossil fuels, 84% of its energy mix, leading to rising CO₂ emissions and environmental degradation. Without a strategic decoupling of industrial growth from carbon intensity, the country risks deepening its ecological and economic vulnerabilities.
The erosion of manufacturing as a share of GDP, the decline in export quality, and the collapse of innovation capacity all point to a systemic crisis. This downturn is exacerbated by the U.S.’s own economic challenges, which have led to reduced consumer demand and tighter import policies. In a price-sensitive market, even a 10–15% increase in end prices due to tariffs can shift orders to competitors like Bangladesh and Vietnam, who enjoy more favorable trade terms and better infrastructure.
Foreign direct investment has also plummeted, with a 91% year-on-year drop in March 2025, driven by regulatory unpredictability, security concerns, and excessive taxation. Currency depreciation has further strained industrial inputs, with the rupee falling over 70% in just two years, making imports of essential machinery and raw materials prohibitively expensive. Collectively, these mounting pressures reveal a fractured and faltering industrial foundation, beset by systemic inefficiencies and teetering on the edge of irrelevance. Pakistan’s industrial decline is no longer a slow erosion; it is a full-blown crisis of competitiveness, capacity, and strategic direction.
Written by: Md. Monir Hossain, Journalist (Views are personal)
