How Businesses and Industrial Sector Got Affected Due to the Current Economic Condition of Pakistan

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INTRODUCTION

Pakistan’s industrial sector generates only between 20 and 24 percent of the country’s gross domestic product. As opposed to 2017’s growth rate of 5.43%, 2018 saw a growth of 5.80%. Pakistan’s manufacturing production places it at number 55 worldwide. Based on authoritative sources, the World Bank’s compilation of development indicators shows that in 2022, industrial employment in Pakistan amounted to 23.67 percent of total work.

High unemployment

is an alarming indication of a nation’s social and economic well-being. It leads to an economic slowdown, increased crime, and societal discontent. Therefore, this is essential to thoroughly address the problem and identify the root causes of unemployment. Major causes of the country’s high unemployment rate include a lack of available jobs and a reluctance to accept the market pay rate. We may have all seen that many individuals are unemployed despite having a college degree. Both emerging and wealthy nations face major macroeconomic issues due to widespread and persistent unemployment.

Most of Pakistan’s exports come from the country’s rapidly expanding agriculture and manufacturing sectors, and local businesses can compete with international exporters on price. These are the main components of the industrial sector.

 

• Surgical Goods
• Sports
• Textiles
• Automotive
• Pharmaceuticals
• Cutlery
• Cement
• Handicrafts
• Marbles & Gems
• Fruits & Dry Fruits
• Vegetables
• Seafood
• Livestock
• Financial Services
• It & Telecom
• Leather
• Tourism

RESULTS AND DISCUSSION

Pakistani officials need to make an effort to progress the country’s industries; hence those sectors need to be improved. Since its independence in 1947, Pakistan has been plagued by repeated financial problems.

The following are the primary challenges that Pakistan’s industry Sector has faced and some potential responses:

Power Outage

The energy crisis has effectively held the industry captive. There is an energy crisis in the nation. Gas load shedding has become the norm in the country’s biggest industrial hubs. By the end of the 2015 fiscal year, the government predicts a daily gas deficit of 10.34 billion cubic feet. One estimate has the country’s energy consumption increasing at a pace of 10-12 percent yearly until at least 2015, implying that if the current trend continues, the demand for energy might double by that year. There is significant unhappiness among corporate elites because of the severe energy crisis that has all but stifled industry. As a consequence, more factories may have to shut down, exacerbating unemployment in that war-torn nation. The nation is losing at least 2 percent of GDP growth yearly due to power outages.

In the lack of a strategy for reforming the electricity industry, debts to the whole energy chain, sometimes known as circular debt, have increased. The circular debt has already crossed the Rs400 billion barrier. The government was obliged to subsidize the electric industry because of the gap between the cost of producing energy and the rate paid to customers, leading to the cyclical debt crisis. The government needed help to close the gap between the price of electricity and what customers paid for their utilities. The government has to raise the electricity tariff to cover the higher cost of furnace oil, but the increase is still expected to be cheaper than the cost of power to consumers. The high cost of electricity, especially for businesses and factories, will contribute to rising prices and exacerbate poverty levels.

Declining Foreign Direct Investment

The main factor is causing anxiety among the international corporations that have previously invested in the country. Foreign investment is crucial to the country’s industrial efforts. Islamabad’s attempts to attract foreign investment and industry will be hampered by the escalating violence. As a result, international companies will be pressured to leave the country. The country’s economic capital has become a haven for extortionists, target murderers, and dacoits. As a result of the law-and-order issues in certain major cities, commercial and industrial operations have slowed, leading to a slowdown in economic growth.

Although the government shouldn’t intervene too much in the private sector’s ability to drive industrialization forward, it should work with it to devise policies. For private investments and long-term industrial growth, the government should work to create a more favorable operating environment. It should stimulate new investments, notably the foreign direct investments (FDI) (FDI). One would expect an improvement. macroeconomic management and industrial governance to boost competitiveness and productivity.

 

Natural Disasters (That Reduces Yield and Ruins Infrastructure).

 

The social and economic well-being of a community is greatly impacted by natural catastrophes. The impacts of natural disasters on economic growth were assessed using time series data from 1975 to 2010. This included increase in gross domestic product, industrial production, and agricultural output. In this work, the ADF test was used to assess the Stationarity of the series, and then the OLS technique was employed to quantify the effect of natural catastrophes. GDP growth was reduced by 1.483% due to natural disasters, agricultural production growth was reduced by 1.625%, and industrial production growth was reduced by 2.1%. As a result, industrial output drops, and infrastructure is damaged.

Deficit in technology

While most other countries’ factories have long since invested extensively in the latest equipment to increase output, many Pakistani factories are reluctant to do the same.

The countryside is home to several ancient devices, including ginning machines, textile power looms, printing presses, grain mills, and leather processing facilities. Consequently, its industrial sectors suffer from poorer output per unit and more excellent waste rates than the rest of the globe.

To make an informed decision on whether or not to scrap older equipment in favor of newer models, it is important to calculate the expected return on investment of the latter on time. Consequently, this calls for competent engineers and visionary leadership.

Costs of imported raw materials and finished goods

To improve productivity and exports, governments worldwide should lower import taxes on industrial raw materials and equipment, pushing the cost of inputs for industry, especially export-oriented companies.

When Pakistan’s weighted mean tariff dropped from nearly 20% in 2001 to roughly 9% in 2014, exports soared by almost 170 percent, from US$9.2 billion to over US$25 billion. However, since 2014, exports have declined due to the progressive rise in the applicable tariff that reversed the liberalization. The government should reduce import tariffs and regulatory charges on industrial raw materials and equipment to revive the economy quickly.

Political Instability

No administration in Pakistan’s history, including the current one, has ever lasted the full term elected for it. Pakistan’s government is in disarray. Domestic and international investors are losing interest in Pakistan because of the country’s poor law and order situation, terrorism, bomb explosions, racial and ethnic problems, conflicting economic and industrial policies, etc. Instead, domestic investors are redirecting their funds to Dubai and other international hotspots.

This slows economic development as political issues dominate the business world. Even if Pakistan’s political leaders put aside their agendas and priorities for the country’s economic growth, more is needed to guarantee the success of the country’s manufacturing sector.

Inconsistent policies

Industry and Production Ministry officials say they have this information but have yet to make it public. The second cause of industrial stagnation is that bureaucrats fail to provide policymakers with the necessary data.

Foreign investors will be drawn to a country with a transparent and corruption-free system, increasing the likelihood of a booming industrial sector flourishing without hiccups.

Business establishment

Lack of investment in business, technology, and data skills has left the nation behind the rest of the developed world. The three factors make up the Global Skills Index (GSI), a metric used to assess a country’s level of productivity. Disappointingly, Pakistan’s 2022 GSI rating places it at position #57 out of the 60 nations for which results were available. Rankings place China at number 36 and India at number 50. Spending in Pakistan’s education sector, including academic and occupational education, is pitifully low at 2.4% of the GDP. According to the State Bank of Pakistan’s recently issued annual report for FY19, the public sector’s gross investment is likewise at a humiliatingly low level of 4%.

Pakistan’s GSI rating has to be raised, and this may be done by investing in the country’s people and physical resources.

Insufficient Funds for The Launch and Upkeep of Production Facilities

A lack of funding hampers the creation of heavy industries in Pakistan. There is an inadequate supply of both monetary and material resources. Even by developing country standards, Pakistan’s savings rate of 13%-14% is pitifully low. The culture of Pakistan is heavily focused on material goods.

There need to be more adequate and fair lending amounts for investors. When extending loans, financial institutions are notoriously stringent and take their time. Prominent and well-off people get bank loans, but small company owners are discouraged in many ways (such as by being charged a higher interest rate).

There are a variety of options that might aid in generating funds. Venture investors tend to be wary about putting their money into unfamiliar projects. Investors would come forward to put money into diverse sectors if marketing and technical services were available to help them allocate it across rival manufacturing units.

Short infrastructure

The transportation industry contributes significantly to the growth of other sectors, accounts for 10% of Pakistan’s GDP, and employs 6% of the population. Because so many businesses rely on moving materials and finished products between production facilities, storage facilities, retail locations, and wholesalers, transportation is an essential part of most economic sectors. These means of travel may be intercity or international.

Geographical regions, either between or within continents. As a result, Pakistan has to prioritize infrastructure development if it wants to maintain a stable proportion of the market.

Covid-19 Effect on Businesses

The effects of the coronavirus on Pakistan’s economy mirror those of the infection on humans. This makes the original issues more pressing. Pakistan’s total foreign debt as of March 2022 was $105 billion, with the added weight of bonds, as our currency depreciated dramatically against the dollar and emerging countries took severe hits. Over $13 billion in additional debt was incurred in 2022, representing over 40% of the entire debt incurred over the previous decade.

The initial economic losses suffered by Pakistan as a result of these crises are estimated to be in the neighborhood of Rs1.3 trillion. This is due to a drop in the GDP growth caused by a decrease in the services sector, which includes the airline business, hotel business, retail businesses, hoardings, FBR’s revenue loss, a massive decline in imports, exports, reduction in remittances, disruption in food, mask, and sanitizer supplies, and so on. Cancellation of export orders may cost the industry between $2 and $4 billion. One of the few things that are still functioning and have the potential to help many different businesses through this downturn is electronic commerce.

Moreover, we might claim that the repercussions of our industrial sector’s flaws are becoming more severe. No matter what the cause may be—an energy crisis, a shortage of funds, a drop in outside investment, difficulties in management, a need for essential resources, or lousy policymaking—the situation is dire. The problems during labor are very severe. Since lockdown means workers are told to stay home, and most industries can’t function without workers, we’re in a bind. Pressure on our manufacturing output has resulted from this. Then, the absence of technical progress blocks the only possible path out of this crisis. Our businesses aren’t set up to support “working from home,” even if it’s becoming more popular in other nations.

Industries Relating to Fabrics

Cotton expert Naseem Usman said that the textile industry is in a grave crisis due to the lack of availability of fundamental necessities. They were worried about the shutdown of mills because of the global economic crisis. The whole domestic textile supply chain has been disrupted, closing stores and threatening the livelihoods of thousands of industrial employees.

With good reason, Prime Minister Imran Khan has delegated specific management responsibilities to the construction and textile sectors. The same logic should be applied to the textile industry, where only a limited number of stores may be opened simultaneously. Workers in the textile industry need more accessible access to factories. Thus restrictions on their travel should be loosened. Likewise, the textile industry must develop and adapt to meet the challenges of the modern world. Android app and web storefront integrations should be implemented for online purchasing. Companies must realize that success will come to those who can keep up with the changing times. It is now more necessary than ever to employ digital technologies in our companies to keep them afloat, as digitalization has become a need of the hour.

Tourism Sector

There was a lot of room for growth in the tourist business, but that has been wholly stifled because of the suspension of air travel during Covid, and Pakistan Airlines Standards declined over the years, forcing passengers to travel on different airlines.

The Business of Sports

15% percent of businesses in the sports industry fall into the “Large” category; these companies provide products for internationally recognized brands like Adidas, Nike, Puma, and Reebok. Approximately 59% of the companies in this sector export some or all of their goods. Due to the widespread postponement of national and international sporting events, the coronavirus outbreak has effectively shut down this economic sector.

The official LSM goal for 2022–20 was 3.1 percent. Due to the underperformance of critical sectors over the first eight months of the current fiscal year, the government is unlikely to meet the LSM growth objective. As reported by PBS, the production figures for 11 Oil Companies Advisory Committee items showed a decrease of 0.81 percent from July to February of 2022-20. The LSM statistics from the Ministry of Industries and Production for 36 products revealed negative growth of 1.81 percent during the period under consideration.

Review. On the other hand, the provincial Bureau of Statistics reported a decline in growth of 0.42 percent for 65 individual products during the same time frame.

Conclusions 

Like the lack of treatment for or preventative measures against Covid-19, the effects of this virus on the manufacturing sector are also impossible to forestall. Even so, taking steps to lessen it may pay off. We should be able to provide e-learning by now, which will allow us to hire more people who can do remote work—the decrease in the. On field staff, we still need to arm our factories with all the precautions the WHO recommends. This should serve as a stark reminder of how technologically behind our business is. For the time being, the government must prioritize enhancing the reliability of the nation’s existing electrical grid.

Expanding the tough economy’s collecting zone should be a priority for the superior game strategy. To be effective, an industrialization policy must lay out a vision for the advanced economy over the medium to long term, with specific goals and targets for each time.

Suggestions

Like the lack of treatment for or preventative measures against Covid-19, the effects of this virus on the manufacturing sector are also impossible to forestall. Even so, taking steps to lessen it may pay off. We should be able to provide e-learning by now, which will allow us to hire more people who can do remote work—the decrease in the. On field staff, we still need to arm our factories with all the precautions the WHO recommends. This should serve as a stark reminder of how technologically behind our business is. For the time being, the government must prioritize enhancing the reliability of the nation’s existing electrical grid.

Expanding the tough economy’s collecting zone should be a priority for the superior game strategy. To be effective, an industrialization policy must lay out a vision for the advanced economy over the medium to long term, with specific goals and targets for each time.

• The government should avoid stifling innovation while also understanding how to apply methods to the private sector, which should be seen as the engine of growth.
• The government should make it easier for non-governmental theories and mechanically conservative unexpected development. It’s expected to spark fresh ideas, especially in foreign direct investment (FDI).
• The opportunity cost of unemployment is the reduction in GDP that results when people who are capable of working but choose not to do so cause the economy to suffer a loss of production.
• A drop in government funds results from wasted tax money because the unemployed no longer have a source of income. The government’s revenue has declined, limiting its ability to provide essential public services.

 

• Less money coming in means more going out in the form of unemployment benefits for the jobless.
• Declining profits: Businesses that hire additional people often see an uptick in sales and income. They may have less money to invest if they see a decrease in earnings due to the high unemployment rate.

 

• The consequences of unemployment vary from person to person. Those without jobs have options, including looking for new employment or just relaxing and enjoying their spare time. However, most people would see a decrease in their discretionary income since unemployment benefits don’t compensate as well as regular work.

References

https://www.google.com/search? source=hp&ei=EwCcXo6wB6SHjLsPqoyEsA0&q=industrial+solutions&oq= industrisl+sol&gs_lcp=CgZwc3ktYWIQ

http://www.rcci.org.pk/wp-content/uploads/2012/12/igtip.pdf

https://blog.pakistaneconomist.com/2018/02/08/industrial- development-Pakistan-issues-challenges/

http://jworldtimes.com/magazine- archives/jwt2016/october2016/industrial-sector-of-Pakistan-situation- issues-and-solutions/

https://www.ukessays.com/essays/economics/the-determinants-of-unemployment-in-pakistaneconomics-essay.php?vref=1