National Industrial Policy: a modern vision

This presentation offers a modern vision for #Pakistan's Industrial Sector. The proposed objectives of a new industrial policy include: Industrial diversification i.e. nurturing new industries and economic activities; industrial expansion and upgrading i.e. improving value-addition in existing industries and integrate location-based facilitation, Industry 4.0 technologies, green practices, and data-driven decision-making; and industrial deepening creating deeper backward and forward linkages and complementarities within an industry.
Our approach to policy formulation includes, a) Horizontal interventions: supportive environment for all firms; include improving skills, credit, and infrastructure, regulatory environment, and ensuring stable trade and macroeconomic policies;
b) Vertical interventions: targeted interventions for specific activities. These aim to enhance economic contributions by focusing on sectors identified through frameworks like the GIFF Framework and Hausmann Capability Model;
c) Policy coherence: aligns with provincial government measures, SME Policy, Investment Policy, Strategic Trade Policy Framework (STPF), and other complementary policies.

1. FORMULATION OF
NATIONAL
INDUSTRIAL POLICY
Revenue MobilisationInvestment and Trade(ReMIT)
Sustainable Development Policy Institute (SDPI)
Ministry of Industries and Production

2. Outline
Ministry of Industries and Production 2
Industrial sector at a glance
Need for a policy
Vision and objectives of policy
Basis for industrial policy
Addressing binding constraints
Emerging opportunities
Timeline and way foward

3. Industrial sector at a
glance
Industrial sector
contributed 13.6% to
GDP in FY2024
LSM makes up 69.3%
of manufacturing
71% of exports; 15%
of workforce
employed
Positioned as a trade
hub between Central
Asia, Gulf States, and
Far East
Focus on
liberalization,
deregulation,
privatization, and
investment
facilitation
Economic
Cooperation: FTAs,
GSP+ status, CPEC,
SEZs attracting
investments
Technological
Advancements: AI in
manufacturing and
mining, IT sector
development for
workforce training
Environmental and
Governance
Practices: Adherence
to ESG criteria and
competition
regulation by CCP

4. Need for an industrial
policy
Global Industrial
Policy Resurgence
•Driven by
economic, social,
environmental, and
geopolitical goals
Modern Industrial
Policy (Industrial
Policy 2.0)
•Targeted
interventions with
sunset
arrangements
•EU Green Deal, US
semiconductor
subsidies
•Climate, gender,
and inclusion lens
Export
Competitiveness
Focus
•Encourages
productivity,
innovation,
economies of scale,
and market
feedback
•Preferred over
import substitution
for dynamic
industrial growth.
Ministry of Industries and Production 4

5. A modern vision for
Pakistan’sIndustrialPolicy
•Industrial diversification i.e. nurturing
new industries and economic activities
•Industrial expansion and upgradingi.e.
improving value-addition in existing
industries and integrate location-based
facilitation, Industry 4.0 technologies,
green practices, and data-driven
decision-making
•Industrial deepeningcreating deeper
backward and forward linkages and
complementarities within an industry.
Objectives
Ministry of Industries and Production 5

6. Our approach
•Horizontal interventions: supportive environment for all
firms; include improving skills, credit, and infrastructure,
regulatory environment, and ensuring stable trade and
macroeconomic policies.
•Vertical interventions: targeted interventions for specific
activities. These aim to enhance economic contributions by
focusing on sectors identified through frameworks like the
GIFF Framework and Hausmann Capability Model.
•Policy coherence: aligns with provincial government
measures, SME Policy, Investment Policy, Strategic Trade
Policy Framework (STPF), and other complementary
policies.
Ministry of Industries and Production 6

7. Expectations from the policy
Addressing
Constraints: specific
interventions to
overcome the obstacles
that hinder industrial
growth
Identifying
Opportunities: Global
trends and considering
Pakistan's current
capabilities
Effective use of
Evidence: Grounded in
empirical evidence,
drawing from successful
interventions in other
countries
Political Economy and
Implementation: Takes
into account political
economy and the
capacity of the state for
effective
implementation
Institutional and
Governance Support:
Proposes institutional
and governance
mechanisms to facilitate
successful policy
execution.
Ministry of Industries and Production 7

8. BASIS FOR INDUSTRIAL POLICY

9. PAKISTAN’S
GROWTH
CONUNDRUM State Bank of Pakistan Annual Report 2022-2023

10
E
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of doing business, lack of product and market
diversification, inability to meet quality
standards, unavailability of efficient supply
chains, continued reliance on imported raw
materials and capital goods and a long range of
sector specific issues. At the same time,
stagnant crop yields and lack of attention to
development of food supply chain and
imperfections in food market have considerably
increased the country’s reliance on imported
food commodities. These trends underpin
unsustainable current account balance, which
has increased the country’s vulnerability to
global supply shocks through pressures on FX
reserves and exchange rate (Figure 1.5d).

The situation requires initiation of
comprehensive reforms with an aim to address
various sectoral imbalances to ensure
availability of resources for economic growth
and development. To this end, expediting tax
policy reforms aimed at increasing
documentation, widening of tax base, improving
tax administration, eliminating leakages and
creating a culture of tax compliance, assume a
center stage. Similarly, restricting non-interest
current spending by ensuring speedy
implementation of governance reforms in PSEs
is instrumental to contain fiscal slippages and
create fiscal space for undertaking needed
public investment in human and physical
capital.

Especially, energy sector reforms need to be
prioritized to stem the buildup of circular debt
by minimizing transmission and distribution
-10
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Y
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3
Fiscal balance Revenue balance
Primary balance
Large Imbalances in the Fiscal Account Figure 1.5a
percent of GDP
Source: Ministry of Finance
-5
0
5
10
15
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Y
0
1
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Y
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3
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5
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Y
2
3
Net exports
Total investments
Government expenditures
Private consumption
Source: Pakistan Bureau of Statistics
Low Investment is a Hallmark of Figure 1.5b
Pakistan's Growth Experience
9%
10%
59%
5%
17%
Rice Other food
Textile Chemicals
Others
Commodity Concentration of Exports Figure 1.5c
(Average FY19-FY23)
Source: Pakistan Bureau of Statistics Source: State Bankof Pakistan
percent
-20
-15
-10
-5
0
5
10
15
20
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Y
0
5
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Y
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7
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9
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Y
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5
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7
F
Y
1
9
F
Y
2
1
F
Y
2
3
Current account balance
SBP FX reserves
billion US$
Figure1.5dConsumption-led Growth Frequently Causes
Balance of Payments Crisis

10. INDUSTRIAL
DEVELOPMENT
LINKED TO
ENABLING
FACTORS

11. WEAK
COMPETITIVE
OUTLOOK
(2021)
Source: calculations based on UNIDO
data




























Ministry of Industries and Production 11

12. LOW LEVEL
OF
COMPLEXITY

13. NEW
EXPORT
PRODUCTS

14. Key Issues
Volatile
Macroeconomy
Political Instability
Variability in the
Exchange Rate
High cost of capital –
22%+spreads –
limited options for
alternative
Overly Regulated
Economy
Cartelization and
State of
Competition
Lack of
Corporatization
Factor Costs and
Availability
Policy Inconsistency
Budget Construct
Domestic Debt & Banks
PKR 8trn out of PKR 9.2trn went as mark-up
on debt
More taxes – less spending
Capability of the Government to
Implement IP
Cross-cutting & Breaking Norms

15. ADDRESSING
BINDING
CONSTRAINTS
TO INDUSTRIAL
GROWTH
Ministry of Industries and Production 15

16. Conducive
Macroeconomic Policies
Ministry of Industries and Production 16
Stable macroeconomic
environment. Aligning
with recommendations
from the IMF, fiscal
consolidation is crucial
Prudent monetary policy
ensures stable inflation
and input costs
A market determined
exchange rate
Affordable credit for
investment in machinery,
technology, and
expansion within the
SME sector
Investing in
infrastructure, including
reliable power, improved
transportation networks,
and efficient logistics
Reduced trade barriers
and beneficial trade
agreements

17. Supportive Regulatory
Environment
Ministry of Industries and Production 17
Business operations
requiring compliance with
regulations from three tiers
of government: Federal,
Provincial, and Local will be
facilitated through PRMI
Tax harmonization across
all federating units will be
expedited. Pakistan Single
Window will minimize
human interaction with
traders
The “One Stop Shop” the
“Pakistan Business Portal”
will enable businesses to
access sector-specific
regulatory requirements

18. Strategic Trade Policy Framework
Eliminating dependence on
SROs for trade policy.
National Tariff Policy aimed at
rationalizing tariffs and creating
a more transparent and
predictable trade environment
Reducing tariffs on inputs and
capital goods through partial
exemption for manufacturing
and exporting SMEs from tariffs
and progressively lowering
tariffs
Ministry of Industries and Production 18

19. Legal and dispute
resolution regime
•A clear and predictable legal framework for
foreign investment
•Alternate Dispute Resolution laws.
•Decisions reached through ADR are binding
and enforceable, barring certain appeals or
revisions
•The Commercial Courts aim to expedite the
resolution of commercial cases
Ministry of Industries and Production 19

20. Curbing informal trade
of goods
•Addressing high import duties and complex tax system, is
necessary.
•Streamlining customs procedures via Pakistan Single
Window (PSW)
•Sharing intelligence with neighboring countries and
collaborating on joint anti-smuggling operations will disrupt
smuggling network`s
•Promoting a culture of compliance within the business
community is also essential (e.g., PRMI)
•Public awareness campaigns promoting the benefits of fair
trade practices
Ministry of Industries and Production 20

21. Enabling infrastructure for
industry and its financing
•Investments in reliable energy supplies, efficient
transportation networks, and expanded digital
infrastructure.
•Special Economic Zones in second-tier cities are also
being developed.
•Risk-sharing mechanisms are also being explored to
incentivize banks to lend to promising ventures.
•Provincial governments, SBP, Public-Private
Partnerships for infrastructure projects.
Ministry of Industries and Production 21

22. Climate-smart
industrialization
•Federal government is incentivizing energy-efficient
technologies and renewable energy adoption within
industries.
•Building bylaws with energy efficiency lens have been
issued to municipal authorities for adoption.
•Stricter enforcement of pollution control measures
•Some firms have independently pursued sustainability
goals like cleaner technologies or eco-friendly products.
Ministry of Industries and Production 22

23. Industrialization with a
gender and inclusion lens
•Increasing opportunities for women's
participation at all levels, from factory workers to
leadership positions, is crucial.
•Skills development programs specifically
targeting women in STEM fields and
manufacturing
•The policy will consider the needs of underserved
regions and groups like minorities and people
with disabilities.
•Industrial policy will consider the impact on
surrounding communities.
Ministry of Industries and Production 23

24. EMERGING
OPPORTUNITIES
IN KEY
INDUSTRIAL
SECTORS
Ministry of Industries and Production 24

25. Identifying sectors with
hidden economic potential
•Enabling/inputs sectors with export potential
•Steel, cement, mining, petrochemical and chemicals,
fertilizer, heavy mechanical, non ferrous metals, plastics
and composites, fisheries, transport and logistics.
•Value added/GVC sectors/Exports
•Auto parts, tractors, parts and accessories of office
machines, travel accessories (trunks and suitcases etc.),
furniture, footwear, synthetic and non-traditional textile
and garments, food processing, surgical and medical
devices, electronics, pharmaceuticals, electronics, EV
motorcycles and three wheelers, decentralize power
storage, batteries, solar cells, clean technology,
electronics (cell phone, laptops, tabs etc.), electric
transforms and IT equipment.
Ministry of Industries and Production 25

26. Consultations with stakeholders
March
Concept Paper for
Industrial Policy
April
Zero Draft of
Industrial Policy
May–
June
Sector consultations
with Industry
July
Revised Industrial
Policy draft
July
Stakeholder
engagements with
Industrial
Associations
July
Reforms Roadmap
August
Final Presentation to
MoIP (and other
stakeholders)
August
Final Draft of
Industrial Policy

27. Learning from
international experience
Reduce barriers to trade and
investment – reducing import
tariffs
Target non-extractive sectors
with opportunities in
Pakistan, such as low-carbon
manufacturing building
Continuously engage with
businesses and act on their
input
Investment Promotion
Agencies can promote both
exports and investment
Promote low-carbon and
climate resilient projects

28. RISKS AND
CHALLENGES TO
POLICY DESIGN &
IMPLEMENTATION
Aspect Risks and Challenges
Design
Clarity of Objectives: Ensuring clear and consistent
objectives to avoid contradictory goals.
Selecting Instruments: Choosing effective policy
instruments based on institutional context.
Coordination: Coordinating diverse stakeholders and
addressing externalities.
Implementation
Compliance: Ensuring compliance with policy conditions
and monitoring implementation.
Private Sector Engagement: Encouraging private
investment and overcoming contracting failures.
Capacity Building: Developing capabilities and
knowledge for competitiveness.
Monitoring and
Evaluation
Progress Monitoring: Tracking policy outputs and
outcomes.
Methodological Challenges: Addressing evaluation
difficulties in areas like clusters and networks.

29. Latest
•Comments and inputs received from various quarters
•A revised draft of the policy will be shared by REMIT and SDPI
•Support required: alignment of policy draft with fund authorities
and MoF particularly regarding sector-specific proposals.
Ministry of Industries and Production 29

30. THANK
YOU!