Pakistan’s industrial policy - from ambition to competitiveness

Pakistan’s National Industrial Policy (NIP) provides an opportunity to bolster the nation’s industrial sector, enhance exports and foster a more competitive business landscape. However, the effectiveness of such initiatives depends on whether businesses become more productive, produce higher-value products, and successfully compete in global markets.

In May 2025, the government set an ambitious export growth target of $60 billion over the next five years, alongside sector-specific business plans with quantifiable goals. Nevertheless, Pakistan’s merchandise exports declined from $32.04 billion in FY2024–25 to $30.14 billion in FY2025–26, a reduction of approximately 5.9%. This disparity underscores the necessity to align national goals with actionable steps that businesses can undertake.

While Pakistan possesses capable entrepreneurs and established manufacturing sectors, its industrial potential has not yielded sustained export growth or sufficient diversification. The World Bank notes that exports have decreased from an average of 16% of GDP in the 1990s to around 10.4% in 2024. The challenge lies not only in increasing production but in elevating productivity, quality, and the value of exported goods.

Encouragingly, there is a positive trend in large-scale manufacturing, which grew by 4.98% in FY2025–26 according to provisional data from the Pakistan Bureau of Statistics. Yet, merely boosting output does not guarantee competitiveness on an international scale. For industrial growth to be sustainable, firms must enhance efficiency, adhere to global standards, deliver reliability, and adapt to shifting market demands.

Factors such as high energy costs, taxation, expensive financing, costly imported inputs, and erratic regulations can impede even well-managed businesses. To tackle these challenges, the government must implement consistent policies, streamline regulation, and cultivate a business environment conducive to investment.

Rather than sidelining existing industries to foster a stronger industrial base, Pakistan should assist them in transitioning towards higher-value products. For instance, the textiles industry could focus on specialized fabrics, technical textiles, improved garment designs, and products tailored to specific markets. Similarly, sectors like surgical instruments, sports goods, leather products, food processing, and engineering present opportunities for value enhancement.

Achieving this requires modern machinery, expertise in technical skills, product design, stringent quality control, and a deeper understanding of international buyers. The government should collaborate with industry associations, exporters, and technical institutions to pinpoint practical hurdles to upgrading and support businesses in overcoming them.

Industrial strength hinges on providing businesses, especially smaller firms, with access to specialized equipment, technical advice, and modern facilities that they cannot afford individually. Industrial clusters could leverage shared technology centers, testing laboratories, product development facilities, and training programs.

These resources could be established through collaborations among government bodies, industry associations, universities, and private institutions, tailored to the specific needs of businesses. The World Bank has highlighted technology centers and shared facility centers as viable solutions for smaller manufacturers to access specialized equipment and technical services.

Additionally, industrial strength depends on smaller businesses supplying components, packaging, maintenance, and specialized services to larger manufacturers. The government can aid these suppliers through technical training, certification, and structured partnerships with major companies. Instead of compelling firms to buy locally regardless of cost or quality, the aim should be to enable Pakistani suppliers to become competitive enough to secure contracts based on commercial merits.

Similarly, financial incentives and protective measures can aid businesses in overcoming specific challenges or developing new products. However, such support risks becoming counterproductive if firms become reliant on it indefinitely. Tariffs that raise the cost of imported machinery, chemicals, or intermediate goods may shield one producer while increasing expenses for other manufacturers and exporters.

Evidence from Pakistan corroborates this point. A 2025 World Bank study on textile export subsidy schemes revealed that while these incentives marginally boosted exports, they often redirected activity towards products receiving higher rebates, particularly garments. This suggests that incentives can shift the type of goods exported without significantly increasing overall exports.

The takeaway is not to discard all incentives but to ensure support targets specific obstacles and fosters capabilities businesses can sustain long-term. Assistance focused on technology adoption, workforce training, quality certification, and export development can yield a more substantial return than mere protection that merely shields firms from competition.