INDUSTRY At the time of independence, Pakistan did not have an industrial sector of any significance Two cement plants, one each in the provinces of Punjab and Sindh, and a few cotton ginning and vegetable oil factories made up the entire industrial sector, contributing no more than 6 percent to the gross domestic product (GDP) Agriculture was the predominant economic activity, producing not only enough food to feed the population but leaving a significant amount for export to India Agriculture also produced such cash crops as cotton, sugar cane, and tobacco, which also were exported to India to be processed in the mills of Kolkata, Mumbai, and Ahmadabad The trade war between India and Pakistan that was fought in 1949 changed this relationship, however From then on, with imports of consumer goods no longer coming from India, Pakistan was forced to industrialize, which it did with the help of the merchants who had made large profits exporting commodities during the boom years of the Korean War (1951-1954)Pakistan industrialized quickly during this period, with industrial output increasing at a rate of more than 11 percent a year during the 1950s By the time the military government of President Muhammad Ayub Khan took office (1958), the country’s need for basic manufactured goods was being met from domestic output Muhammad Ayub Khan’s government changed the orientation of industrialization by giving much greater attention to the establishment of producergoods industries Because this type of industrialization needs a much larger amount of capital investment, the rate of increase in industrial output slowed somewhat during the 1960s, although at more than 8 percent per year, it was still well above the average for the developing world

By the end of the Muhammad Ayub Khan period, industry contributed 18 percent to the GDPBy nationalizing 31 large-scale industries (steel, cement, fertilizer, automotive, chemical, etc) in January 1972, the Pakistan People’s Party government of Zulfikar Ali Bhutto (1971-1977) introduced a profound change in the structure of the industrial sector Public ownership of a significant proportion of output became the most prominent feature of the new structure Because commercial banks and insurance companies were also nationalized two years later, a symbiotic relationship was established between finance and industry, and was probably the cause of a considerable amount of wasteful expenditure in the sector The rate of increase in the output of the industrial sector declined in this period to less than 25 percent a yearThe third military government under the leadership of President Zia ul-Haq (1977-1988) went back to the model followed successfully during the 1960s: the private sector was encouraged once again to participate in the creation of new industrial capital, while a serious attempt was made to improve the efficiency of public enterprises But there was one difference in the approach toward industrialization during the Zia ul-Haq period compared to the approach taken by Muhammad Ayub Khan There was now greater reliance on market signals as opposed to direct bureaucratic controls in the 1960s For instance, by delinking the value of the rupee from that of the American dollar, the Zia government introduced an element of flexibility in the management of the exchange rate

This policy option had not been tried in the 1960s Zia, however, did not privatize the industries that had been taken over by Bhutto; he allowed them to remain with the public sectorThe growth rate in the output of the industrial sector picked up once again From 1977 to 1988, industrial output increased at a rate of over 8 percent per year In 1988 the share of industry in the country’s GDP was more than 25 percent Benazir Bhutto’s government, which took office in December 1988, launched a program for the privatization of the industries and other assets that were still held by the public sector This policy was continued with even greater vigor by Mian Nawaz Sharif when he became prime minister in November 1990 A number of industries-in particular those producing cement-were privatized, as were two commercial banks Some of this momentum was lost when Benazir Bhutto returned to Islamabad as prime minister in October 1993, although her government actively implemented the policy of encouraging the private sector to invest in energy plants Bhutto was dismissed in November 1996, and Sharif returned as prime minister in 1997 The political turmoil following Zia’s death no doubt contributed to the slowdown of the growth in the output of the industrial sector

During the period 1988-1997, industrial production increased by only 37 percent a year, less than half the rate of increase in the first four decades following independence

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