Industrial Growth & Competitiveness - 0

Chapter 5: Industrial Growth and
Competitiveness
Author: Nazish Afraz
1
Contents
5. Overview................................................................................................................................ 5
5.1 Current Profile and historical development .............................................................. 5
5.1.1 Structure and growth of the industrial sector .................................................... 5
5.1.2 Spatial aspects .................................................................................................... 13
5.2 Performance ............................................................................................................... 22
5.2.1 Trade..................................................................................................................... 22
5.2.2 Investment, value addition and productivity .................................................... 27
5.2.3 Business environment ........................................................................................ 32
5.3 Regulatory structure .................................................................................................. 43
5.4 Evaluation of policies and key initiatives, 2007-2016 ........................................... 47
5.4.1 Policy documents ................................................................................................ 47
Vision 2025 .................................................................................................................... 47
Punjab Growth Strategy ............................................................................................... 48
5.4.2 Key Initiatives ...................................................................................................... 48
Skills ................................................................................................................................ 48
Jobs and Competitiveness Program .......................................................................... 49
Industrial Parks ............................................................................................................. 50
5.5 ADP Allocation ............................................................................................................ 56
5.6 Opportunities............................................................................................................... 57
5.6.1 CPEC .................................................................................................................... 57
5.6.2 Innovation............................................................................................................. 59
5.7 Summary and Way Forward ..................................................................................... 62
5.7 Annexes ............................................................................................................................. 67
Annex 1: Pakistan’s performance on the Global Competitiveness Index, 2015-16 ................ 67
Annex 2: Punjab’s performance on World Bank’s Investment Climate survey....................... 69
2
List of Figures
Figure 1: Industrial value-added, Punjab, 2005-2016 ............................................................... 6

Figure 2: Gross Value added in constant basic prices of 2005-06 ............................................ 7
Figure 3: Composition of manufacturing, 2005-2016 ................................................................ 7
Figure 4: Top 30 employers by industrial group, Punjab 2006 and 2016.................................. 9
Figure 5: Change in employment in the top 30 Industrial sectors between 2006 and 2016,
Punjab. ..................................................................................................................................... 10
Figure 6: Investment in Punjab in top 30 industries, 2006 and 2016 ...................................... 11
Figure 7: Change in investment by industry, 2006-2016 ......................................................... 12
Figure 8: Employment in industrial units by district in top 20 districts by employment, 2006
and 2016 .................................................................................................................................. 14
Figure 9: District-wise employment and count of large scale industries ................................. 15
Figure 10: Number of large scale firms by tehsil, 2016 ........................................................... 18
Figure 11: Night light data, 2013 ............................................................................................. 18
Figure 12: Spatial spread of industrial units across Punjab .................................................... 19
Figure 13: Industrial concentration by district, Punjab 2016 ................................................... 20
Figure 14: Punjab Industrial estates (not including those for small industries run by PSIC) ... 22
Figure 15: Pakistan's top exports, 2015 .................................................................................. 24
Figure 16: Pakistan's supply and international demand for manufactured products, 2016 .... 25
Figure 17: Exports of goods and services, as a percentage of GDP, Pakistan ...................... 26
Figure 18: Foreign Direct Investment in Pakistan (current USD), Pakistan ............................ 27
Figure 19: Net inflows of FDI, as a percentage of GDP, Pakistan .......................................... 27
Figure 20: Industry, value added (% of GDP), Pakistan ......................................................... 28
Figure 21: Industry, value added (annual % growth), Pakistan ............................................... 28
Figure 22: Gross Value added in manufacturing in Punjab, 2005-2016 at constant basic
prices of 2005-6 ....................................................................................................................... 29
Figure 23: Pakistan's ranking on the Global Competitiveness Index, 2012-17. ...................... 32
Figure 24: Pakistan's score on the 12 pillars of competiveness performance, 2015-16 ......... 33
Figure 25: The most problematic factors for doing business in Pakistan, Executive Opinions
Survey 2016............................................................................................................................. 34
Figure 26: Time trend of distance to frontier for doing business indicators, Pakistan ............. 37
Figure 27: Distance to frontier for doing business indicators, 2010-17 ................................... 38
Figure 28: Distance to frontier across doing business indicators, Pakistan 2017 ................... 38
Figure 29: Biggest obstacle to doing business, by gender Pakistan 2013 .............................. 39
Figure 30: Biggest obstacle to doing business, by province, Pakistan 2013 .......................... 41
Figure 31: Biggest obstacle to doing business, by size of firm, Pakistan 2013 ...................... 42
Figure 32: ADP allocation to the Department of Industries ..................................................... 56
Figure 33: Trade flows with China, 2003-2015, as reported by Pakistan................................ 57
Figure 34: Pakistan's trade balance with the world and with China, 2003-2015 ..................... 58
Figure 35: Smiley model of value addition .............................................................................. 60
Figure 36: Education enrolment rates for Pakistan relative to competitors, 2014 ................... 60
Figure 37: Technicians in R&D per million people, 2013 ........................................................ 61
Figure 38: Researchers in R&D per million people ................................................................. 61
Figure 40 Investment Climate performance of Punjab, 2013: Corruption ............................... 69
Figure 41 Investment Climate performance of Punjab, 2013: Crime ...................................... 70
Figure 42 Investment Climate performance of Punjab, 2013: Finance ................................... 71
Figure 43 Investment Climate performance of Punjab, 2013: Gender .................................... 72
Figure 44 Investment Climate performance of Punjab, 2013: Informality ............................... 73
Figure 45 Investment Climate performance of Punjab, 2013: Electricity ................................ 74
Figure 46 Investment Climate performance of Punjab, 2013: Other infrastructure ................. 75
Figure 47 Investment Climate performance of Punjab, 2013: Innovation and Technology .... 76
Figure 48 Investment Climate performance of Punjab, 2013: Firm performance I ................. 77
3
Figure 49 Investment Climate performance of Punjab, 2013: Firm performance II ................ 77
Figure 50 Investment Climate performance of Punjab, 2013: Regulation and Taxes ............. 79
Figure 51 Investment Climate performance of Punjab, 2013: Trade ...................................... 80
Figure 52 Investment Climate performance of Punjab, 2013: Workforce ............................... 81
Figure 53 World Bank Logistics Performance Index, 2016 ..................................................... 82
Figure 54 Pakistan's Logistics Performance Index, 2007-2016 .............................................. 82
List of Tables
Table 1: Industrial value-added: decomposition of growth rates ............................................... 6

Table 2: District of largest concentration of Punjab's industrial products ................................ 16
Table 3: Employment agglomeration in Pakistan compared with other South Asian countries
................................................................................................................................................. 20
Table 4: Punjab's share in Pakistan's manufactured production ............................................. 23
Table 5: Pakistan's top exports, 2015 ..................................................................................... 25
Table 6: Growth in gross output by industry, 1980-2010......................................................... 30
Table 7: Multi factor productivity growth in selected sectors, 1980-2010................................ 30
Table 8: Sources of output growth, 1980-2010 ....................................................................... 31
Table 9: Sub-national Doing Business Indicators, Ranking within Pakistan ........................... 36
Table 10: Skills imparted since 2014, Punjab ......................................................................... 49
Table 11: Industrial Estates in Punjab, in 2007 ....................................................................... 51
Table 12: Industrial Estates in Punjab, as of December 2016 ................................................ 53
4
5. Overview
This chapter documents the current state and recent development of the
industrial sector in Punjab. Section 1 analyzes changes in the structure and
spatial distribution of industrial units in Punjab including performance in terms
of exports, value-addition and productivity. It also maps out changes in
investment climate and competitiveness that have contributed to the trends
observed.
Section 2 examines the regulatory structure that governs industry in Punjab,

while Section 3 documents and evaluates key government initiatives in the
last 10 years in light of the articulated policy statements of Punjab
government. Section 4 discusses two important priorities, one arising in the
immediate future, and one for which longer term planning is required: CPEC
and innovation. The section analyzes Pakistan’s current position and charts
out an action plan for the Government of Punjab to leverage these
opportunities. Finally Section 6 summarizes and provides recommendations.
5.1 Current Profile and historical development
5.1.1 Structure and growth of the industrial sector

As documented earlier in Chapter 1, industry in Punjab contributes
approximately 22% to GPP, a share that has remained stagnant in the ten-
year period under consideration.
Data from the Punjab Bureau of Statistics indicates, however, that value
added in the industrial sector in Punjab has increased steadily over the last
ten years, with the exception of 2008-09 (Figure 1). While all sub-sectors have
grown, small and household sector manufacturing, and electricity generation
and electricity/gas distribution have been major contributors to this expansion
(Table 1). The share of manufacturing in industrial value added has increased
marginally, from 74% in 2005-6 to 76% in 2015-16.
5
Figure 1: Industrial value-added, Punjab, 2005-2016
Industrial value-added
20.0 1600000
Industrial Value added (million

1400000
15.0
1200000
10.0
Growth (%)
1000000
PKR)
5.0 800000
600000
0.0
400000
-5.0
200000
-10.0 0
Growth Total (million PKR)
Source: Punjab Bureau of Statistics, 2017

Table 1: Industrial value-added: decomposition of growth rates
Year
Electricity Generation
Mining & Quarrying
& Distribution & Gas

Small & Household
Manufacturing
Large - Scale
Construction
Slaughtering
Distribution
Aggregate
1 2=i+ii+iii i ii iii 3 4 1+2+3+4
2005-06
2006-07 -3 11 12 8 3 -12 13 9
2007-08 7 14 16 7 3 37 15 15
2008-09 -4 -3 -5 8 4 -12 -10 -5
2009-10 0 7 8 8 3 17 8 8
2010-11 -2 3 2 7 4 64 -9 6
2011-12 5 2 1 8 4 1 3 2
2012-13 9 9 10 8 4 -26 1 4
2013-14 5 5 5 7 3 -1 6 5
2014-15 6 1 0 7 3 12 6 3
2015-16 10 10 11 8 4 12 13 10
Average 3 6 6 8 3 9 5 6
Growth 34 77 75 106 41 88 54 72
2005-2016
6
Figure 2: Gross Value added in constant basic prices of 2005-06
Gross Value added, billion PKR 1600

1400
1200
1000
800
600
400
200
0
Construction
Electricity Generation & Distribution & Gas Distribution
Manufacturing
Mining & Quarrying
The manufacturing sector, while declining slightly in terms of share over the
last ten years, has not seen substantial changes in structure. The contribution
of large-scale manufacturing to manufacturing value addition has declined
marginally from 81% in 2005-6 to 80.3% in 2015-16. The contribution of small
and household value added increased by 2 percentage points in the same
period while that of slaughtering declined 1.2 percentage points.
Figure 3: Composition of manufacturing, 2005-2016
100
90
80
70
60
50 Slaughtering
40 Small & Household
30
20 Large - Scale
10
0
Source: Punjab Bureau of statistics
7
Within manufacturing, the largest industrial groups by employment have been
textile related, with cotton ginning and pressing, textile spinning and weaving,
knitted and woven garments, towels and hosiery accounting for 46% of
Punjab’s industrial employment. The trends in employment by industry are
shown in Figure 4 and Figure 5. Electric meters and transformers, ready-
made garments and iron and steel rolling have seen the most substantial
decline in employment in the last 10 years, whereas auto parts, cement and
power generation have seen the sharpest increases. Trends in investment
show a similar pattern (Figure 6 and Figure 7). It is particularly noteworthy that
Punjab’s main manufacturing contributor, the textile and textile related
industry, has contributed declining quantities to employment in the time period
under consideration.
8
Figure 4: Top 30 employers by industrial group, Punjab 2006 and 2016
250000
200000
150000
100000
50000
2006 2016
Source: Directorate of Industries, 2006 and 2016

Figure 5: Change in employment in the top 30 Industrial sectors between 2006 and 2016, Punjab.
200
150
100
50
%
-50
-100
-150
Source: Directory of Industries, 2006 and 2016
10
Figure 6: Investment in Punjab in top 30 industries, 2006 and 2016
600,000
500,000
400,000
Million PKR
300,000
200,000
100,000
2006 2016
11
Figure 7: Change in investment by industry, 2006-2016
600
500
400
300
200
%
100
-100
-200
12
5.1.2 Spatial aspects
Industrial units in Punjab have remained largely concentrated in a few
districts.
Faisalabad, Lahore and Kasur together employed 45.2% of Punjab’s industrial

labour in 2006, which has dropped marginally to 43% in 2016. On the other
end of the spectrum, Rajanpur, Jhelum, Lodhran, Narowal, Bhakkar and
Layyah each continue to provide less than 0.5% of industrial employment in
Punjab (Figure 8).
Figure 9 depicts this on a map of Punjab. Districts with higher industrial

employment are concentrated in the north east of the province. Similarly
Figure 11 shows the concentrations of large-scale industries by district and by
tehsil, again showing that industrial units are concentrated largely in the north
east of the province. The concentrations of large scale industries is in line with
the night light data illustrated in Figure 12, which shows large swathes of
Punjab immersed in darkness - the same regions that have low presence of
industrial employment.
Table 2 shows the district where each industrial product is concentrated within
Punjab. Lahore is the district with the highest concentration of industrial units
for ten of the products (one third of the products listed), while Gujranwala has
the highest concentration for six. Sialkot and Faisalabad have three each.
This reinforces the idea that there are a handful of successful industrial
centers where firms benefit from agglomeration, rather than an even spread of
successful cities across the province.
Figure 8: Employment in industrial units by district in top 20 districts by employment, 2006 and 2016
160000
140000
Employment (numbers)
120000
100000
80000
60000
40000
20000
2006 2016
Source: Directorate of Industries, 2006 and 201

Figure 9: District-wise employment and count of large scale industries
Source: Directorate of Industries, 2016 data

Table 2: District of largest concentration of Punjab's industrial products
Sialkot Faisalabad Gujranwala Kasur Gujrat Sargodha Lahore Okara RY Khan

Surgical Instruments
Hosiery Products
Sports Goods
Leather Industry
Utensils
Tannery
Fan/Cooler Industry
Textile Processing
Auto Parts
Readymade Garments
Embroidery
Plastic Products
Cotton Ginning & Pressing
Rice Mills
Textile Spinning/Weaving
Sanitary Fitting
Light Engineering
Foundry Products
Electric Goods
Pottery
Drugs & Pharmaceuticals
Sizing of Yarn
Cold Storage
Packages
Printing Press
Iron & Steel Re-rolling Mills
Tractor Parts
Cutlery
Ceramic
Agricultural Implements
Number of products for 3 3 6 2 2 1 10 2 1
which the district has highest
concentration
Source: Directorate of Industries, 2016
17
Figure 10: Number of large scale firms by tehsil, 2016
Source: Directorate of Industries, 2016

Figure 11: Night light data, 2013
Figure 12 compares the spatial spread of large-scale industries to the spatial spread of
small and medium enterprises. Small-scale manufacturing is spread out more evenly
across the province, in contrast with the restricted spread of large scale industries.
Figure 12: Spatial spread of industrial units across Punjab
Large Scale Industry in the Punjab Small/Cottage Industry in the Punjab
Source: Industries, Commerce & Investment Department, Government of the Punjab
Agglomeration in Pakistan, as measured by the concentration of employment

in the top five districts, has also not changed appreciably in the last ten years,
similar to other South Asian countries (Table 2). In contrast, the trend in other
industrialized countries has been that manufacturing initially develops in
concentrated locations, often where there is better access to international
markets. As the country develops, these locations become congested and
expensive. Benefits too begin to decline as the manufacturing process
becomes more standardized with less dependence on the learning benefits of
large cities. Manufacturing plants relocate typically to suburban locations, and
then to secondary cities.
However, as indicated in Table 3, this trend has not been followed in South
Asia (Lopez-Acevedo (2017)). In Pakistan in particular, apart from the virtually
unchanged concentration in the top five districts, the actual cities themselves
are also unchanged. In other South Asian countries, different cities have risen
to the top five as new industrial centres emerge. Coimbatre and Gurgaon in
India, for example, have been fast growing cities that have replaced other
cities in the top five.
19
The Punjab Economic Report 2005 emphasizes the development of the ten
cities in Punjab that had over two hundred thousand residents as mini-growth
engines, apart from the traditional million plus cities of Lahore, Faisalabad,
Rawalpindi, Multan and Gujranwala. The Punjab Growth Strategy 2014-18
builds on this, offering specific recommendations to enable cities to become
growth enablers. However, as shown in Figure 8, except for a substantial
increase in industrial employment in Multan and Faisalabad, there appears to
be no indication of new growth engines in Punjab.
The other interesting geographical aspect of Punjab’s industry is that the

Northeast of the province is also more diversified in its industrial offering. The
majority industry in the southern districts is cotton ginning and pressing, while
flour and rice mills and light engineering are dominant in the Northeast. The
Northeast also has a higher concentration of Punjab’s industrial parks, as
shown in Figure 13.
Figure 13: Industrial concentration by district, Punjab 2016
Source: Directorate of Industries
20
Table 3: Employment agglomeration in Pakistan compared with other South Asian countries
Rank % of % of
Rank in
District Name employment District Name employment
Pakistan 2006
(2006) (2016)
1 Lahore 16.74 Faisalabad 16.95 2
2 Faisalabad 15.62 Lahore 15.49 1
3 Kasur 12.82 Kasur 10.89 3
4 Sialkot 8.34 Sialkot 8.68 4
5 Sheikhupura 8.11 Sheikhupura 7.17 5
61.64 59.17
Rank in
1991 2009
India 1991
Greater
5 Madras 4.7 3
1 Bombay
2 Nizamabad 4.1 Bangalore 4.4 4
3 Madras 3.3 Coimbatore 3.7 8
Mahendragarh/Gurga
Bangalore 2.6 2.9 77
4 on
24 Parganas
2.5 Rupnagar/Patiala 2.8 6
5 (North)
17.50 18.50
Banglades Rank in
1995 2012
h 1995
1 Dhaka 36.6 Dhaka 35.4 1
2 Chittagong 15.9 Gazipur 16.6 6
3 Narayanganj 8.6 Chittagong 16.2 2
4 Sirajganj 5 Narayanganj 9.3 3
5 Khulna 3.8 Sirajganj 2.8 4
69.90 80.30
Rank in
1995 2009
Sri Lanka 1995
1 Colombo 37.4 Gampaha 27.7 2
2 Gampaha 29.7 Colombo 24.1 1
3 Galle 3.9 Kurunegala 9.4 5
4 Kandy 3.8 Kalutara 7.2 9
5 Kurunegala 3.1 Kandy 5.9 4
77.90 74.30
Data source: Lopez-Acevedo et al (2017) and Directorate of Industries
21
Figure 14: Punjab Industrial estates (not including those for small industries run by PSIC)
5.2 Performance
5.2.1 Trade
Trade and investment data is not available for the provinces separately. This
section documents Pakistan’s trade performance, keeping in mind Punjab’s
share in Pakistan’s manufactured products as shown in Table 4.
22
Table 4: Punjab's share in Pakistan's manufactured production
Manufactured items % share of Punjab in Pakistan’s

production 2013-14
Cotton yarn 28.2

Cotton cloth 40.1
Sugar 56.1
Vegetable ghee 58.6
Fertilizers 47.4
Cement 53.2
Caustic soda 100
Sulphuric acid 54.7
Soda Ash 100
Paper and paper board 97.2
Cigarettes 51.3
Source: Punjab Development Statistics, 2015. Data for 2013-14. Available at

http://www.bos.gop.pk/system/files/Dev-2015.pdf
Textiles and clothing makes up nearly two-thirds of Pakistan’s exports (Figure

15). This mirrors the findings of Punjab’s employment share by industry,
which also shows concentration in textiles. Pakistan’s largest export is cotton
(which includes cotton yarn and cotton cloth), and as shown earlier in Figure
4, cotton processing is the major industrial activity in Punjab, particularly in
southern Punjab.
However, globally, cotton demand is declining by 6% every year. This is

shown in Figure 16, which maps out trends in Pakistan’s share of the product
globally (on the x-axis) against global growth rates in the product (on the y-
axis). The size of the bubble represents the share in Pakistan’s exports.
Cotton, Pakistan’s largest export, is also the product that is declining the most
in terms of international demand.
23
Figure 15: Pakistan's top exports, 2015
Figure 16: Pakistan's supply and international demand for manufactured products, 2016
Data source: ITC Trade Maps, 2016
This can be seen in the context of Pakistan’s overall declining export

performance. Figure 17 shows that Pakistan’s exports (as a percentage of
GDP) have fallen steadily in the last twelve years and are now considerably
lower than the average for South Asia and for other countries in a comparable
income category.
25
Figure 17: Exports of goods and services, as a percentage of GDP, Pakistan
40
35
30
% of GDP
25
20
15
10
5
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pakistan South Asia Lower middle income China India
Source: World Development Indicators, World Bank
For Punjab to contribute to Pakistan’s export growth, it will be important to

focus on those industries that exhibit strong international demand. Figure 16
shows that the three most important categories in Pakistan’s exports after
cotton – woven apparel, knitted apparel and other textile articles – all have
increasing global demand. And, while Pakistan is losing global market share
in knitted apparel and other textile articles, it is gaining global market share in
woven textile apparel.
From the perspective of positioning Punjab for export markets therefore,

apparel is a promising and realistic opportunity, as it is already an established
strength. Apparel has also been singled out as Punjab’s priority sector in the
Punjab Growth Strategy. From the point of view of long run export led growth
and diversification, therefore, it will be important to facilitate a movement
towards adding greater value to Punjab’s existing strength in cotton by
developing the apparel sector in Punjab.
Other internationally growing sectors that emerge from the analysis presented
in Figure 16 include furniture, footwear, surgical instruments, pharmaceuticals
and leather goods. Some of these sectors are ones in which Pakistan already
has a foothold in a growing sector, but is losing market share. These sectors
include plastics, electronics, auto parts, carpets, leather goods and furniture.
In these sectors, it is particularly important to stem the decline in global export
share urgently, and to facilitate growth in these sectors as they help diversify
and grow Pakistan’s export offering.
26
5.2.2 Investment, value addition and productivity
Foreign Direct Investment (FDI) in Pakistan has declined sharply in recent
years. FDI in 2015 was 82.5% lower than that received in 2007, as shown in
Figure 18. FDI as a percentage of GDP is now substantially lower than in
lower middle income countries and South Asia (Figure 19). This is in sharp
contrast with Punjab’s objectives of increasing private sector investment.
Figure 18: Foreign Direct Investment in Pakistan (current USD), Pakistan
5
USD (billions)
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: World Bank databank http://databank.worldbank.org
Figure 19: Net inflows of FDI, as a percentage of GDP, Pakistan
6
5
4
3
%
2
1
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
China India Pakistan Lower middle income South Asia

Industry value added, as a percentage of GDP, has also declined since 2005
and is now almost 10 percentage points lower than comparison countries.
Growth rate of industry value added too has shown a declining trend over
time. Figures 20 and 21 chart these trends.
27
Figure 20: Industry, value added (% of GDP), Pakistan
50
45
40
35
30
25
%
20
15
10
5
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 21: Industry, value added (annual % growth), Pakistan
20
15
10
5
%
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-5
-10
In contrast, Punjab Bureau of Statistics reports that industrial and

manufacturing added in Punjab has increased over time showing growth rates
as high as 10% in recent years (Figure 22). If the data is accurate and
consistent, this would imply that industry in Punjab has grown more strongly
than in other provinces, and has consequently been the driver of overall
industrial growth in Pakistan.
28
Figure 22: Gross Value added in manufacturing in Punjab, 2005-2016 at constant basic prices of 2005-6
Gross Value added (billion 1200 16.0

14.0
1000 12.0
800 10.0
% change
8.0
600 6.0
rupees)
4.0
400 2.0
200 0.0
-2.0
0 -4.0
% change Gross Value Added

Source: Punjab Bureau of Statistics * includes large scale, small and household and
slaughtering
It is also important to document labour productivity and total factor productivity
(TFP), as this is a measure of the efficiency with which firms can turn inputs
into outputs. A new KLEMS dataset, complied to international standards and
therefore useful for cross-country comparisons, is now available in Pakistan
and can be used to study changes in productivity from 1980 to 2010. Since
supply use tables are not available at the provincial levels, the KLEMS
dataset and analysis cannot be replicated at the provincial level. Burki et al
(2016) compile and analyse the data for six industrial groups in Pakistan,
recording growth in gross output and sources of growth, including multi-factor
productivity (MFP). The results are reproduced below in Tables 6, 7 and 8.
29
Table 5: Growth in gross output by industry, 1980-2010
Industry description Average GVO growth by period

GVO 80-85 86-90 91-95 96-00 01-05 06-10
growth
Agriculture, Hunting, 3.69 3.99 4.3 5.55 2.1 3.89 2.31
Forestry & Filing
Food, Beverages & Tobacco 3.54 2.9 2.33 1.96 2.68 7.56
Pulp, Paper, Paper Prod, 11.08 10.28 15.08 4.08 6.94 18.72
Printing and Publishing
Textiile, Textile Products, 7.89 3.11 13.6 3.76 4.84 12.2
Leather & Footwear
Machinery, NEC -1.21 21.85 0.8 -1.17 5.34 23.64
Basic Metals & Fabricated 1.9 20.72 0.09 -5.09 6.27 3.29
Metal Products
Other Non-Metallic Mineral 7.49 10.92 7.16 2.21 -1.75 22.76
Products
Industry Mean 4.91 10.54 6.2 1.61 3.37 6.4 2.31

Industry Median 3.69 10.28 4.3 2.21 4.84 7.56 2.31
Note: All growth rates are reported in percent per annum. Average GVO growth for basic metals and facricated metal
products industry was 5.05% for 1980-2005. However, average GVO growth has been reported here for
1983-2005 (1.90%) since MFP for this industry was also calculated for the same time period. MFP for 1980-
1982 could not be calculated because services and labour data was not available for this industry during
these years.
Source: Burki et al (2016) “Pakistan KLEMS database and productivity measurement

at the industry level”
Table 6: Multi factor productivity growth in selected sectors, 1980-2010
Industry description GVO growth MFP MFP 80-94* MFP 1999

onwards**
Agriculture, Hunting, Forestry & Filing 3.69 2.89 3.44 2.41
Food, Beverages & Tobacco 3.54 -1.69 -1.40 -2.00
Pulp, Paper, Paper Products, Printing 11.08 2.97 5.12 0.62
and Publishing
Textile, Textile Products, Leather & 7.89 -2.19 -1.36 -3.11
Footwear
Machinery, NEC -1.21 1.20 1.29 1.09
Basic Metals & Fabricated Metal 1.90 -1.09 -2.11 0.01
Products
Other Non-Metallic Mineral Products 7.48 -4.44 -3.99 -4.93
Industry Mean 4.91 -0.34 0.14 -0.84

Industry Median 3.69 -1.09 -1.36 0.01
Note: All figures reported are in percent per annum. GVO is for gross value of output and MFP is for multi factor
productivity.
Refers to MFP growth for agriculture from 1980 to 1994, anf for other industries from 1982 to 1994
** Refers to MFP growth for agriculture from 1995 to 2010, and for other industries from 1995 to 2005

30
Table 7: Sources of output growth, 1980-2010
Industry description GVO Contribution to output of MFP

growth Labour Capital Energy Materia Services
l
Agriculture, Hunting, 3.69 0.02 0.29 0.17 0.15 0.16 2.89
Forestry & Filing
Food, Beverages & 3.54 0.05 3.03 0.40 0.10 1.65 -1.69
Tobacco
Pulp, Paper, Paper Prod, 11.08 0.31 3.19 0.47 0.03 4.12 2.97
Printing and Publishing
Textiile, Textile 7.89 0.28 4.37 0.25 0.07 5.11 -2.19
Products, Leather &
Footwear
Machinery, NEC -1.21 0.01 -1.64 -0.27 0.20 -0.71 1.20
Basic Metals & 1.90 0.24 1.90 0.22 -0.36 0.99 -1.10
Fabricated Metal
Products
Other Non-Metallic 7.48 1.47 0.87 0.50 0.34 8.75 -48
Mineral Products
Industry Mean 4.91 0.34 1.72 0.25 0.08 2.87 -0.34

Industry Median 3.69 0.24 1.90 0.25 0.10 1.65 -1.1
Note: All figures are reported in percent per annum. For the agriculture industry, the observed period is 1980 to 2010.
For the remaining industries, the observed period is 1982 to 2005. GVO refers to gross value of output. MFP
is Multi factor productivity.

The results show that MFP has been negative across a wide range of
industries including food, beverages and tobacco, textile, textile products,
leather, footwear and basic metal and fabricated metal products. However, in
some industries (agriculture, paper and paper products and machinery) MFP
growth has been positive. Growth of output has been driven by factor
accumulation rather than MFP growth, except in agriculture and the paper
industry. This reflects a lack of improvement in the efficiency of converting
factor inputs into outputs.
The preceding analysis has shown that industrial development in Pakistan in

recent years has been characterized by low foreign investment, exports, value
addition and productivity and stagnant geographical dispersion. The
proceeding sections analyze the factors that have impeding the performance
of the industrial sector.
31
5.2.3 Business environment
There are several internationally comparable reports that are produced
regularly to document the competitiveness of the economy and the state of
the investment climate in Pakistan. The main findings of these reports are
summarized below.
Global Competitiveness Report

World Economic Forum’s Global Competitiveness Report calculates a “Global
Competitiveness Index” in which Pakistan ranks 122nd out of 138 countries in
2016-17. This ranking has improved marginally since 2013-14 though
changes in the number of countries surveyed each year make the rankings
not directly comparable from one year to the next.
Figure 23: Pakistan's ranking on the Global Competitiveness Index, 2012-17.
160
140
120
100
80 Pakistan's ranking
60 Number of countries
40
20
0
2012-13 2013-14 2014-15 2015-16
The report also documents Pakistan’s score on 12 pillars of performance.

Compared to South Asia, while Pakistan outperforms the region in terms of
market size, it fares less favourably on the remaining pillars, doing particularly
poorly on health and primary education and higher education and training.
Compared to neighboring competitors India and China, Pakistan
underperforms on all the pillars. Annex 1 provides detailed data on the sub-
indicators for these pillars, where indicators are graduated on a colour scale
from red (on those where Pakistan’s performance is particularly poor) to green
(where Pakistan’s performance is better). On two of the indicators that are
directly relevant to industrial development, market size and strength of
investor protection, Pakistan performs particularly well. On others, while there
is substantial room for improvement, Pakistan does not fare poorly. These
include financial markets, business sophistication and physical infrastructure
(ports, road etc). The weakest areas, where large majority of the indicators
are one of the worst in the world include institutions, energy, labour market
efficiency and goods market efficiency.
)Tr
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13 2013-
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Rank 124 / 144 133 / 148 129 / 144 126 / 140 122 / 138
3.5
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Figure 24: Pakistan's score3.4 3.4
on the 12 pillars 3.4
of competiveness 3.5
performance, 2015-16
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http://www3.weforum.org/docs/gcr/2015-2016/PAK.pdf
The Global Competitiveness Report also identifies the most problematic

factors for doing business on Pakistan. Provincial government can help
address several of these, in particular: corruption, access to finance,
inefficient government bureaucracy, inadequate infrastructure, inadequately
educated workforce, complexity of tax regulations and restrictive labour
regulations.
Pakistan
33
Figure 25: The most problematic factors for doing business in Pakistan, Executive Opinions Survey
2016
Score*
0 2 4 6 8 10 12 14 16 18
Corruption
Tax rates
Inflation
Access to financing
Inefficient government bureaucracy
Government instability/coups
Policy instability
Inadequate supply of infrastructure
Inadequately educated workforce
Crime and theft
Poor work ethic in labor force
Foreign currency regulations
Complexity of tax regulations
Restrictive labor regulations
Insufficient capacity to innovate
Poor public health
Source: World Economic Forum

*From a list of factors, respondents were asked to select the five most problematic for doing business in their country
and to rank them between 1 (most problematic) and 5 (least problematic). The score corresponds to the
responses weighted according to their ranking.
Doing Business Indicators
Doing Business indicators are calculated every year for Pakistan. In addition,
in 2010, sub-national doing Business indicators were calculated which
compare the regulatory environment for business in 13 Pakistani cities. The
indicators report back on six stages of the life of a small to medium-size
domestic enterprise: starting a business, dealing with construction permits,
registering property, paying taxes, enforcing contracts, and trading across
borders. While no single city was ranked best on all the indicators, doing
business is easiest overall in Faisalabad. Table 9 shows the rankings within
Pakistan, colour coded to show better rankings in green, graduated such that
worse rankings are in red. The cities in Punjab that are existing industrial
centres perform relatively better. It is no surprise moreover, that the best
performer, Faisalabad, is also the city with the largest industrial concentration
in Punjab, as shown earlier.
Overall, the distance to frontier for Pakistan on the Doing Business Indicators
has deteriorated marginally since 2010 (from 52.93 to 51.77, where higher
score indicates less distance to the best practice, the “frontier” at 100). As
shown in Figure 26, this decline is largely due a sharp dip in 2015. The last
year (2016-17) however, has shown a substantial improvement. Figure 27
shows Pakistan’s distance to frontier, compared with other regional countries.
34
Pakistan performs better than Bangladesh and Afghanistan, though while
Pakistan was closer to best practice than India till 2014, India’s improvement
combined with Pakistan’s decline has now reversed the trend. Particularly
problematic areas of doing business are trading across borders, registering
property and getting electricity.
35
Table 8: Sub-national Doing Business Indicators, Ranking within Pakistan
Ease of
Doing Dealing with Trading
Business Starting a Construction Registering Paying across Enforcing
Province Rank Business Permits Property Taxes Borders Contracts Average
Baluchistan Quetta 12 6 12 13 2 9 13 9.6
KPK Peshawar 8 3 6 9 10 8 8 7.4
Punjab Faisalabad 1 2 6 1 3 4 2 2.7

Punjab Multan 2 6 1 7 3 5 4 4.0
Punjab Lahore 3 3 3 4 3 13 8 5.3
Punjab Sheikhupura 5 9 8 5 3 7 6 6.1
Punjab Gujranwala 6 13 2 6 3 10 4 6.3
Punjab Sialkot 11 12 11 1 3 5 10 7.6
Punjab Rawalpindi 10 8 5 7 3 12 10 7.9
Sindh Sukkur 7 10 4 10 11 3 1 6.6

Sindh Karachi 9 3 10 11 11 1 3 6.9
Sindh Hyderabad 13 11 13 11 11 2 7 9.7
ICT Islamabad 4 1 8 3 1 11 10 5.4

Figure 26: Time trend of distance to frontier for doing business indicators, Pakistan
56
55
54
53
52
51
50
49
48
47
46
2010 2011 2012 2013 2014 2015 2016 2017
37
Figure 27: Distance to frontier for doing business indicators, 2010-17
70
65 Afghanistan
Overall distance to frontier
60 Bangladesh
55 Bhutan
50 India
45 Maldives
Nepal
40
Sri Lanka
35
Pakistan
30
2010 2011 2012 2013 2014 2015 2016 2017
Figure 28: Distance to frontier across doing business indicators, Pakistan 2017
90
80
70
60
50
40
30
20
10
0
Trading Across Registering Getting Resolving Getting Credit Paying Taxes Dealing with Protecting Starting a
Borders Property Electricity Insolvency Construction Minority business
Permits Investors
38
Annex 2 provides additional details for all the investment climate indicators,
benchmarking Punjab’s performance against the averages for Pakistan, South
Asia and all countries. The discussion below captures a selection of these
indicators. In general Punjab performs poorly compared to South Asia and
other countries. Relative to the other provinces in Pakistan, there is no
consistent pattern - on some indicators Punjab’s performance is better than
the national average, while on others it is worse.
As shown in Figure 39 in Annex 2, for example, on corruption, Punjab’s

performance is better than the Pakistani and South Asian average for the
need to give gifts to get a water or electrical connection, or to get a
construction permit. However, Punjab performs worse that Pakistan and
South Asia on the incidence of bribery, the depth of bribery, on the
expectation of gifts with respect to tax officials and to get an operating license.
In particularly, 27.7% of firms in KP, and 28% in Sindh report experiencing at
least one bribe payment request as compared to 34.2% in Punjab. Corruption
is also far more likely to be reported as the biggest obstacle to doing business
by enterprises which have a female top manager. This is shown in Figure 26.
Figure 29: Biggest obstacle to doing business, by gender Pakistan 2013
50
% of firms reportign it as the biggest obstacle
45
40
35
30
25
20
15
10
5
0
Top manager is female Top manager is male
Source: World Bank Enterprise Surveys, 2013
Likewise on taxes, Figure 49 Annex 2 shows that senior management in

Punjab needs to spend a smaller proportion of their time dealing with
government regulation that firms in Pakistan, South Asia and the rest of the
world. However, the number of days required to get a construction related
permit or an import license in Punjab is higher than the national average. Tax
administration and business licensing and permits are more problematic in
Punjab and in Pakistan compared to both South Asia and the world.
39
Punjab also performs far worse on crime as compared to the average for
Pakistan. As shown in Figure 40 in Annex 2, over 40% of firms in Punjab
report crime, theft and disorder as a major constraint to doing business, as
compared to 34% on average in Pakistan, 3% in KPK and 61.1% in Sindh.
Consequently a greater percentage of firms pay for security, and security
costs are a higher fraction of annual sales.
7% of firms in Punjab report access to finance as a major constraint to doing

business, as compared to 22.2% in Sindh and 10.8% in KPK. This is however,
much lower than the South Asian and the global average of approximately
26% of firms reporting access to finance as a major constraint. This is shown
in Figure 41 in Annex 2. Similarly, 7.5% of firms in Punjab use banks to
finance investments, as compared 1.8% if KPK and 83.4% in Baluchistan.
On gender, Punjab in particular and Pakistan in general both have fewer firms
with a female top manager, and majority female ownership. However, Punjab
does better than the national average on the percentage of full-time
permanent workers that are female (Figure 42, Annex 2).
Firms in Punjab also report a greater problem with the informal sector as
compared to those in Pakistan and South Asia, as shown in Figure 43, Annex
2). However fewer firms in Punjab report damage in transportation, or view
transport as a major constraint to doing business, possibly reflecting Punjab’s
investments in transport infrastructure in Punjab. This is further substantiated
by the data on Logistics Performance Index (LPI). While data on the LPI is not
available disaggregated by province, the figures show that Pakistan performs
better than the average for both South Asia and for Lower Middle Income
countries on all parameters of the LPI, and has improved steadily each year.
Firms in Punjab also report more difficulty with electricity, as shown in Figure
45, Annex 2, both in terms of number of outages and losses associated with
the outages. This is also substantiated by enterprise survey data, which
shows that 71% of the firms in Punjab declared electricity in biggest obstacle
to doing business, as compared to, for example, 13% in Sindh and 15% in
Baluchistan (Figure 30).
40
Figure 30: Biggest obstacle to doing business, by province, Pakistan 2013
80
% of firms reporting it as a biggest obstacle
70
60
50
40
30
20
10
Balochistan Islamabad Khyber-Pakhtunkhwa Punjab Sindh
In addition, as shown in Figure 31, electricity is a much more critical problem

for small firms, with almost 56% of small firms reporting this as their biggest
obstacle to doing business, as compared with 36% of medium sized firms and
39% of large firms.
41
Figure 31: Biggest obstacle to doing business, by size of firm, Pakistan 2013
60
% of firms reporting it as the biggest constraints
50
40
30
20
10
Small (5-19) Medium (20-99) Large (100+)
In terms of performance, firms in Punjab reported real annual sales growth of

0.1%, compared to Pakistan’s average decline of 0.1%, far lower than the
3.7% increase reported by South Asian firms. Similarly, labour productivity in
Punjab has fallen by 2.3% which is higher than the South Asian drop of 1.2%
but lower than the Pakistani average of a 4% decline in labour productivity.
While trade is in the federal jurisdiction, the different provinces report varying
experiences with trade. For example Punjabi firms report a greater number of
days required to clear direct exports through customs, and a higher
percentage of firms identify customs and trade regulations as a major
constraint compared to the national average, as shown in Figure. In particular,
12.3% of firms in KP report customs and trade regulations as a major
constraint compared with 22.2% in Punjab.
In terms of workforce, fewer firms in Punjab offer formal training, however, a

greater proportion of workers are offered formal training and there is a smaller
proportion of unskilled workers out of all production workers. Still 27% of firms
in Punjab report inadequately training workforce as a major constraint as
compared to 20.1% in KPK and 17.2% in Sindh, and 24.2% in Pakistan.
42
5.3 Regulatory structure
Industries in Punjab are regulated and facilitated by several provincial and
federal departments.
In Punjab, the Department of Industries, Investment and Commerce is the

coordinating body for registering firms, issuing clearance certificates,
maintaining a directory of industrial units, boiler inspections and enforcing the
establishment of industrial units in permitted areas. There are also some
autonomous bodies, attached bodies and Section 42 companies which come
under the purview of the Department of industries, Investment and
Commerce. Those relevant to industrial development include:
 Faisalabad Industrial Estates Development and Management

Company (FIEDMC) that develops and manages industrial estates in
Faisalabad
 Punjab Industrial Estates Development and Management Company
(PIEDMC) that develops and manages industrial estates in the rest of
Punjab, including Quaid-e-Azam Apparel Park
 Punjab Small Industries Corporation (PSIC) that develops industrial
estates and offers support functions for small and cottage enterprises
 Punjab Board of Investment and Trade (PBIT), the trade and
investment promotion agency of Punjab
 Punjab Consumer Protection Council
 Technical Education and Vocational Training Authority (TEVTA)
Other provincial institutions that support or regulate industrial development

include:
 Punjab Skills Development Fund (PSDF), a not-for-profit company set

up in collaboration with the Department for International Development,
UK and the Government of Punjab to provide skills and vocational
 Department of Labour, is responsible for the enforcement of labour
laws, maintenance of industrial peace and the safety, health and
welfare of workers
 Environment Protection Department, is responsible for implementing
the Environment Protection Act and is also responsible for ensuring
suitable dengue prevention measures in industrial units
 Punjab Land Records Authority (Punjab Board of Revenue) and land
development authorities such as LDA
 Provincial tax authorities: Punjab Revenue Authority and Excise &
Taxation department
Other functions are federally regulated and governed, such as taxation

(Federal Board of Revenue), firm registration (Securities and Exchange
Commission of Pakistan), and trade (Ministry of Commerce). There is also an
43
authority for providing support to small and medium enterprises in Pakistan,
Small and Medium Enterprises Development Authority (SMEDA).
These institutions and regulatory bodies jointly determine the state of the
business environment in Punjab, and provincial government has a role to play
in coordinating the overall impact of federal and provincial regulations on
businesses, to ensure that businesses are not excessively impeded.
Following the 18th constitutional amendment, moreover, an increased
responsibility for the business and regulatory environment of firms falls within
the provincial remit.
A recently conducted study, “Diagnostic and Research study on policy

reforms for Punjab’s priority business sectors” by Business Environment
Reform Facility,1 provides an assessment of the business regulatory
environment, and recommendations for business environment reform. This
research study complements the World Bank survey data described above by
providing qualitative findings based on extensive consultations with private
sector firms in Punjab’s priority sectors: garments, automotive, footwear, agro-
and livestock based business.
The study concludes that firms in Punjab face a number of constraints with
respect to the business environment. Across the board, tax policy and
administration was seen as the most problematic area. Tax policy focuses
narrowly on short-run tax collection, without regard for the impact on long-
term growth, and consequently tax revenue. Similar issues arise with the
Labour Department, whose mandate focuses on worker protection, without
attempting to make the compliances realistically implementable by
businesses. For example, many of the labour laws are outdated, and firms
believe that it is not physically possible to comply with all of them.
There are three common findings that apply across the nine BER functions.
Firstly, government departments need mandates that consider the impact of

their functions on businesses. Businesses need to be facilitated in meeting
regulations, and rent seeking should be curtailed through an effective
incentive system for employees.
Secondly, there needs to be better coordination and data sharing between the
different departments.
1
Afraz, Nazish, Dan Aylward, Usman Khan, Jayyad Malik and Hina Shaikh (2016) “Diagnostic and
Research study on policy reforms for Punjab’s priority business sectors” Business Environment
Reform Facility (World Bank and Department for International Development). Available at
http://www.businessenvironmentreform.co.uk/wp-content/uploads/2016/06/Punjab-BERF-
Research-and-Diagnostic-Report.pdf
44
Thirdly, policy needs to be based on better evidence; involving the private
sector at all stages through a proper private public dialogue system, in which
the private sector believe there is a real appetite across government for
positive change.
Other specific findings are summarized below by each of the nine Business
Environment Reform functions.
Business licensing and registrations procedures
Registering a company in Punjab, including with tax authorities, requires

several steps. These are often time-consuming and in many cases manual.
Despite recent improvements in automation in provincial government,
government departments and agencies seldom share data with each other,
resulting in separate applications and processing times for each of them. The
complicated procedures typically require lawyers and informal payments,
which increases the cost of doing business for the investors. Other clearances
and permits such as the ones required from Town Municipal Authority and
Lahore Development Authority (for buildings), the Intellectual Property
Organization and the Environment Protection Agency offer similar challenges.
Tax policies and administration 
Once the businesses are registered for tax purposes, filing the returns,
assessment of taxes and their payment are also time-consuming and
cumbersome. Tax policies, rules and regulations are also subject to change,
which adds to the costs of compliance. The enterprises in Punjab sometimes
have to face duplicity of tax regimes, with FBR and Punjab Revenue Authority
(PRA), particularly in case of the value added tax. Even within Punjab, firms
have to deal separately with two tax authorities: PRA and E&T. The perceived
discretion of tax authorities also creates space for rent seeking. Claiming
refunds with the FBR is also problematic with long processing times and
informal payments required to expedite the process. This ties up working
capital for firms.
Access to finance
Access to finance presents a cross-cutting challenge which is more severe for

smaller firms. Large firms can secure better financial rates as they typically
pay KIBOR + 1 – 1.25%. In comparison, SMEs often have to pay KIBOR + 3 –
6%. Currently, SMEs have no specific financial products available for them.
Providing collateral is difficult for them as stocks, letters of credit for export
orders, confirmed orders and factory premises are often not accepted.
Consequently, SMEs often have to rely on personal property or unleveraged
personal savings to secure credit.
45
Labour laws and administration 
The labour laws in Pakistan and Punjab are perceived by firms to be outdated
and ambiguously worded. Complete compliance to these laws is considered
an unachievable task, which typically leads to firms making unofficial
payments to avoid inspections and ineffective enforcement. SMEs face more
difficulty in such cases as they lack the resources and influence to challenge
wrongful penalties, and are more easily intimidated by labour officials.
Overall quality of regulatory governance
Overall poor quality of regulatory governance and the wide discretion of

government officials pose another challenge for businesses. For instance,
informal payments and bribes are routinely used to get a No Objection
Certificate from the Environmental Protection Department or to seek a
Structure Safety Certificate. Recently introduced Dengue inspections have
also created another avenue for rent seeking.
Land titles, registration and administration
The computerization of land titles in Punjab has made transfer of land quicker
and cheaper. However, where changes are disputed, delays are caused due
to lack of sharing between courts, property registry office and tax office.
Furthermore, the Environmental Protection Agency needs to provide
clearance for new manufacturing units, which can be challenging, as there is
no proper land zoning.
Access to commercial courts and alternative dispute resolution

mechanisms
Since Pakistan has no commercial courts, business disputes have to be

resolved through the normal judicial system, which is ineffective and time-
consuming. There is also no formal alternative dispute resolutions
mechanism, and businesses prefer out-of-court settlements.
Public-private dialogue processes
There is a lack of formal, systematic dialogue processes during policy

formulation. Business member organizations have no say in relevant
discussions and any consultation is seen as redundant. Therefore,
businesses use personal networks to make any inroads. Work is being done
with the Planning and Development Department and the Investment Climate
Reform Unit to develop an online feedback mechanism. This will give the
private sector an improved channel of communication with the public sector
and hence, should be piloted in priority sectors.
46
Access to market information
Market information is unreliable as the Trade Development Authority of

Pakistan (TDAP) supports only those exhibitions that businesses already
know about. Other entities, such as the Small and Medium Enterprise
Development Authority (SMEDA) and Punjab Small Industries Corporation
(PSIC) are also not seen as useful. Even business associations are seen as
helpful to only large firms.
5.4 Evaluation of policies and key initiatives, 2007-2016
5.4.1 Policy documents

The industrial sector is covered by two important policy documents: the
federal Vision 2025 and provincial Punjab Growth Strategy 2014-2018.
Vision 2025
Pakistan’s Vision 2025 identifies seven pillars, or priority areas, for Pakistan.
While all of these pillars impact industrial development, some do so more
directly. These are:
 Pillar 2: Achieving sustained, indigenous and inclusive growth

 Pillar 5: Private Sector and Entrepreneurship Led growth
 Pillar 6: Developing a competitive knowledge economy though value –
addition
The sources of growth that are targeted for Pillar 2 are a higher investment
rate, productivity growth and greater efficiency of resource mobilization.
Specific strategic initiatives include formalizing the parallel economy, resource
mobilization through an increase in the tax to GDP ratio, investment and
export promotion, harnessing the potential contributions of the Pakistani
diaspora, urban development and smart cities (for example by housing and
public transport interventions) and a social protection framework.
The interventions targeted for Pillar 5 are strengthening institutions (such as

commercial courts and alternate dispute resolution mechanisms, and those
for intellectual property protection and enforcing quality standards), removing
infrastructure bottlenecks (transportation, communications, water and energy),
macroeconomic stability, privatization of services rather than public sector
enterprises, public-private partnerships (in which the public sector facilitates
and the private sector delivers with accountability), and investment.
Pillar 6 targets competitiveness and productivity through increased education

for the workforce, particularly in higher education and science, math and ICT,
improved goods and labour market efficiency and greater financial market
47
sophistication, improvement of ICT and trade infrastructure. It also targets
cluster development, particularly in industrial parks, value chain improvement
and innovation.
While these targets are directly relevant to the industrial sector, most of them
fall outside the remit of the Department of Industries. The interventions that
target human development, urban development, infrastructure and taxation
are covered in the relevant chapters. This chapter looks specifically at
industrial estates, skills and any other projects that come under the purview of
the Department of Industries.
Punjab Growth Strategy

At the provincial level, the Punjab Growth Strategy identifies specific priorities
for Punjab, including private sector led, export led and employment intensive
economic growth. The industries sector plan translates these priorities into a
specific set of recommendations for the Department of Industries. These
include
 the formation of a provincial industrial policy that gives strategic

direction and coordinates the efforts of various arms of Government,
 improvement in data and coordination between industry and
Government agencies in order to address these constraints and assess
industry requirements
 provision of infrastructure, land and key services via industrial estates
and special economic zones
 assessing skills requirements, and enabling and providing skills training
to labour
 Enforcing quality standards and investment Promotion.
In addition, the Punjab Growth Strategy singles out ready-made garments as

a priority sector for Punjab, and dedicates an industrial park, Quaid-e-Azam
Apparel Park, exclusively for the development of this sector.
Against these priorities, Punjab government has undertaken several programs

to realize the objectives. The key programs are: provision of land, provision of
skills and a Jobs and Competitiveness program.
5.4.2 Key Initiatives
Skills
In the Punjab Growth Strategy 2014-18, Punjab government set a target of
training 2 million individuals. This was undertaken primarily by three dedicated
skills agencies: Technical Education and Vocational Training Authority
(TEVTA), Punjab Vocational Training Council (PVTC) and Punjab Skills
Development Fund (PSDF), but is also undertaken by other government
48
departments such as the Social Welfare, Higher Education and Agriculture
departments. Since the announcement of this target in the Punjab Growth
Strategy, the Program Implementation Unit collects details of all trainings
conducted.
Table 9: Skills imparted since 2014, Punjab
2014-15 2015-16 2016-17 (up till

30 April 2017)
TEVTA 110,000 173,246 41,818
PVTC 53,600 138,883 97,500
PSDF 50,000 56,187 16,322
Private Sector (TEVTA affiliated) 29,578 25,494 18,586
Private Sector (others) 77,000 - 5,317
Other government departments 60,308 66,001 35,437
Total 380,486 459,811 214,980
Source: Program Implementation Unit, Government of Punjab
PSDF, in particular, is externally monitored and evaluated, and therefore is a

useful model for the Government to follow. PSDF was established in 2010
with a GBP 50 million fund to finance the training of 135,000 individuals and
develop the market for training services, starting with pilot programs in four of
Pakistan’s poorest districts. After successfully piloting operations, PSDF
funded training was extended to another ten districts in 2013. By March 2015,
PSDF had funded training of 82,000 individuals, 40% of whom were female.
This has expanded further, and PSDF is now running schemes under three
main programs to provide training to 380,000 individuals. These are:
 Punjab Skills Development Program (PSDP), USD 32 million (World

Bank funded)
 Skill Development Program (SDP), GBP 127 million (Department for
International Development, UK in collaboration with Government of
Punjab)
 Integrated Reproductive Maternal Newborn Child Health & Nutrition
Program (IRMNCH) Rs. 35 million, funded by the Government of
Punjab
PSDF’s program design has been informed by potential employers, rigorous

research and with regular monitoring, which makes the program effective and
dynamic. This sets a benchmark for other programs, whether in skills or
elsewhere.
Jobs and Competitiveness Program

Punjab Jobs & Competitiveness (J&C) Program, a collaboration between the
World Bank Group and Government of Punjab, is specifically designed to
49
implement the Punjab Growth strategy objectives. It targets improvement in
the investment climate and promotion of investment and jobs in more
inclusive and sustainable industrial estates in Punjab. This program has total
funding of USD 100 million over five years in the form of budgetary support.
On investment climate reforms, the Program supports reforms to reduce the
cost and risks of doing business, improve laws affecting labour, in particular to
facilitate women’s employment, and promote investments by foreign
investors. This also includes support in compliance with GSP+ labour
conventions.
There is an additional element of spatial development, in which the program

supports the up gradation and development of industrial infrastructure through
a private sector-led competitive process informed by the Punjab Spatial
Strategy. This includes improved public investment process to support
industrial and urban development, improved support to industrial infrastructure
through Public Private Partnerships and a new institutional set up to support
industrial estates and clusters.
Interventions
Specific interventions under this Program are as follows:
1. Improvement in aggregate doing business performance for Punjab in

four doing business indicators, which include business registration,
property registration, construction permits and contract enforcement.
2. Improve compliance with GSP+ labour conventions.
3. Investment promotion related activities i.e. investor outreach plans,
investor database and announcements etc.
4. Development of Spatial Strategy to help prioritize public infrastructure
investments, institutional development.
5. Promote private sector led industrial estates and sustainable Combined
Effluent Treatment Plans (CETPs).
6. Institutional Development to improve public support to industrial
clusters.
The program was initiated in 2016, and the results are likely to start becoming
visible in the next few years, as the program completes implementation.
Industrial Parks
One of the most important levers for industrial development that is available to
Punjab Government is the provision of industrial land, particularly in industrial
parks. Punjab now has 34 industrial parks, an increase in 10 industrial parks
in the last ten years. From just 4 large industrial estates in 2007, there are
now 13 large industrial estates. Details of the industrial estates present in
2007 and 2016 are given in Tables 11 and 12.
50
Table 10: Industrial Estates in Punjab, in 2007
S# Estate Agency Area Total Vacant Plots Percent Price of Plot Facilities Available Missing Facilities
(Acres) Plots Plots Colonized Colonization
Large Industrial Estates

1 Multan Industrial PIEDMC 743 247 47 140 57 Electricity, Gas,
Estate (P-I) Sewerage, Roads
2 Multan Industrial PIEDMC 667 360 200 0 0 Electricity, Gas,
Estate (P-II) Sewerage, Roads
3 Quaid-e-Azam I. E, PIEDMC 575 512 Nil 400 78 Electricity, Gas,
Lahore. Sewerage, Roads
4 Sunder Industrial PIEDMC 1550 763 763 0 0 Electricity, Sewerage, Gas
Estate Roads
Small Industrial Estates (Government Funded)
5 Jhelum PSIC 52.6 288 10 200 69 Rs.52,000/k Electricity, Sewerage, Gas
Roads
6 Gujjar Khan PSIC 17.44 183 20 100 55 Rs.70,000/k Electricity, Sewerage, Gas
Roads
7 Chakwal PSIC 17 120 20 60 50 Rs.80,000/k Electricity, Roads, Gas
Sewarage
8 Gujranwala-I PSIC 103.5 426 10 390 92 Rs.6,567/k Electricity, Gas,
Sewerage, Roads
9 Gujranwala-II PSIC 107 554 35 500 90 Rs.64,000/k Electricity, Gas,
Sewerage, Roads
10 Gujrat-I PSIC 71 422 2 400 95 Rs.6,500/k Electricity, Gas,
Sewerage, Roads
11 Bahawalpur PSIC 51.14 205 5 198 97 Rs.140,000/k Electricity, Gas,
Sewerage, Roads
12 Sialkot-I PSIC 98 372 Nil 372 100 Rs.10,700/k Electricity, Gas,
Sewerage, Roads
51
13 Lahore-I PSIC 9.75 40 Nil 40 100 Rs.220,000/k Electricity, Gas,
Sewerage, Roads
14 Faisalabad PSIC 244 1021 8 990 97 Rs.220,000/k Electricity, Gas,
Sewerage, Roads
15 Sargodha PSIC 52 255 15 188 74 Rs.150,000/k Electricity, Gas,
Sewerage, Roads
16 Sahiwal PSIC 52 187 5 170 91 Rs.250,000/k Electricity, Gas,
Sewerage, Roads
17 Daska PSIC 52 150 2 80 53 Rs.140,000/k Electricity, Gas,
Sewerage, Roads
Small Industrial Estates (On Self Finance Basis)
18 Taxila PSIC 118 384 80 40 10 Rs.135,000/k Electricity, Sewerage, Gas
Roads
19 Gujranwala-III (EPZ) PSIC 113 212 Nil 35 17 Rs.368,000/k Electricity, Sewerage, Gas
Roads
20 Sialkot-II (EPZ) PSIC 109 416 Nil 6 1 Rs.145,000/k Electricity, Gas,
Sewerage, Roads
21 Sialkot-III (EPZ) PSIC 128 465 Nil 9 2 Rs.145,000/k Electricity, Gas,
Sewerage, Roads
22 Kasur PSIC 80 326 50 18 6 Rs.300,000/k Electricity, Sewerage, gas
Roads
23 Mian Channu PSIC 70.62 157 20 55 35 Rs.110,000/k Electricity, Gas,
Sewerage, Roads
24 Khanewal PSIC 65 313 30 40 13 Rs.197,000/k Electricity, Sewerage, gas
Roads
Total 5146.05 8378 1322 4431 53
52
Table 11: Industrial Estates in Punjab, as of December 2016
S# Estate Agency Area Total Vacant Plots Percent Price of Plot Facilities Available Missing Facilities
(Acres) Plots Plots Colonized Colonization
Large Industrial Estates

1 Multan Industrial PIEDMC 743 247 Nil 247 100 Electricity, Gas,
Estate (P-I) Sewerage, Roads
2 Multan Industrial PIEDMC 667 360 26 130 36 20 M/acre Electricity, Gas,
Estate (P-II) Sewerage, Roads
3 Quaid-e-Azam I. E, PIEDMC 575 512 Nil 461 90 Electricity, Gas,
Lahore. Sewerage, Roads
4 Sunder Industrial PIEDMC 1750 763 Nil 595 78 Electricity, Gas,
Estate Sewerage, Roads
5 Bhalwal Industrial PIEDMC 445 321 227 2 1 8 M/Acre Electricity, Gas
Estate Sewerage, Roads
6 Rahim Yar Khan PIEDMC 450 199 139 3 2 8.5 M/Acre Electricity, Gas
Industrial Estate Sewerage, Roads
7 Quaid-e-Azam PIEDMC 1536 Not finalized Under Electricity, Gas,
Apparel Park, Development Sewerage, Roads
Sheikhupura
(Declared SEZ)
8 Vehari Industrial PIEDMC 200 202 187 0 0 6.5 M/Acre Under Under development
Estate, Vahari Development
9 Chunian Industrial PIEDMC 320 239 239 0 0 Not finalized Under Under development
Estate, Kasur Development
10 Value Addition City, FIEDMC 213.91 127 1 74 58 6.638 Electricity, Gas,
Fsd (Declared SEZ) M/acre Sewerage, Roads
11 M-3 Industrial City FIEDMC 1187.6 134 1 37 28 6.638 Electricity, Gas,
Faisalabad (Phase M/acre Sewerage, Roads
1A) (Declared SEZ)
53
12 M-3 Industrial City FIEDMC 586 84 22 5 6 6.638 Under Under development
Faisalabad (Phase M/acre development
1B) (Declared SEZ)
13 M-3 Industrial City FIEDMC 2582.4 274 137 70 26 6.638 Under Under development
Faisalabad (Phase 2) M/acre development
(Declared SEZ)
Small Industrial Estates (Government Funded)
14 Jhelum PSIC 52.6 288 Nil 278 97 Rs.52,000/k Electricity, Gas
Sewerage, Roads
15 Gujjar Khan PSIC 17.44 183 1 155 85 Rs.70,000/k Electricity, Gas
Sewerage, Roads
16 Chakwal PSIC 17 120 Nil 97 81 Rs.80,000/k Electricity, Roads, Gas
Sewarage
17 Gujranwala-I PSIC 103.5 426 Nil 426 100 Rs.6,567/k Electricity, Gas,
Sewerage, Roads
18 Gujranwala-II PSIC 107 554 Nil 554 100 Rs.64,000/k Electricity, Gas,
Sewerage, Roads
19 Gujrat-I PSIC 71 422 Nil 422 100 Rs.6,500/k Electricity, Gas,
Sewerage, Roads
20 Bahawalpur PSIC 51.14 205 1 204 100 Rs.140,000/k Electricity, Gas,
Sewerage, Roads
21 Sialkot-I PSIC 98 372 Nil 372 100 Rs.10,700/k Electricity, Gas,
Sewerage, Roads
22 Lahore-I PSIC 9.75 40 Nil 40 100 Rs.220,000/k Electricity, Gas,
Sewerage, Roads
23 Faisalabad PSIC 244 1021 3 1013 99 Rs.220,000/k Electricity, Gas,
Sewerage, Roads
24 Sargodha PSIC 52 255 1 254 100 Rs.150,000/k Electricity, Gas,
Sewerage, Roads
54
25 Sahiwal PSIC 52 187 Nil 187 100 Rs.250,000/k Electricity, Gas,
Sewerage, Roads
26 Daska PSIC 52 150 Nil 88 59 Rs.140,000/k Electricity, Gas,
Sewerage, Roads
Small Industrial Estates (On Self Finance Basis)
27 Taxila PSIC 118 384 Nil 48 13 Rs.135,000/k Electricity, Gas
Sewerage, Roads
28 Gujranwala-III (EPZ) PSIC 113 212 Nil 37 17 Rs.368,000/k Electricity, Gas
Sewerage, Roads
29 Sialkot-II (EPZ) PSIC 109 416 Nil 10 2 Rs.145,000/k Electricity, Gas,
Sewerage, Roads
30 Sialkot-III (EPZ) PSIC 128 465 Nil 12 3 Rs.145,000/k Electricity, Gas,
Sewerage, Roads
31 Kasur PSIC 80 326 Nil 22 7 Rs.300,000/k Electricity, gas
Sewerage, Roads
32 Mian Channu PSIC 70.62 157 Nil 69 44 Rs.110,000/k Electricity, Gas,
Sewerage, Roads
33 Khanewal PSIC 65 313 24 58 19 Rs.197,000/k Electricity, gas
TSewerage, Roads
34 Lahore-II PSIC 114 348 3 0 0 Rs.325,000/k Sewerage, Roads Electricity, Gas.
Total 12981 10306 1012 5970 58
55
5.5 ADP Allocation
Figure documents the ADP allocation of the Department of Industries in the
last ten years. The allocation has increased sharply since 2013, and the
average annual allocation between 2014-17 (post Punjab Growth Strategy) is
over 6 times as high as that before 2014. The amount is allocated to schemes
run by the Department and its associated companies and includes skills
training by TEVTA, PVTC and PSDF, the Chief Minister’s Self Employment
Scheme and soft loans given to PIEDMC and FIEDMC for developing
industrial parks. In previous years, a large part of the budget has also been
allocated to PSIC for industrial parks and other schemes for small and cottage
enterprises.
Figure 32: ADP allocation to the Department of Industries
14
12
ADP allocation (PKR billion)
10
56
5.6 Opportunities
5.6.1 CPEC
The China–Pakistan Economic Corridor (CPEC) represents a USD 46 billion portfolio
of projects including highways, port development, power generation and an optic
fiber project. The planned investments target some of the most critical infrastructure
gaps in Pakistan. Industry in Pakistan can look forward, for example, to an alleviation
of the energy constraint that has been identified as the single most crucial bottleneck
in growth and competitiveness. In addition, CPEC will improve transport and
connectivity through the length of Pakistan, which is particularly important for trade
with China and the Central Asian countries beyond. China is an important trade
partner for Pakistan, and in so far as the anticipated ease in trade results in cheaper
imported inputs and machinery for industrial units in Pakistan, and a large consumer
market for Pakistan’s products, Pakistan has much to gain.
However, it is becoming increasingly clear that CPEC will not automatically translate
into improved industrial development. Businesses in Punjab (and throughout
Pakistan) are wary, for example, that the impact of CPEC would be to flood the
Pakistani market with finished Chinese consumer goods, putting local firms out of
business. This fear is based on the impact of the Free-Trade Agreement with China,
signed in 2006. Data shows that after the FTA, Pakistan’s imports to China have
increased much more sharply than exports to China, as shown in Figure. The
bilateral trade balance itself is not problematic: if imports from China allow Pakistan
to become more globally competitive, the overall trade balance can improve.
However, as shown in the chart below, the overall trade balance of Pakistan with the
world has been falling unabated and the bilateral trade deficit with China alone
accounted for 40% of the Pakistan’s overall trade deficit in 2015.
Figure 33: Trade flows with China, 2003-2015, as reported by Pakistan
12.00
10.00
8.00
US$ billion
6.00
4.00
2.00
0.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Export (US$) Import (US$)
Source: UN Comtrade, downloaded February 2017
57
Figure 34: Pakistan's trade balance with the world and with China, 2003-2015
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-5
US$ billions
-10
-15
-20
-25
World China
Source: ITC Trade maps, downloaded February 2017

Despite the FTA being in place for more than 10 years, Pakistan has not been able to
cater significantly to Chinese markets. It would require a detailed investigation to
explore the factors that have prevented Pakistani producers from accessing Chinese
markets. This investigation is important in devising a strategy for CPEC: Much of the
benefit from the trade aspect of CPEC depends on being able to access Chinese
markets to expand exports, and being able to import technology to allow Pakistan to
become more competitive in global export markets.
For this, Pakistan will need to negotiate an effective FTA and devise an investment
incentive strategy to encourage investments from China that help meet Pakistan’s
objectives of increased technology acquisition, greater value-addition and exports,
and higher quality and quantity of employment, while discouraging those that are
environmentally damaging.
The provinces will also need to align their own public investments to ensure that the
CPEC investments are leveraged for greatest positive impact. For example, the
development of the core region on the main CPEC road artery is part of the CPEC
investments. However linking and developing the “radiation areas” surrounding the
main arteries would ensure that the benefits are spread out and accessed by a wider
population. Readiness for CPEC is not just in terms of physical infrastructure, but also
in terms of business environment and labour. For firms to benefit from improved
opportunities to export to China and CARs, for example, they must be able to produce
quality products that are aligned to market demand and competitively priced.
Availability of energy, and a regulatory framework that does not impede firms
excessively, would give Pakistani firms a level playing field to compete internationally.
In addition, an educated labour force has better technology absorption capacity, is
more resilient to structural change, and is able to respond quickly to changing market
requirements.
58
The Department of Industries, Investment and Commerce has developed an
industrial co-operation framework for CPEC with technical assistance from the
International Growth Centre, This provides a bridge between Chinese priorities for
CPEC (as articulated in One Belt One Road policy documents and the Long Term
Plan for Pakistan that was developed by the Chinese) and Punjab’s priorities (as
articulated in the Punjab Growth Strategy). Recommendations from this research are
summarized in the section on recommendations below, and one of the key
recommendations – an industrial policy for Punjab, was started immediately, to be
completed by August 14, 2017. This industrial policy should provide a solid
understanding of the industrial sector in Pakistan, identifying needs, providing
strategic direction and coordinating the efforts of various arms of Government in
addressing constraints and needs. This will be useful in responding to CPEC and
any other developments that may arise.
5.6.2 Innovation
The ninth Sustainable Development Goal (SDG) from the United Nations Agenda for
Sustainable Development aims to “build resilient infrastructure, promote inclusive
and sustainable industrialization and foster innovation”. This target is particularly
relevant for Pakistan as it seeks to accommodate the youth bulge. Increasing the
share of manufacturing is important as the manufacturing sector has a high capacity
to deliver jobs. Moving up the manufacturing value chain to more innovative
processes, on the other hand, is crucial to transforming the sustainability and quality
of jobs in Pakistan.
From iPods to branded jeans, putting physical inputs together is typically the lowest
value addition process in the value chain. The value captured by the Pakistani
factory assembling a pair of branded jeans, for example, is about 20% of the sales
value. Approximately 50% of the sales value remains with the brand-name retailers,
where the product was designed and branded. This is illustrated in Figure 35: the
more innovative services on either side of basic manufacturing and assembly create
higher value, and it is imperative to develop these skills and services to ensure
higher value addition.
59
Figure 35: Smiley model of value addition
Source: World Economic Forum, 2012
Fostering innovation requires far more R&D personnel: Pakistan currently has 167
R&D researchers per million people, compared to China’s 1090 and Japan’s 5084.
This further filters down to quality of education, particularly higher education, which
continues to be well below the targets set for the country.
Pakistan’s current education profile in shown below in Fugure 36. While there isn’t a
substantial difference in primary school enrolment between Pakistan and other
regional competitors such as China and India, this gap grows with the level of
education and for both secondary and tertiary education Pakistan’s labour force is
less educated.
Figure 36: Education enrolment rates for Pakistan relative to competitors, 2014
120
100 Pakistan
80 India
60 China
40 Thailand
20 Korea
0 Japan
Gross enrollment ratio, Gross enrolment ratio, Gross enrolment ratio, USA
primary, both sexes (%) secondary, both sexes tertiary, both sexes (%)
(%)
Source: World Development Indicators, available at http://data.worldbank.org/data-

catalog/world-development-indicators, downloaded February 2017
60
There is also a far smaller proportion of the population engaged as technicians and
researchers.
Figure 37: Technicians in R&D per million people, 2013
600
500
400
300
200
100
0
Pakistan South Asia India Japan

Figure 38: Researchers in R&D per million people
6000
5000
4000
3000
2000
1000
0
South Asia India Pakistan China USA Japan

In addition, just 32% of Pakistani firms offer formal training to their employees,
compared to 36% in India and 79% in China.
All these indicators point towards Pakistan’s low level of readiness for absorbing
technology and mismatch for higher technology processes such as product
61
development. The current labour profile makes Pakistan more suited for assembly
and basic manufacturing, at least in the short term.
However, it is important to have avenues for moving to higher value addition

processes in the medium and long term. In general, education, skill formation,
training in ICT and related areas and a facilitating environment for R&D (such as
protection of intellectual property right, creation of labs and science parks, and
incentives for in-house technology development) all help ensure that absorptive
capacity is widespread throughout the population. It will be important to align
educational policies and curricula with the labour market to ensure that new
opportunities are leveraged, and contribute to inclusive and employment generating
growth. This is particularly important for Pakistan at the moment to help
accommodate the demographic bulge productively.
Innovation also requires a more enabling and stable investment climate that gives
confidence to technology partners and attracts investment. The auto industry in
Pakistan demonstrates the detrimental impact of poor investment climate on
innovation. The auto industry is in the top three most innovative industries in the
world, filing 12% of all patents worldwide. The Japanese parent companies of
domestic carmakers Toyota, Honda and Suzuki, are all frontrunners in innovation,
battling for market share in one of the most competitive and fast moving industries in
the world.
Yet in Pakistan they seem to have settled into a lower equilibrium. Incomplete
implementation of policies, a frequently changing policy environment and poor
investment climate have discouraged new investment and entrenched the market
power of the incumbents, thereby removing market pressure to provide better value,
higher quality cars. The lack of national standards further means that the carmakers
are not required by the government to meet any quality target in Pakistan.
An investment friendly approach with sensible, stable regulation can promote a more
dynamic industry, and attract innovative global firms to locate their R&D in Pakistan.
This would have technology and employment spillovers throughout the value chain,
and would also help retain Pakistani researchers and innovators in Pakistan.
5.7 Summary and Way Forward

This chapter documents the current state and historical development of the industrial
sector in Punjab. Industrial development in Punjab, and in Pakistan, in recent years
has been characterized by low and falling foreign investment, exports, value addition
in manufacturing and productivity. Punjab’s industry has also had a fairly stagnant
geographical dispersion. On the Global Competitiveness Index, Pakistan ranks 122 nd
out of 138 countries in 2016-17, in the lowest quintile.
There are several impediments to industrial development and competitiveness in

Punjab that have been identified consistently from the several survey datasets and
from qualitative research: a shortage of energy, policy instability, poor regulatory
62
governance and low availability of factor inputs such as skilled labour and finance
are the key binding constraints at the moment.
The devolution in 2010 following the 18th constitutional amendment have given
greater space for the Government of Punjab to change this, and several important
steps have been taken by the Government to stem this decline. Firstly, the Punjab
Government has prepared a growth strategy that has acted as a policy document
that coordinates the arms of different government and donor agencies. The main
direct initiatives for industrial development that have followed have been aligned with
this strategy: Skills, Jobs and Competitiveness Program and Industrial Parks.
Some of these initiatives have already started to show results, such as skills and
industrial parks, particularly for Ready Made Garments, Punjab’s priority sector.
Others such as the Jobs and Competitiveness Program became operational in 2016,
and therefore the results are still to come. Yet other initiatives that directly address
the binding constraints to business, such as a one-window facilitation and an
industrial policy for Punjab, are also in the pipeline.
There are several recommendations that follow from the constraints that remain.
1. Energy is the single more important impediment to business In Punjab, and

one where Punjab’s performance is below the national average. Specific
recommendations on energy can be found in the relevant chapter.
2. Business environment, including regulatory governance and access to
finance, is also a high priority area and one for which Punjab must undertake
urgent reforms in order to encourage domestic and foreign investment and
allow firms to be globally competitive. Addressing corruption and building well-
functioning institutions should be high on Punjab government’s agenda, as
Punjab performs poorly not just in comparison with the world, but also in
comparison with other provinces. More specific recommendations are
provided in the section on business environment below.
3. Having a skilled and educated labour force, including higher and technical
education, is crucial in building a resilient, high value-added industrial sector.
Specific recommendations on education can be found in the relevant chapter.
Developing vocational skills has been an important item on the Department of
Industries’ agenda since the Punjab Growth Strategy and evidence-based
programs have been rolled out to provide skills. It will be important to continue
to monitor the interventions, and use the evidence to scale up those
interventions that have been successful.
4. The provision of industrial land is an important tool for industrial development,
and PIEDMC, FIEDMC and PSIC need to ensure a demand-based system
where developed land, connected to utilities, is readily available for domestic
and foreign investors to locate their industrial units. Past experience has been
that while the land is acquired, it is not ready to use, which results in poor
colonization, or speculative purchases. The industrial parks authorities need
63
to develop a sustainable system that ensures provision of land at a low cost to
serious investors while deterring speculative investors.
5. There is a dearth of good quality, regularly collected data on industries in
Punjab. This data is required for responsive, evidence-based policy making.
Regular, good quality data on provincial exports, FDI and industrial output,
and firm level data on outputs and inputs would enable researchers to analyze
trends such as labour productivity and GPP, identify areas that need
facilitation, and track the impact of policy interventions.
Business Environment recommendations:2
Some common recommendations apply across the nine BER functions:
1. Government departments need mandates that consider the impact of their

functions on businesses. Businesses need to be facilitated in meeting
regulations, and rent seeking should be curtailed through an effective
incentive system for employees.
2. There needs to be better coordination and data sharing between the different
departments.
3. Policy needs to be based on better evidence; involving the private sector at all
stages through a proper private public dialogue system, in which the private
sector believe there is a real appetite across government for positive change.
While there were problems in all nine BER functions, the really problematic ones
were tax policies and administration, labour laws and administration and overall
quality of regulatory governance. Specific short to medium term recommendations
for these functions are:
Tax policies and administration
 Use a single tax ID by a single tax collection agency to ensure no duplication

 Enhance transparency in PRA procedures and communicate all applicable
taxes and their rates on a website
 Align tax policy between FBR and Government of Punjab and expedite refund
claims resolution of over taxation cases.
Labour laws and administration
 Publish a short labour code compliance booklet and checklist of laws by

Labour Department
 Simplify labour laws regimes
 Develop intermediaries for interaction between labour officials and businesses
with inspections regime based on risk profile of different industries
 Provide exemptions for low risk industries and third party validation for
medium risk industries
2
These recommendations are based on detailed research by the Business Environment Research Facility for
Punjab
64
 Ensure online availability of inspection reports to enhance transparency
Overall quality of regulatory governance
 A publically available list of approved Dengue spray companies, by Health

Department can be used to issue certificates of compliance, without on-
ground inspections.
 Use software, such as AutoCAD, for online verification of the compliance of
building plans with building codes
 Combine all inspections into a single regime, in the long run, as practiced
globally with time bound government service delivery to businesses, with
consequences for non-compliance
 Develop relevant legislation for labour, environment, provincial taxes, land,
construction permits and utility connections
CPEC specific recommendations:3
Punjab will need to ensure readiness for the changes expected due to CPEC in
order to ensure that positive impact on the economy are maximised. Having a good
regulatory environment with stable policies and an improved business environment
are general recommendations that apply just as well to adjusting to the changes that
are expected due to CPEC. Some specific recommendations are:
1. Develop sector-specific investor fora to ensure that investors are able to

identify and act upon favorable opportunities. This includes opportunities for
both inward and outward investment, as both facilitate technology acquisition
and growth.
2. Undertake public-private dialogue to inform the government of the market
pulse and provide timely feedback for any corrective action on part of the
government.
3. Provide targeted incentives to support desired policy outcomes. For Punjab,
this may include tax incentives for provincial taxes, subsidized credit;
industrial parks and export promotion zones or other forms of land lease;
guarantees or special purpose vehicles to subsidize high-risk finance;
subsidized skills development interventions; and business facilitation. It is
important that any such incentives should follow international guidelines on
investment policy principles such as transparency, property protection and
non-discrimination.
4. Collect sound evidence and data to assess industrial trends, competitiveness
of various sectors, value chain dynamics and identify bottlenecks and failures,
etc. Such intelligence should regularly feed into government’s policy making
and help calibrate any government interventions. An industrial observatory
housed within the Industries Department can take on this role.
3
These recommendations are based on detailed research by the Consortium for Development Policy Research
on Industrial Cooperation under CPEC
65
5. Coordinate with federal government to renegotiate the Free Trade Agreement
(FTA) with China to take full benefit of industrial cooperation under CPEC. It is
important that tariff structure for Pakistan should be at par with that offered to
China’s other trading partners and non-tariff barriers should be rationalized
and minimized through effective negotiation.
6. Tighten the regulatory and safeguards regime and strengthen capacity to
implement environmental regulations. It is expected that CPEC will also lead
to industry relocation from China to Pakistan, and it will be important to ensure
that environmental safeguards are in place to regulate this new industrial
activity.
7. Build capacity of local industry so that they can take maximum benefit of
these upcoming investments. It is also critical that any new industry,
especially in sectors supported by government, should focus on technology
transfer and strengthening of local business. Efforts should also be made for
upstream and/or downstream integration of local partners.
8. Align all public investments with CPEC and ensure readiness for local
industrial clusters to take benefit of upcoming developments. Government of
Punjab is already making substantial investments through its annual
development portfolio in a number of areas that are relevant to CPEC, such
as skills development, industrial parks development, rural and urban roads
development, etc. These need to be calibrated in light of CPEC plans. A
similar readiness would also be required for the local workforce, so that they
are suitably skilled to take advantage of opportunities offered by new and
expanding industries. Pakistan has poor secondary and tertiary school
enrolment compared to competitors, and it is imperative to provide basic
competencies and higher and technical education to a wider section of the
population. This will ensure that labour is resilient to structural change and
has absorptive capacity for new technologies.
66
5.7 Annexes
Annex 1: Pakistan’s performance on the Global Competitiveness Index, 2015-16
RANK/1 RANK/1
INDICATOR VALUE INDICATOR VALUE
40 40
1st pillar: Institutions 4th pillar: Health and Primary Education
1.01 Property rights 3.47 118 4.01 Malaria cases/100,000 pop* 1953.6 46
1.02 Intellectual property protection 3.21 112 4.02 Business impact of malaria 4.19 49
1.03 Diversion of public funds 3.08 85 4.03 Tuberculosis cases/100,000 pop* 275 125
1.04 Public trust in politicians 2.44 99 4.04 Business impact of tuberculosis 4.44 104
1.05 Irregular payments and bribes 2.99 116 4.05 HIV prevalence % adult pop* 0.1 1
1.06 Judicial independence 3.56 82 4.06 Business impact of HIV/AIDS 4.81 94
Favouritism in decisions of Infant mortality deaths/1000 live
1.07 2.97 75 4.07 69 134
government officials births*
1.08 Wastefulness of government spending 2.58 102 4.08 Life expectancy years* 66.59 106
1.09 Burden of government regulation 3.27 86 4.09 Quality of primary education 2.99 112
Efficiency of legal framework in settling Primary education enrolment net
1.1 3.08 108 4.1 71.86 134
disputes %*
Efficiency of legal framework in
1.11 3.01 101 5th pillar: Higher Education and Training
challenging regs.
Transparency of government Secondary education enrolment
1.12 3.33 125 5.01 38.32 129
policymaking gross %*
Tertiary education enrolment
1.13 Business costs of terrorism 2.59 139 5.02 9.82 115
gross %*
1.14 Business costs of crime and violence 2.83 130 5.03 Quality of the education system 3.57 75
Quality of math and science
1.15 Organized crime 3.07 132 5.04 3.64 89
education
1.16 Reliability of police services 2.84 126 5.05 Quality of management schools 4.13 70
1.17 Ethical behaviour of firms 3.6 98 5.06 Internet access in schools 3.53 103
Strength of auditing and reporting Availability of research and
1.18 3.82 117 5.07 3.82 94
standards training services
1.19 Efficacy of corporate boards 4.1 121 5.08 Extent of staff training 3.33 122
Protection of minority shareholders’
1.2 3.55 112 6th pillar: Goods Market Efficiency
interests
Strength of investor protection 0–10
1.21 6.7 21 6.01 Intensity of local competition 4.69 98
(best)*
2nd pillar: Infrastructure 6.02 Extent of market dominance 3.25 110
Effectiveness of anti-monopoly
2.01 Quality of overall infrastructure 3.48 98 6.03 3.41 106
policy
Effect of taxation on incentives to
2.02 Quality of roads 3.76 77 6.04 3.66 66
invest
2.03 Quality of railroad infrastructure 2.83 60 6.05 Total tax rate % profits* 32.6 50
2.04 Quality of port infrastructure 4.08 66 6th pillar: Goods Market Efficiency (cont'd)
No. procedures to start a
2.05 Quality of air transport infrastructure 4.13 79 6.06 10 116
business*
Available airline seat km/week
2.06 439 48 6.07 No. days to start a business* 19 94
millions*
2.07 Quality of electricity supply 2.07 129 6.08 Agricultural policy costs 3.39 103
Mobile telephone subscriptions/100
2.08 73.33 124 6.09 Prevalence of trade barriers 4.01 106
pop.*
2.09 Fixed telephone lines/100 pop.* 2.65 112 6.1 Trade tariffs % duty* 17.49 137
3rd pillar: Macroeconomic Environment 6.11 Prevalence of foreign ownership 3.65 116
3.01 Government budget balance % GDP* -4.71 106 6.12 Business impact of rules on FDI 3.83 111
3.02 Gross national savings % GDP* 12.75 115 6.13 Burden of customs procedures 3.36 111
3.03 Inflation annual % change* 8.62 127 6.14 Imports as a percentage of GDP* 22.14 132
3.04 General government debt % GDP* 64.22 101 6.15 Degree of customer orientation 4.07 106
3.05 Country credit rating 0–100 (best)* 25.3 115 6.16 Buyer sophistication 3.3 78
67
RANK/ RANK/1
INDICATOR VALUE INDICATOR VALUE
140 40
7th pillar: Labor Market Efficiency 10th pillar: Market Size
Cooperation in labor-employer Domestic market size index 1–7
7.01 3.54 131 10.01 4.99 23
relations (best)*
Foreign market size index 1–7
7.02 Flexibility of wage determination 4.14 114 10.02 4.88 55
(best)*
7.03 Hiring and firing practices 4.09 48 10.03 GDP (PPP$ billions)* 882.31 26
7.04 Redundancy costs weeks of salary* 27.17 115 10.04 Exports as a percentage of GDP* 11.28 137
7.05 Effect of taxation on incentives to work 3.69 84 11th pillar: Business Sophistication
7.06 Pay and productivity 3.66 95 11.01 Local supplier quantity 4.63 53
7.07 Reliance on professional management 3.45 122 11.02 Local supplier quality 3.88 98
7.08 Country capacity to retain talent 3.48 70 11.03 State of cluster development 3.68 68
7.09 Country capacity to attract talent 2.86 96 11.04 Nature of competitive advantage 3.05 99
7.1 Women in labor force ratio to men* 0.3 136 11.05 Value chain breadth 3.83 64
8th pillar: Financial Market Development 11.06 Control of international distribution 3.85 62
8.01 Availability of financial services 4.24 80 11.07 Production process sophistication 3.6 86
8.02 Affordability of financial services 3.96 83 11.08 Extent of marketing 3.92 100
8.03 Financing through local equity market 3.55 69 11.09 Willingness to delegate authority 3.27 115
8.04 Ease of access to loans 2.58 90 12th pillar: Innovation

8.05 Venture capital availability 2.64 78 12.01 Capacity for innovation 3.67 95
Quality of scientific research
8.06 Soundness of banks 4.36 99 12.02 3.21 104
institutions
8.07 Regulation of securities exchanges 3.78 93 12.03 Company spending on R&D 3.01 88
University-industry collaboration in
8.08 Legal rights index 0–10 (best)* 3 93 12.04 3.21 98
R&D
Gov’t procurement of advanced
9th pillar: Technological readiness 12.05 3.55 52
tech products
Availability of scientists and
9.01 Availability of latest technologies 4.58 79 12.06 4.31 44
engineers
PCT patents applications/million
9.02 Firm-level technology absorption 4.42 82 12.07 0.04 109
pop*
9.03 FDI and technology transfer 4.34 77
9.04 Individuals using Internet %* 13.8 119
Fixed broadband Internet
9.05 1.08 107
subscriptions/100 pop*
9.06 Int’l Internet bandwidth kb/s per user* 5.68 115
Mobile broadband subscriptions/100
9.07 5.06 125
pop.*
68
Annex 2: Punjab’s performance on World Bank’s Investment Climate survey
Figure 39 Investment Climate performance of Punjab, 2013: Corruption
100
90
80
70
60
50
%
40
30
20
10
0
Bribery incidence Bribery depth (% Percent of firms Percent of firms Value of gift Percent of firms Percent of firms Percent of firms Percent of firms Percent of firms Percent of firms
(percent of firms of public expected to give expected to give expected to secure expected to give expected to give expected to give expected to give expected to give identifying
experiencing at transactions gifts in meetings gifts to secure a government gifts to get an gifts to get a gifts to get an gifts to get a water gifts to public corruption as a
least one bribe where a gift or with tax officials government contract (% of operating license construction electrical connection officials "to get major constraint
payment request) informal payment contract contract value) permit connection things done"
was requested)
Punjab Pakistan South Asia All countries
Source: World Bank Investment Climate survey, 2013
69
Figure 40 Investment Climate performance of Punjab, 2013: Crime
70
60
50
40
%
30
20
10
0
Percent of firms paying Security costs (% of If the establishment pays Percent of firms Losses due to theft and If there were losses, Products shipped to Percent of firms
for security annual sales) for security, average experiencing losses due vandalism against the average losses due to supply domestic markets identifying crime, theft
security costs (% of to theft and vandalism firm (% of annual sales) theft and vandalism (% of that were lost due to theft and disorder as a major
annual sales) annual sales) (% of product value)* constraint
70
Figure 41 Investment Climate performance of Punjab, 2013: Finance
250
200
150
%
100
50
0
Percent of firms using Proportion of Proportion of loans Value of collateral Percent of firms using Proportion of working Percent of firms
banks to finance investments financed requiring collateral needed for a loan (% banks to finance capital financed by identifying access to
investments by banks (%) (%) of the loan amount) working capital banks (%) finance as a major
constraint
71
Figure 42 Investment Climate performance of Punjab, 2013: Gender
40
35
30
25
20
%
15
10
0
Percent of firms with Percent of firms with a Percent of firms with Proportion of permanent Proportion of permanent Proportion of permanent
female participation in female top manager majority female ownership full-time workers that are full-time production full-time non-production
ownership female (%) workers that are female workers that are female
(%)* (%)*
72
Figure 43 Investment Climate performance of Punjab, 2013: Informality
100
90
80
70
60
50
%
40
30
20
10
0
Percent of firms competing against unregistered or Percent of firms formally registered when they Percent of firms identifying practices of competitors
informal firms started operations in the country in the informal sector as a major constraint
73
Figure 44 Investment Climate performance of Punjab, 2013: Electricity
120
100
80
60
40
20
0
Number of electrical Duration of a typical If there were Losses due to If there were Percent of firms Proportion of If a generator is Days to obtain an Percent of firms
outages in a typical electrical outage outages, average electrical outages (% outages, average owning or sharing a electricity from a used, average electrical connection identifying
month (hours) duration of a typical of annual sales) losses due to generator generator (%) proportion of (upon application) electricity as a major
electrical outage electrical outages (% electricity from a constraint
(hours) of annual sales) generator (%)
74
Figure 45 Investment Climate performance of Punjab, 2013: Other infrastructure
30
25
20
15
10
0
Number of water insufficiencies in a typical month* Proportion of products lost to breakage or spoilage Percent of firms identifying transportation as a major
during shipping to domestic markets (%)* constraint
75
Figure 46 Investment Climate performance of Punjab, 2013: Innovation and Technology
80
70
60
50
40
%
30
20
10
0
Percent of firms with an Percent of firms using Percent of firms having their Percent of firms using e-mail to Percent of firms with an annual
internationally-recognized technology licensed from own Web site interact with clients/suppliers financial statement reviewed by
quality certification foreign companies* external auditors
76
Figure 47 Investment Climate performance of Punjab, 2013: Firm performance I
90
80
70
60
50
%
40
30
20
10
0
Capacity utilization (%)* Percent of firms buying fixed
assets
Figure 48 Investment Climate performance of Punjab, 2013: Firm performance II

77
5.0
4.0
3.0
2.0
1.0
0.0
&
Real annual sales growth (%) Annual labor productivity growth

(%)
-1.0
-2.0
-3.0
-4.0
-5.0
78
Figure 49 Investment Climate performance of Punjab, 2013: Regulation and Taxes
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Senior management Number of visits or If there were visits, Days to obtain a Days to obtain an Percent of firms Percent of firms Percent of firms
time spent dealing required meetings average number of construction-related import license identifying tax rates identifying tax identifying business
with the with tax officials visits or required permit as a major administration as a licensing and
requirements of meetings with tax constraint major constraint permits as a major
government officials constraint
regulation (%)
79
Figure 50 Investment Climate performance of Punjab, 2013: Trade
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Days to clear direct exports Percent of firms exporting Proportion of total sales that are Days of inventory of main input* Percent of firms identifying
through customs directly (at least 1% of sales) exported indirectly (%) customs and trade regulations as
a major constraint
80
Figure 51 Investment Climate performance of Punjab, 2013: Workforce
45
40
35
30
25
%
20
15
10
0
Percent of firms offering formal Proportion of workers offered Proportion of unskilled Percent of firms identifying Percent of firms identifying an
training formal training (%)* workers (out of all production labor regulations as a major inadequately educated
workers) (%)* constraint workforce as a major constraint
81
Figure 52 World Bank Logistics Performance Index, 2016 Figure 53 Pakistan's Logistics Performance Index, 2007-2016
LPI Score LPI Score

3.5 3.5
3 3
2.5 2.5
Timeliness Customs Timeliness Customs
2 2
1.5 1.5
1 1
0.5 0.5
0 0
Tracking & tracing Infrastructure Tracking & tracing Infrastructure
Logistics International Logistics International

competence shipments competence shipments
Pakistan South Asia Lower middle income countries 2007 2010 2012 2014 2016
82
Source: World Bank
Notes:
1. The Logistics Performance Index is calculated using responses from a structured online survey of logistics professionals from the companies
responsible for moving goods around the world.
2. Higher score indicate better performance. Germany, the best performer in 2016 has an overall LPI of 4.23. Syria, the lowest performer, had a
score of 1.6.
83
Bibliography
1. Afraz, Nazish, Dan Aylward, Usman Khan, Jayyad Malik and Hina Shaikh (2016) “Diagnostic and Research
study on policy reforms for Punjab’s priority business sectors” Business Environment Reform Facility (World
Bank and Department for International Development).
2. Lopez-Acevedo, Gladys Denis Medvedev and Vincent Palmade (2017) “South Asia’s Turn: Policies to Boost
Competitiveness and Create the Next Export Powerhouse” World Bank
3. Pakistan’s industrial Policy: “It’s Spatial Aspects and Cluster Development in Pakistan” (2010).
84

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Chapter 5: Industrial Growth and

Figure 1: Industrial value-added, Punjab, 2005-2016 ............................................................... 6

Table 1: Industrial value-added: decomposition of growth rates ............................................... 6

Section 2 examines the regulatory structure that governs industry in Punjab,

5.1 Current Profile and historical development

5.1.1 Structure and growth of the industrial sector

Industrial Value added (million

Growth Total (million PKR)

Source: Punjab Bureau of Statistics, 2017

& Distribution & Gas

Gross Value added, billion PKR 1600

Source: Punjab Bureau of statistics

Source: Directorate of Industries, 2006 and 2016

Source: Directory of Industries, 2006 and 2016

Source: Directory of Industries, 2006 and 2016

Source: Directory of Industries, 2006 and 2016

Faisalabad, Lahore and Kasur together employed 45.2% of Punjab’s industrial

Figure 9 depicts this on a map of Punjab. Districts with higher industrial

Source: Directorate of Industries, 2006 and 201

Source: Directorate of Industries, 2016 data

Sialkot Faisalabad Gujranwala Kasur Gujrat Sargodha Lahore Okara RY Khan

Source: Directorate of Industries, 2016

Large Scale Industry in the Punjab Small/Cottage Industry in the Punjab

Source: Industries, Commerce & Investment Department, Government of the Punjab

Agglomeration in Pakistan, as measured by the concentration of employment

The other interesting geographical aspect of Punjab’s industry is that the

Source: Directorate of Industries

Manufactured items % share of Punjab in Pakistan’s

Cotton yarn 28.2

Source: Punjab Development Statistics, 2015. Data for 2013-14. Available at

Textiles and clothing makes up nearly two-thirds of Pakistan’s exports (Figure

However, globally, cotton demand is declining by 6% every year. This is

Data source: ITC Trade Maps, 2016

This can be seen in the context of Pakistan’s overall declining export

Pakistan South Asia Lower middle income China India

Source: World Development Indicators, World Bank

For Punjab to contribute to Pakistan’s export growth, it will be important to

From the perspective of positioning Punjab for export markets therefore,

Source: World Bank databank http://databank.worldbank.org

Figure 19: Net inflows of FDI, as a percentage of GDP, Pakistan

China India Pakistan Lower middle income South Asia

Source: World Bank databank http://databank.worldbank.org

Pakistan South Asia Lower middle income China India

Source: World Bank databank http://databank.worldbank.org

Figure 21: Industry, value added (annual % growth), Pakistan

Source: World Bank databank http://databank.worldbank.org

In contrast, Punjab Bureau of Statistics reports that industrial and

Gross Value added (billion 1200 16.0

% change Gross Value Added

Industry description Average GVO growth by period

Industry Mean 4.91 10.54 6.2 1.61 3.37 6.4 2.31

Source: Burki et al (2016) “Pakistan KLEMS database and productivity measurement

Industry description GVO growth MFP MFP 80-94* MFP 1999

Industry Mean 4.91 -0.34 0.14 -0.84

Source: Burki et al (2016) “Pakistan KLEMS database and productivity measurement

Industry description GVO Contribution to output of MFP

Industry Mean 4.91 0.34 1.72 0.25 0.08 2.87 -0.34

Source: Burki et al (2016) “Pakistan KLEMS database and productivity measurement

Tax policies and administration 