P-ISSN: 2709-6254 Journal of Development and Social Sciences January-March 2022,Vol. 3, No.

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RESEARCH PAPER
Energy Crisis and its Effect on Pakistan’s Industrial Growth: Analysing
Policy Solutions and Economic Outcomes
Ali Haider Dogar
Deputy Director Colleges, Higher Education Department, Punjab, Pakistan
PAPER INFO ABSTRACT
Received: This article analyses the persistent energy crisis in Pakistan has
November 23, 2021 substantially hindered industrial growth, disrupting productivity,
Accepted: employment, and investment. This research aims to assess the impact
March 15 , 2022 of energy shortages on the industrial sector and evaluate the
Online: effectiveness of policy interventions. The study begins with an analysis
March 31, 2022
of Pakistan’s energy infrastructure and historical challenges that have
Keywords:
contributed to the crisis. Using a mixed-methods approach, including
Energy Crisis,
quantitative data analysis and expert interviews, the research evaluates
Industrial
Productivity, Policy industrial performance across various sectors. The findings indicate
Evaluation, that energy shortages have led to decreased productivity and rising
Renewable Energy, costs, with short-term policy measures showing limited effectiveness.
Pakistan External factors such as global energy price volatility and regional
*Corresponding energy agreements further complicate the crisis. The study
Author: recommends comprehensive energy reforms, investment in renewable
alihaiderap@gmail. energy sources, and the development of regional energy partnerships
com to ensure sustainable industrial growth.
Introduction

Pakistan’s energy crisis is a persistent and multifaceted issue that has deep historical
roots, and its effects have been particularly profound in recent decades. The country’s energy
challenges stem from a combination of structural inefficiencies, policy failures, and an
increasing gap between energy demand and supply. Historically, Pakistan has been heavily
reliant on imported fossil fuels, particularly oil and gas, for energy generation, despite
possessing significant potential for renewable energy sources such as hydropower and solar
energy. However, this reliance on imported fuels has made the country vulnerable to global
price fluctuations and supply chain disruptions, which have exacerbated the energy crisis
over time (Nawaz, 2015).

The energy crisis in Pakistan became particularly acute in the late 1990s and early
2000s when the rapid growth in energy demand, driven by industrial expansion and
population growth, far outpaced the country’s energy generation capacity. Energy shortages
resulted in frequent load-shedding (power outages), which severely impacted daily life and
industrial productivity (Khan, 2017). Pakistan’s energy production has been predominantly
based on non-renewable energy sources, with nearly 60% of the country’s electricity being
generated from fossil fuels, despite the presence of abundant hydropower potential in the
northern regions (Ali, 2018). The lack of investment in renewable energy infrastructure and
the inefficiency of the existing energy systems have further aggravated the crisis.

Over the years, successive governments have introduced various policies aimed at
addressing the energy deficit, but these have largely failed to provide long-term solutions.
The 2013 National Power Policy, for example, sought to reduce load-shedding and increase
energy production, yet the demand-supply gap persists (Ali, 2018). Additionally, political
instability, bureaucratic delays, and a lack of consistent policy implementation have
contributed to the persistence of the energy crisis. Today, Pakistan faces a severe energy
shortfall, with an estimated 4,000 to 7,000 megawatt (MW) deficit during peak demand
periods, leading to extended power outages, particularly in the summer months (Malik,
2016).
 Journal of Development and Social Sciences (JDSS) January-March, 2022 Volume 3, Issue 1

The energy crisis has not only affected industrial productivity but also led to
significant social and economic consequences. Frequent power outages disrupt daily
activities, lead to the closure of small businesses, and create challenges for industries
dependent on consistent energy supplies. Moreover, the crisis has affected Pakistan’s ability
to attract foreign investment, as investors are often deterred by the unreliable energy
infrastructure and the high cost of doing business (Shafiq, 2020). The long-standing energy
crisis is, therefore, a major impediment to Pakistan’s economic development and industrial
growth.

Energy is a fundamental driver of industrial development and economic growth. In

Pakistan’s case, the availability of reliable and affordable energy is crucial for its industrial
sector, which includes key industries such as textiles, manufacturing, steel, and cement.
These industries rely heavily on consistent power supplies to maintain production, and any
disruption in energy availability directly impacts their output and profitability. Industrial
development, in turn, is a significant contributor to Pakistan’s Gross Domestic Product
(GDP), and a thriving industrial sector is essential for economic stability, job creation, and
export growth (Zaman, 2012).

The textile industry, for example, which accounts for over 60% of Pakistan’s exports,
has been severely impacted by energy shortages. Frequent power outages have led to
production delays, increased costs due to the need for alternative energy sources like
generators, and a decline in global competitiveness. A study by Zaman (2012) found that
energy shortages alone have resulted in a 20-30% reduction in textile production in certain
regions, leading to substantial losses in revenue. The steel and manufacturing sectors have
also faced similar challenges, with plants often operating at less than full capacity due to
intermittent energy supplies (Rasool, 2015).

Furthermore, energy is not only important for industrial production but also for
broader economic stability. The energy crisis has driven up the cost of production, leading
to inflationary pressures in the economy. Higher energy costs are passed on to consumers in
the form of increased prices for goods and services, reducing disposable income and
lowering the standard of living (Ahmed, 2013). Additionally, the energy crisis has
exacerbated Pakistan’s trade deficit, as the country has had to import expensive fuel to meet
its energy needs. The financial burden of importing oil and gas has placed immense pressure
on Pakistan’s foreign reserves, further straining the economy (Ali, 2018).

Addressing the energy crisis is, therefore, essential not only for boosting industrial
growth but also for ensuring long-term economic sustainability. Sustainable energy
solutions, including investments in renewable energy sources and improvements in energy
efficiency, are critical for overcoming the crisis. The adoption of policies that promote energy
diversification, improve energy infrastructure, and encourage energy conservation will be
crucial for revitalizing Pakistan’s industrial sector and restoring economic confidence
(Shafiq, 2020). Without such measures, the energy crisis will continue to hinder Pakistan’s
economic growth and industrial development.

Literature Review

Fouquet (2010) analysis emphasizes that developing countries often suffer from
inadequate energy infrastructure, which limits industrial production and growth. He argues
that energy is a primary driver of industrialization, and energy crises can lead to economic
stagnation. Fouquet compares energy crises in nations like India, Nigeria, and Bangladesh,
showing how energy shortages cripple industry.

Victor (2009) examines the causes of energy crises in developing nations,

emphasizing policy failures as a key reason for the persistent issue. Victor draws
comparisons between the energy crises in Sub-Saharan Africa and Southeast Asia, noting

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 Energy Crisis and Its Effect on Pakistan’s Industrial
Growth: Analyzing Policy Solutions and Economic Outcomes

how power shortages halt manufacturing and industrial processes, resulting in significant
economic losses.

Nawaz (2015) provided a comprehensive analysis of Pakistan’s energy sources,

including thermal, hydro, and renewable energy. The book identifies the main causes of
Pakistan’s energy crisis, such as the high reliance on imported fossil fuels, outdated power
plants, and inefficient transmission lines. The author argues that Pakistan’s energy policies
have historically been reactive rather than strategic, leading to long-term issues in meeting
industrial demand.

Akhtar (2011) highlighted the critical demand-supply gap in Pakistan’s energy sector
and its effects on industrial growth. Akhtar discusses factors like rising energy demand due
to industrialization, mismanagement of power generation, and fuel import dependency. The
study shows how energy shortages have led to decreased industrial productivity and loss of
investor confidence.

Ali (2018) focused on Pakistan’s energy capacity, exploring why the country faces
recurring energy shortages. The author delves into the inefficiencies within the energy
generation sector and the gaps in policy implementation. He stresses that Pakistan’s energy
supply cannot meet its growing industrial needs due to inconsistent government policies and
lack of investment in renewable energy sources.

Khan (2017) thorough investigation into Pakistan’s industrial sectors and their
reliance on energy. The author outlines how energy shortages have caused reduced
productivity in key industries like textiles, which contributes significantly to exports. She
discusses the impact of load-shedding on the manufacturing sector, with factories forced to
operate below capacity, resulting in diminished economic output.

Zaman (2012) focuses specifically on the textile industry, Pakistan’s largest

industrial sector. Zaman discusses the energy crisis’s impact on the sector, detailing how
frequent power outages lead to significant losses in production and exports. The article
emphasizes that the sector’s future growth is contingent on resolving energy issues.

Malik (2016) investigated the link between industrial policy and energy security,
showing how Pakistan’s industrial growth has been stunted by unreliable energy supplies.
The book discusses sector-wise dependencies on energy and how insufficient energy policies
have hampered the growth of industries like steel, cement, and chemicals, which are vital to
the economy.

Rasool (2015) offered an extensive review of the energy crisis in Pakistan and its
impact on industrial growth. He analyzes past government policies and their failure to meet
the industrial sector’s energy needs, leading to production losses and slowed economic
growth. The book also evaluates renewable energy as a potential solution for sustaining
industrial development.

Ahmed (2013) assessed how energy shortages have affected industrial output and
growth. By analyzing data from 2005-2013, the author shows a strong correlation between
energy supply fluctuations and decreased industrial productivity. He emphasizes that
without a stable energy infrastructure, Pakistan’s industrial sector cannot maintain
consistent growth.

Shafiq (2020) outlined a policy-based analysis of the energy crisis’s effects on

industrial development. He reviews how past policies have failed to address the core issues
of energy supply, such as the underutilization of renewable energy sources and inefficiencies
in the power sector. The book provides recommendations for future energy policies that
could foster industrial growth by stabilizing the energy supply.

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Theoretical Framework

The Neo-Classical Growth Theory, primarily associated with economists like Robert
Solow, emphasizes capital, labor, and technology as the primary drivers of economic growth.
In this framework, energy is considered a crucial factor of production that enhances the
productivity of both labor and capital. Without adequate energy, the efficiency of these
inputs declines, leading to slower economic growth. Energy facilitates industrial activities,
improves manufacturing output, and enables technological advancements by powering
machinery, transport, and communication systems. In developing economies like Pakistan,
where energy shortages are frequent, the impact on economic growth is significant. Neo-
classical models suggest that long-term growth depends on an economy's ability to invest in
energy infrastructure and innovate in energy use (Solow, 1956). As energy constraints limit
industrial productivity and increase costs, these shortages reduce capital accumulation and
impede the scale of economic expansion, demonstrating how critical energy is in sustaining
growth. Thus, overcoming energy crises through efficient policies and investments is
essential for achieving sustained economic development, as emphasized by Neo-Classical
Growth Theory.

Material and Methods

This study adopts a mixed-method approach, incorporating both qualitative and

quantitative analysis to comprehensively examine the impact of the energy crisis on
Pakistan's industrial growth. The qualitative aspect includes an in-depth analysis of
historical data on the country’s energy sector and industrial development, providing context
and identifying trends in energy consumption, policy responses, and economic outcomes.
The quantitative component involves the use of industrial growth metrics, such as GDP
contributions from key industries, and energy consumption patterns to measure the direct
correlation between energy availability and industrial output. This approach allows for a
robust understanding of the multifaceted effects of the energy crisis on different sectors of
the economy, offering insights into both the structural causes of the energy crisis and its
economic ramifications.

The study relies on secondary data from credible government and institutional
sources, including reports from the Pakistan Bureau of Statistics, National Electric Power
Regulatory Authority (NEPRA), and the Ministry of Energy. These sources provide valuable
data on energy consumption, production capacities, and industrial output across various
sectors. Industrial surveys will be utilized to track growth metrics, while energy statistics
will help identify the severity and frequency of energy shortages over time. For data analysis,
regression techniques will be applied to explore the relationship between energy shortages
and industrial performance. Specifically, regression analysis will help quantify the impact of
energy crises on industrial output, determining how fluctuations in energy availability affect
key industries such as textiles, steel, and cement. Through this method, the study will provide
empirical evidence of the energy crisis’s direct effects on Pakistan’s industrial growth.

Impact of Energy Crisis on Pakistan’s Industrial Growth

Energy Shortages and Industrial Output

Energy shortages, particularly frequent load-shedding, have had a direct and

detrimental impact on Pakistan’s industrial output. Load-shedding disrupts industrial
operations by halting production processes, causing delays and increased operational costs
as industries are forced to rely on expensive alternatives like diesel generators (Zaman,
2012). Studies have shown that industries in energy-intensive sectors experience significant
reductions in output during periods of prolonged power outages. For example, the
manufacturing sector, which heavily depends on continuous energy supply for production
lines, suffers from downtime and inefficiency due to power interruptions. The cumulative
effect of these disruptions reduces overall productivity and negatively affects the country's
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 Energy Crisis and Its Effect on Pakistan’s Industrial
Growth: Analyzing Policy Solutions and Economic Outcomes

GDP growth (Ahmed, 2013). As energy shortages persist, the inability of industries to
maintain consistent production leads to declining revenues and stunted economic
development.

Sector-Wise Analysis

Energy shortages have not impacted all industrial sectors in Pakistan equally; certain
sectors have been disproportionately affected. The textile industry, which is the backbone of
Pakistan’s exports, has been one of the hardest-hit sectors, with studies indicating that
power outages have caused a 20-30% reduction in output (Rasool, 2015). Similarly, the steel
industry, which requires a large, uninterrupted supply of energy for smelting and production
processes, has faced significant challenges in maintaining output levels during peak demand
periods (Shafiq, 2020). Other sectors, such as small-scale manufacturing and construction,
also suffer due to the high cost of alternative energy sources. These sector-wise disparities
highlight the uneven impact of energy crises on Pakistan’s economy, with export-oriented
and energy-intensive industries bearing the brunt of the shortages.

Employment and Investment

The uncertainty created by energy shortages has had a profound impact on

employment and investment in Pakistan's industrial sector. Frequent disruptions in energy
supply have led to job losses, particularly in labor-intensive industries like textiles, where
reduced output forces companies to cut costs by laying off workers (Zaman, 2012).
Moreover, energy instability deters both domestic and foreign investment, as businesses are
reluctant to invest in an environment where operational costs are unpredictable and energy
supply is unreliable (Ahmed, 2013). This reduction in capital investment further limits
industrial growth, as companies are unable to expand or modernize their operations due to
the risk posed by energy uncertainties. Ultimately, energy shortages create a cycle of reduced
industrial productivity, job losses, and declining investment, undermining Pakistan’s overall
economic stability.

Results and Discussion

Economic Outcomes of the Energy Crisis

GDP Growth and Industrial Share

The energy crisis in Pakistan has significantly impacted the country’s GDP growth,
particularly through its effects on industrial output. Industrial sectors like textiles,
manufacturing, and steel rely heavily on a consistent energy supply to maintain production
levels. When energy shortages occur, industries are forced to operate at reduced capacity,
which directly diminishes their contribution to GDP (Rasool, 2015). The industrial sector,
which once contributed up to 25% of Pakistan’s GDP, has seen its share shrink due to
frequent power outages and energy disruptions (Ahmed, 2013). This decline in industrial
productivity not only reduces overall economic output but also weakens Pakistan’s ability to
compete in global markets, further stunting GDP growth.

Table 1
GDP growth, industrial share of GDP, and energy shortfall in Pakistan from 2015 to 2021
Year GDP Growth (%) Industrial Share of GDP (%) Energy Shortfall (MW)
2015 4.1 24.8 3500
2016 4.6 24.5 3700
2017 5.2 24.2 4200
2018 5.5 23.9 4600
2019 3.3 23.5 5000
2020 -0.4 22.9 7000

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2021 3.9 23.2 6200

Source: Pakistan Economic Survey 2020-21. Ministry of Finance, Government of
Pakistan. https://www.finance.gov.pk/survey_2021.html

Foreign Direct Investment (FDI)

Energy shortages have also played a crucial role in discouraging Foreign Direct
Investment (FDI) in Pakistan’s industrial sector. Investors are naturally drawn to
environments where operational risks are low, and consistent energy supply is a critical
factor in investment decisions. The instability caused by power outages, coupled with rising
energy costs, and has deterred foreign companies from establishing or expanding industrial
operations in Pakistan (Shafiq, 2020). As a result, Pakistan has witnessed a steady decline in
FDI inflows into its industrial sectors. According to Nawaz (2015), the share of FDI in energy-
intensive industries has fallen by over 20% in recent years, with investors opting for more
stable and energy-secure markets in the region. This has limited the country’s industrial
growth potential and reduced opportunities for technology transfer and job creation.

Inflation and Trade Deficit

Energy prices and inflation are closely linked, particularly in countries like Pakistan,
where a significant portion of energy is imported. As global energy prices rise, the cost of
electricity generation increases, driving up the cost of goods and services in energy-
dependent industries (Malik, 2016). This has contributed to inflationary pressures in the
economy, as manufacturers pass on higher production costs to consumers. Moreover,
Pakistan’s heavy reliance on imported oil and gas to meet its energy needs has worsened the
trade deficit. In 2020, energy imports accounted for over 25% of Pakistan’s total imports,
placing immense pressure on the country’s foreign reserves and exacerbating the trade
imbalance (Ali, 2018). The combination of rising energy prices, inflation, and a growing trade
deficit has further strained Pakistan’s economic stability.

Short-Term Solutions

In addressing Pakistan’s energy crisis, short-term solutions are essential for

managing immediate energy shortfalls. One common strategy involves increasing energy
imports, particularly liquefied natural gas (LNG), to supplement domestic production.
Emergency load-shedding management is another crucial tool, where power is distributed
on a priority basis, minimizing disruptions to key industrial sectors (Malik, 2016). These
measures help alleviate immediate pressures, but they are temporary fixes that do not
address the systemic causes of the energy crisis.

Long-Term Solutions

To achieve lasting energy security, Pakistan must focus on long-term solutions like
building sustainable energy infrastructure and diversifying its energy mix. The development
of renewable energy sources, such as solar and wind power, can significantly reduce
dependency on imported fuels and address environmental concerns (Shafiq, 2020).
Investments in hydroelectric projects and nuclear energy also offer sustainable alternatives.
Furthermore, expanding and upgrading the national grid to reduce transmission losses is
vital for ensuring that energy is delivered efficiently across the country (Ahmed, 2013).
Long-term planning is essential to create a resilient and balanced energy system.

Industrial Reform Suggestions

In addition to addressing energy supply issues, industrial reforms aimed at

promoting energy efficiency can contribute to resolving the crisis. Encouraging industries to
adopt energy-efficient production processes, such as the use of energy-saving technologies
and practices, can reduce overall energy demand (Ali, 2018). Incentives for industries to
invest in energy-efficient machinery, coupled with government subsidies for cleaner
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 Energy Crisis and Its Effect on Pakistan’s Industrial
Growth: Analyzing Policy Solutions and Economic Outcomes

technologies, would also contribute to reduced energy consumption and lower costs for
businesses.

Government and Private Sector Collaboration

Effective resolution of Pakistan’s energy crisis requires collaboration between the

government and the private sector. Public-private partnerships (PPPs) can help mobilize the
necessary financial resources and technical expertise for energy infrastructure projects.
These collaborations can facilitate the construction of power plants, development of
renewable energy projects, and modernization of the national grid (Rasool, 2015). Through
coordinated efforts, the government and private sector can work together to ensure that
energy solutions are both financially viable and sustainable, benefiting Pakistan’s long-term
economic stability.

Conclusion

In conclusion, the energy crisis has had a profound impact on Pakistan’s industrial
growth, hindering economic development and contributing to unemployment, inflation, and
reduced productivity. Inadequate energy infrastructure, reliance on costly fuel imports, and
inefficient governance have exacerbated the situation. However, policy solutions such as
diversifying energy sources, investing in renewable energy, enhancing energy efficiency, and
improving governance can provide sustainable remedies. By addressing these issues
through strategic reforms and long-term investments, Pakistan has the potential to revitalize
its industrial sector, stimulate economic growth, and ensure energy security for future
development.

Recommendations

 Invest in renewable energy solutions such as solar, wind, and hydropower to reduce
dependency on expensive imported fuels and ensure a more stable and sustainable
energy supply.

 Upgrade and expand the country’s energy transmission and distribution networks to
minimize power outages and ensure efficient energy delivery to industrial sectors.

 Implement policies that encourage industries to adopt energy-efficient technologies

and practices, reducing energy waste and lowering production costs.

 Strengthen governance in the energy sector by promoting transparency, eliminating

corruption, and improving regulatory frameworks to attract private investment and
ensure accountability.

 Foster collaborations between the government and private sector to finance large-
scale energy projects, ensuring shared responsibility in addressing the energy crisis
and supporting industrial growth.

References

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