LAHORE: Sustained economic growth world over has been driven by the natural tendency of firms, workers, skills and infrastructure to cluster in specific locations. Pakistan can unlock higher productivity process instead of resisting it.
This could be achieved through agglomeration which means that businesses become more productive when they operate close to each other. Workers find better jobs, firms share suppliers and services, innovation spreads faster, and infrastructure becomes cheaper per user. Cities are not just places to live; they are economic machines. Countries that grow fast do not disperse economic activity thinly — they allow it to concentrate where it works best. For Pakistan, the task is not to create artificial clusters through subsidies or grand projects, but to remove barriers that prevent natural clustering in cities and industrial districts.
The first priority must be productivity, not just investment volume. Pakistan has invested heavily in roads, buildings and machinery, yet productivity remains weak. Growth will only be sustained if investments raise efficiency — in factories, farms, offices and government institutions alike. Productivity must be measured honestly in both public and private sectors. A road that reduces travel time, a port that clears cargo faster, or a school that improves learning outcomes is far more valuable than ribbon-cutting projects.
Private investment is central to this process. However, investors respond not to slogans but to sound microeconomic foundations: predictable regulations, enforceable contracts, competitive markets and low transaction costs. The government’s role is not to run businesses or pick winners, but to ensure fair play. Markets should be regulated only to curb abuse, prevent monopolies and protect consumers — not to control prices or restrict entry.
Excessive government intervention has made productivity exogenous — dependent on policy favours rather than performance. Pakistan must reverse this by making productivity endogenous, meaning firms succeed because they innovate, cut costs and improve quality. This accelerates growth while improving risk-adjusted returns for investors.
A crucial but neglected reform area is urban rezoning. Pakistani cities are frozen in outdated land-use rules that treat commerce as a nuisance rather than an economic driver. Cities must be rezoned to support retail, distribution, logistics, transport, leisure and entertainment. When cities are allowed to grow vertically and commercially, construction activity rises rapidly — creating large numbers of jobs for low-income workers. Urban construction has historically been one of the fastest channels of inclusive growth.
Agglomeration also demands efficient public service delivery. Water, sanitation, electricity, transport, policing and permits must be coordinated across institutions. Fragmented governance increases costs for businesses and discourages clustering. Equally important is feedback. Governments rarely ask consumers and businesses whether reforms are actually working. Continuous assessment mechanisms, based on user experience, are essential to improve service quality.
Manufacturing competitiveness deserves urgent attention. Pakistan has a window of opportunity as East Asian economies move up the value chain and vacate lower-end textile and apparel segments. Pakistan can capture part of this market — but only if energy reliability, logistics, compliance and quality standards improve. At the same time, overdependence on textiles is risky. Diversification is no longer optional.
Agglomeration can help Pakistan move into higher value-added industries. Industrial clusters allow firms to share skilled labour, training facilities and specialized suppliers. The dairy sector is a strong example. By connecting rural milk producers with urban processing, cold chains and branding, Pakistan can move from raw milk sales to value-added dairy products, creating income growth across the rural-urban divide.
Similarly, the IT sector needs physical clustering. Digital work still benefits from proximity — shared talent pools, mentoring, venture capital and collaboration. Purpose-built IT parks, linked with universities and urban housing, can revive a sector that has lost momentum.
Pakistan’s growth challenge is not a lack of ideas but a lack of focus. Cities, markets and people already know where productivity lies. The state must stop obstructing these forces and start enabling them. Let firms cluster, let cities densify, let competition work — and growth will follow.
