Pakistan could be a manufacturing powerhouse by 2050

From tuitions in Gulshan to a stock portfolio at twenty

The episode opens with Muzamil introducing Yousuf M. Farooq as someone he had two specific reasons to bring on: to explain what is actually happening in Pakistan’s economy, and to talk about a manufacturing business that sits well outside the country’s conventional industrial imagination.

Farooq grew up in Karachi after his family moved from Riyadh when he was five. His school years were restless — he describes always having his own answer for everything rather than writing what was on the board. By O levels he had steadied himself enough to earn six A grades. The IBA entrance exam, however, came up four marks short in mathematics, and he ended up at Zabist instead. That near-miss, he says, turned out to be the best thing that happened to him — an early illustration of what he calls the Steve Jobs “dots will connect” principle.

At Zabist, finding the coursework easy, Farooq registered six courses in his first semester, seven in his second, and three over the summer, then asked the programme coordinator to let him take eight in his fourth semester so he could finish in three years. The dean found out and deregistered five of them. Left with three courses, he filled the time by helping his father at a shop in Gharibabad in the mornings and running a tuition business in the evenings. By the time he graduated he had thirty students and, for the first time, fifty thousand rupees saved.

That fifty thousand went into the stock market. His maternal grandfather had been a stockbroker from 1957 to 1989, and his father had filled IPO forms in Saudi Arabia, so the concept was not foreign. A cousin showed him that Pakistani shares could now be bought and sold online. He opened an account at V Financial Services, started reading Warren Buffett, and began looking for what Buffett’s early work described as cigar butts — deeply distressed companies trading far below replacement value.

Learning to read distressed companies at Fortune Securities

Before his eighth semester was finished, a teacher at Zabist — Faraz Suonaz Bandukda, later CEO of Al Hilal Investments — told Farooq to come to Fortune Securities. The CEO there, Qasim Lakhani, whom Farooq describes as one of his greatest mentors, put him in the research department and largely let him work on whatever he wanted.

The first major call was Maple Leaf Cement. The company had a replacement value of thirty-three billion rupees, eighteen billion in debt it had defaulted on, and a total market capitalisation of one billion rupees. Cement prices were rising. The stock went from two rupees to around one hundred and thirty; Farooq sold at thirty. “When things are right, things go up a lot — things go up a ridiculous amount,” he says, describing the lesson that cheap, distressed companies in Pakistan can produce extraordinary returns when the underlying cycle turns.

A similar pattern played out with Fecto Cement, bought at four rupees and eighty paisas and sold at sixty.

The more instructive exercise came when Farooq sat down to analyse which stock had produced the best return from 2000 to 2014. The answer was National Foods. The second best was JDW Sugar — up roughly two hundred times. He was baffled: sugar is a perfectly competitive commodity business. Reading annual reports going back to 2003, he found the answer. JDW had changed the seed variety in its cane-growing area, which raised the sugar recovery rate — the percentage of sugar extracted from cane — and made it the lowest-cost producer in the sector. He then found Mehran Sugar had done the same thing between 2008 and 2014. The logical next step was to find which company was about to do it next.

A publicly available presentation on the Pakistan Society of Sugar Technologies website named Faran Sugar and projected its recovery rate would reach eleven percent. Farooq built a model, bought the stock at forty rupees, and sold at one hundred and sixty. He then found Chashma Sugar, whose total market capitalisation was 286 million rupees while it was installing a two-billion-rupee ethanol plant. The stock went from ten rupees to one hundred over two years. Along the way, a violent incident near the mill in Dera Ismail Khan briefly wiped out half his net worth on paper. “I have half of my net worth in that company,” he recalls. The plant ran, the ethanol profits came in, and the position was eventually closed at a hundred.

From fund manager to factory floor

After Fortune, Farooq moved to JS Investments as head of research, then to Providence Capital managing a small-cap portion of their fund. In 2019 he registered his own firm, Okab Capital, which was advising clients when COVID hit — a bad start, he says plainly.

During that period, a friend came to his office asking him to help raise money to start a PCB assembly factory. Farooq had, as it happened, done an internship at the parent company — Elite Stener — during his O and A level years. The dots connected again. He invested, they formed Elite Lighting, and began disassembling PCBs from Elite Stener and selling the components.

The investment thesis was straightforward: electricity is a large and volatile cost in Pakistan, but labour is cheap and the supply of labour is structurally guaranteed. “If there is one guarantee in Pakistan, it is that four million people turn eighteen years old every year,” Farooq says. He knew devaluation would make that labour even cheaper in dollar terms. The bet was on labour-intensive assembly, not capital-intensive fabrication.

Three years in, he describes it as one of the toughest experiences of his life — harder in some ways than anything in finance — because he had never operated a company before. Import bans made planning impossible. Electricity costs swung unpredictably. But the business has moved: a customer who was importing packaging, plastic parts, metal parts, and electronics from China a year earlier is now sourcing most of those components locally, cutting the import bill roughly in half.

What is actually wrong with Pakistan’s economy

Muzamil asks Farooq to explain, in plain terms, what is happening to Pakistan’s economy. Farooq organises his answer around three structural problems.

The first is the population pyramid. Pakistan has one of the youngest populations in the world, which means a high ratio of dependents to working people. Female labour force participation is around twenty percent, making the dependency ratio worse. Half of children do not go to school, and those who do often fail mathematics and science. “You have too many mouths to feed and too few people working,” he says. A trillion rupees is spent on education annually with very little measurable output — not purely a spending problem, he argues, but an efficiency problem. He notes that giving every out-of-school child a three-thousand-rupee voucher from that same budget could theoretically enrol thirty-two million children.

The second problem is government intervention in the currency. From 1979 to roughly 2002, constant devaluation gradually moved Pakistan from a large trade deficit to a trade surplus. Then successive governments chose to hold the currency artificially stable while running large fiscal deficits — pumping money into the economy without letting the exchange rate adjust. “Governments like to do large fiscal deficits and then like to intervene with the currency because currency going down causes inflation, which is politically unsuitable,” Farooq explains. The result is that manufacturing is systematically discouraged: when a plot of land in Phase Eight Karachi reliably outperforms any industrial project, there is no rational incentive to build a factory.

The third problem is the external debt maturity profile. Total government external borrowing is close to a hundred billion dollars — not catastrophically large in itself — but roughly twenty-five billion dollars falls due every year for the next three years. “That is not sustainable,” he says. The solution he points to is not default but restructuring: moving maturities out, as Ghana and Sri Lanka have done. Sri Lanka’s rupee recovered from three hundred and sixty to three hundred and four to the dollar, and inflation fell from seventy percent to thirty percent within a few months of completing its restructuring.

Later in the discussion, Farooq makes a point that reframes the inflation debate entirely. “Tax is not the number the government collects. Tax is the number the government spends. When the government spends far more than it collects, everyone pays through inflation.” The fiscal deficit, in other words, is a hidden tax on every rupee held by every citizen.

The undocumented economy and who is actually absorbing the shock

Muzamil raises a point made to him by an investment banker in Dubai: that Pakistan’s documented GDP may represent less than thirty percent of actual economic activity, and that the country’s resilience in the face of severe inflation is partly explained by this. Farooq agrees and adds a specific mechanism.

Roughly fifty to sixty percent of Pakistan’s population is linked directly to agriculture. Crop prices are effectively denominated in dollars. When the rupee devalues, the rupee value of wheat, rice, and sugarcane harvests rises in step with inflation. “After every crop you’ve got a large injection into the rural economy that is inflation-adjusted,” he says. The people hit hardest are salaried middle-class workers on fixed incomes — the mulazims — whose wages do not automatically adjust. The people least affected are farmers and the owners of the country’s 2.2 million small shops, who can adjust margins.

He also notes, with some sadness, that the talent market is self-correcting through emigration. Most of his O level classmates are not in Pakistan. Most of his A level classmates are not in Pakistan. Most of his colleagues from the finance industry are not in Pakistan. As skilled people leave, the price of those who remain rises — which is one reason the middle-class squeeze may ease faster than the headline numbers suggest.

Labour, minimum wage, and the limits of intervention

Muzamil raises the growing demand to roughly double Pakistan’s minimum wage. Farooq’s answer is careful. He agrees that twenty-five thousand rupees a month is not enough to live on — “by the time you come to this podcast, that money is already spent.” But he argues that setting a price above market equilibrium creates unemployment rather than prosperity, particularly in sectors like his where informal competitors in smaller cities pay far below even the current minimum and face no enforcement.

His preferred levers are different. One is increasing female labour force participation — Bangladesh’s garment sector, which has a minimum wage lower than Pakistan’s, works partly because dual-income households are the norm there. Female participation in Bangladesh is roughly double Pakistan’s. Adding women to the workforce increases household income without requiring a mandated wage floor, and as a side effect tends to reduce population growth. The second lever is simply letting markets clear: when devaluation makes labour cheap in dollar terms, labour-intensive businesses naturally expand, as the fifty-one percent volume growth in garments exports over the past ten months demonstrates.

Pakistan in 2050: a manufacturing powerhouse or a knowledge economy?

By the end of the conversation, Muzamil asks Farooq how he sees Pakistan twenty-seven or twenty-eight years from now. The answer is measured but genuinely optimistic.

“We can potentially become a labour-intensive manufacturing powerhouse,” Farooq says. The structural logic is simple: 2.8 million people enter the workforce every year even at current female participation rates. IT can absorb perhaps eighty thousand of them. The rest need something to do, and manufacturing — particularly assembly work that substitutes for imports — is the most credible answer. India exports fifteen point seven billion dollars in electronics. Pakistan’s main export sector is India’s side item. The gap is an opportunity.

He is clear about the sequencing. Import substitution comes first: make the phone charger for the domestic market before trying to export it. As efficiency improves and domestic demand is satisfied, export markets open naturally. Capital-intensive fabrication — making the components rather than assembling them — comes later, when capital is cheaper and policy is more stable.

The longer-term transition, he argues, requires starting to educate people today. “We have to start educating people now so that twenty-seven years from now we can start the second phase of the economy.” The manufacturing phase buys time for the knowledge economy to develop.

His final point is about scale and resilience. “The country will be better off with ten thousand companies adding one million dollars in value than one company adding ten billion dollars.” Ten thousand companies compound. They build ecosystems. They train workers who train other workers. They are harder to disrupt by a single policy change or a single bad actor. That, more than any grand industrial strategy, is what he thinks Pakistan’s recovery will actually look like — if the political stability arrives to let markets do their work.

Muzamil closes by noting that it takes real courage — “jigar,” in his words — to do ground-up manufacturing in Pakistan right now, and that the country needs ten thousand more people willing to try. Farooq’s response is quiet and direct: “It’s not just numbers. We want to do something. Maybe do something for the country, do something for our workforce. We want to build things here and prove to people that doing this is possible.”