Import Substitution 2.0 and Applied Research: A Path to Sustainable Growth in Pakistan

The Fragile Growth-Import Cycle

Pakistan's economy remains stuck in a repetitive cycle: heavy borrowing boosts imports, fueling short-term growth. When reserves decline, IMF programmes return, and austerity slows everything down. This volatility is visible when comparing imports with GDP growth trends from 2021 to 2024.

Imports vs GDP Growth: A Four-Year Snapshot

Correlation is clear: when imports expand (2021–22), growth rises but is debt-fueled. When imports contract (2023), GDP collapses, exposing fragility. A model where growth depends on imports financed by foreign loans is neither sustainable nor inclusive.

Imports, Growth, and Poverty

The 2023 contraction showed how sudden import curbs—often a condition under IMF programmes—directly slow GDP and deepen poverty. Factories relying on imported inputs cut production; jobs shrink; inflation rises as supply chains break. Growth linked solely to imports is a poverty trap.

This is why Pakistan needs a structural pivot: to replace vulnerable import dependency with domestic innovation and substitution, rooted in applied research and indigenous resources.

The Research and Innovation Gap

Pakistan spends just 0.16% of GDP on R&D, one of the lowest globally. In the Global Innovation Index 2023, Pakistan ranks 88th overall, far below India (40). In "Human Capital & Research," Pakistan falls to 117th, reflecting weak applied outcomes.

Universities often produce theoretical work, but without industry linkages or financing, it rarely converts into practical products. This gap keeps Pakistan reliant on imported technology, raw materials, and industrial solutions.

Local Industry's Import Dependency

A critical but often overlooked reality is that Pakistani industry itself imports huge volumes of raw materials:

• The textile sector imports synthetic fibers, dyes, and chemicals.
• Food processing depends on packaging films, flavors, and preservatives.
• Pharmaceuticals rely on imported active ingredients.

This creates double pressure: foreign exchange drains and industry vulnerability when imports are restricted.

The sustainable solution is applied research into indigenous resources—for example, developing packaging from agricultural waste, extracting natural colorants and chemicals locally, or using regional minerals for industrial inputs. If local raw materials can replace even part of these imports, Pakistan gains a double advantage: saving forex while creating jobs in rural and industrial supply chains.

From Trade Data to Market Products

What is missing is a pipeline:

• Trade Data – Pakistan has HS-code data, but it is not entrepreneur-friendly. No public platform highlights which imports could be locally substituted.
• Applied Research – Universities should prioritise converting indigenous resources into industrial raw materials.
• Financing – Grants and loans favour large firms, while new entrepreneurs lack capital to test or prototype.

Strategic Interventions

1. HS-Code Opportunity Portal – A digital platform showing which import categories (e.g., $500m spent on packaging materials, $2bn on chemicals) could be substituted locally.
2. Indigenous Resource R&D – Applied research must target local raw materials that can feed Pakistani industries, reducing dependency while expanding jobs.
3. Targeted Financing – Interest-free loans and grants for first-time entrepreneurs developing import substitutes.
4. Applied Research Vouchers – Allow SMEs/startups to use university labs for testing, certification, and prototyping.
5. SME–Academia Partnerships – Enable universities to earn revenue from private-sector applied research.

Even replacing $3–5bn in imports over three years through indigenous resource-based solutions could reduce IMF dependency, stabilise the rupee, and create thousands of jobs.

Effectuation Mindset in a Time of Poverty

As poverty deepens, Pakistan's entrepreneurs cannot wait for perfect conditions. They must apply the effectuation mindset:

• Bird-in-hand principle – start with resources already available.
• Affordable loss – experiment within small, tolerable risks.
• Co-creation – build partnerships to share resources and knowledge.

This mindset suits Pakistan's uncertain environment, where resource constraints can inspire innovation. Effectuation can help youth, SMEs, and researchers convert local raw materials into viable businesses that directly substitute imports.

A Personal Note: Made in Pakistan

To build this pipeline, I founded Business Discovery, a not-for-profit social enterprise under my company's CSR wing. Our mission is to empower startups, SMEs, researchers, and even policymakers to create "Made in Pakistan" solutions. Business Discovery is not just for entrepreneurs—it is a business model for startups, SMEs, and government alike.

By linking import substitution with applied research, indigenous resources, and entrepreneurship, Pakistan can shift from an IMF-dependent cycle to a path of sustainable, inclusive growth.

Salman A. Sheikh is a product entrepreneur and enthusiastic about Applied Research and Import Substitution 2.0. He can be reached at https://pk.linkedin.com/in/salmansheikh9