If wishes were horses...

After having recorded a growth rate of six percent in 2017-18 Pakistan's industrial sector suddenly went into reverse gear in the first six months of the current financial year. More intriguing is the fact that as opposed the current miserable situation this sector had recorded a growth rate of as much as 10 percent in the first four months of the last financial year.
Independent economic experts have timed the reversal in the course of industrial sector's growth trajectory with the advent of caretaker government as development budget was curtailed drastically to control the galloping fiscal deficit. Further cuts were made in the development budget in the revised budget presented by the incoming PTI-led coalition government in September 2018.
As a result during this period both the cement and iron and steel industries, major inputs for construction industry, suffered the most and are still going south.
And since there was zero growth in both cotton and cotton cloth production in the first four months of 2018-19 the massive devaluation of the Rupee against dollar in the intervening period simply failed to show, as was hoped, any improvement in the export sector. In fact, in this period the export of cotton yarn had fallen by 20 percent in quantity terms. And industries dependent on imported inputs also suffered heavily because of massive devaluation.
In the same period the petroleum refining industry is said to have shown a significant decline of over 6 percent primarily because of less off-take by 21 percent of furnace oil, due to its substitution as a fuel input by LNG and coal in power generation.
It is in the backdrop of current reversals being experienced by the industrial sector that measures being proposed by the PTI-led coalition government for incorporation in the mini-budget to be announced this month for this sector's revival appear 'revolutionary'.
Some of these measures as announced by Adviser to Prime Minister on Commerce, Textile, Industry, Production and Investment Abdul Razak Dawood only last month are as follows: 1. No duty on import of raw material for the manufacturing of export goods. 2. Minimum duty on intermediaries.3. Finished goods to carry heavier duties. 4. Free trade agreements (FTAs) and preferential trade agreements (PTAs) signed with five countries would be renegotiated because except for the one with Sri Lanka all have turned highly unfavourable to Pakistan. 5. The second phase of FTA with China would be completed by June 2019.6. Discussion would be started with many countries including China, Malaysia, South Korea, Japan and Turkey to gain wider market access for Pakistani products. 7. Business community to take full advantage of Indonesia's offer of zero-rated market access to Pakistan for 20 products. 8. Ease of doing business and the cost of doing business would be in constant focus of the government to raise Pakistan's ranking from current 137 to below 100 in the Ease of Doing Business index. 9. The government would fine-tune the 'Made in Pakistan' policy in light of proposals and recommendations made by the private sector. 10. State Bank of Pakistan is working on a strategy to pay the tax refund claims within 15 days after receipt of export proceeds.11. Gas crisis has already been resolved and a notification issued for the provision of electricity at 7.5 cents per unit to zero-rated major export industries.12. Reduce Pakistan's dependence on textile for export revenues and promote other industries such as engineering, chemical, information technology and agriculture to diversify exports. 13. Support tostrategic industries and strengthening of the import-substitution sector. 14. Enhancing exports of motorcycles, refrigerators and air conditioners to Africa and other countries. 15. Raising exports to $50-150 billion by facilitating export-oriented industries. 16. Tariffs to be kept at the same levels for three to four years in order to provide a transparent future roadmap for the industry.
On the face of it, the draft proposal sounds just what the doctor had ordered. But there are many a slip between the cup and the lip. And as they say if only wishes were horses, beggars would ride.
In the first place, even the best of the policies have gone awry in the hands of the implementers - the civil service which lacks the capacities required to efficiently implement policies framed by the government. Secondly, Pakistan has been trying to industrialise its economy since the very beginning but without any success.
Those who mopped up windfall profits from cotton and cotton textile industries during this period and subsequently consistently failed to reinvest in research and development, innovation, value addition and non-traditional lines of industry. This had led to export of low value addition goods which eventually started facing competition from comparable goods exported by more efficient competing countries.
We also lacked the raw materials needed to produce much of the goods in demand in the world markets and also the technologies that were needed to make such goods.
And above all, we also lacked the three essential ingredients needed to jump-start an industrial economy. We were dependent on costly imports for energy, for capital we were completely dependent on foreign dole and we continuously failed to enable our youth to acquire skills in the fast advancing telecom and information technologies.
And we kept neglecting the three comparative advantages we had: agriculture, strategic location and the ever expanding youth bulge.
We should have focused more on agro-industries rather than engineering industries. Also, we should have taken the maximum advantage of strategic location by promoting trans-shipment or warehouse economy rather than wasting precious resources on setting up industries that eventually became sick for reasons discussed above. And we criminally neglected the education sector.
Lastly, our private sector over the years has consistently failed to shoulder its entrepreneurial responsibilities in a free market economy; instead it had acted more like a rent seeker.
The state, therefore, should now stop promoting this inefficient, dishonest (as it evades taxes, pilfers utilities and makes low quality goods to keep expanding its unearned profit margins) rent-seeker and instead expand the public sector but before doing so, it should revamp its civil service by recruiting the best from the market paying them their market price.
A government has no business doing business - sounds logical. But a government devoid of the necessary instincts of a sharp businessman would find it almost impossible to frame socio-economic policies that ensured progress with equity. Such governments either end up widening the gap between the rich and the poor, or failing them both miserably.
Governments in poor countries, especially those which are totally dependent on imported fuel, need to be necessarily business-minded to be able to not only rationalise the dependence, but also reduce the burden on the import bill by being an expert of the market as are the international oil sharks, racking in millions on price fluctuations of as little as a minimal most fraction of a cent.
Donor-driven poor countries need business-minded governments even more because if you are not well-versed in what is happening in international trade, more likely than not you are going to end up returning almost the entire aid back to the donor country in import bills.
Also, it is only a business-minded government, which can make a distinction between an enterprise that yields profits of immense social value and those that yield purely financial profits.
A government without business know- how would hardly be able to maximise social benefits of a public sector entity at a minimum financial cost.
In most developed societies, this is done by letting the public sector compete with the private sector but with keeping the latter's profit motive within reasonable bounds by establishing legally sound autonomous statutory regulatory mechanisms.
And even after such mechanisms are developed, air, road and rail transport, energy-related units, public schools and public health institutions, at least up to primary levels, would need to be kept under government control, no matter how much the cost.
A big chunk of unnecessary financial losses that these public sector entities of social value are incurring currently can be eliminated by cutting down on waste and replacing inefficient managements with efficient ones. Also, their burden on the budget could be significantly eased if the government were to collect the taxes that are due to it from all its citizens who earn taxable incomes. Only a business-minded government would know the importance of enforcing tax laws strictly across the board without exception and exemption.