Stark realities

The aim of economic strategies should be to spread prosperity far and wide; failure in doing so is unforgivable. But Pakistan's politicians reflect no sense of this obligation each time the in-power regimes in the federation and the provinces present the annual budgets because politicians lack a sense of history, and vision based on the trends that are likely to last in the medium- and long-term.
While global research reports continuously keep pointing to the aging and decay of Pakistan's industrial base, and consequent loss of its competitiveness even in the domestic market (reflected in huge imports of even low-tech items), the budgets prepared by visionless politicians offer only inconsequential reliefs, while the remedy lies in replacement of the industrial base.
This virtually uninterrupted trend reflects the competence, vision, patriotism, and integrity of our politicians because, in 67 years of its existence, Pakistan wearily moved from the "underdeveloped" to the "developing" state category, although former imperial colonies like Malaysia and Singapore (liberated much later) moved into the developed state category long ago.
During the annual award-giving ceremony at the FPCCI presided over by the Prime Minister, the FPCCI president proposed waiver of duties on the import of plant and machinery to permit replacement of Pakistan's out-dated industrial base, which had rendered it uncompetitive. The fact that the FPCCI had to highlight this visible reality to the Prime Minister reflects on our politicians' mind-set.
The imperial powers (whose mindset has transcended our politics) never intended to spread prosperity; their aim was self-enrichment. That's why, benefits of the industrial revolution remained confined to the US and Western Europe because the idea was that raw material producing colonies should remain only the providers of what enriched their imperial masters.
That's why, the part of the Indian sub-continent that is now Pakistan is still in the 'developing' state category. Although WW-II forced Britain to liberate the sub-continent, for decades it continued to enjoy the advantage accruing from cheap raw materials because, courtesy prolonged denial of access to global markets, the sub-continent remained dependent on Britain.
Consequently, these unindustrialized former colonies kept producing raw materials but, over time, their population growth escalated the economic imbalances and triggered socio-political chaos because industrialisation was imperative for producing (if nothing else) at least the critical inputs and gadgets for the agricultural sector to increase its productivity.
Pakistan's industrial base was laid during the 1960s (condemned for being the dictatorship era), and survived the 1965 war with India and the 1971 tragedy. But the continuing tragedy was that visionless regimes that followed General Yahya Khan's regime, didn't realise that, to stay competitive, by late1980s, technology upgrade of the industrial base was imperative.
Pakistan's industrial base - bulk of it nationalised in 1974- became near-bankrupt, and repeated devaluation of the Rupee prevented the replacement of its manufacturing base; it began resembling Britain's industrial base, courtesy Labour Party's blocking of its privatisation and modernisation, which finally turned Britain into a largely non-industrial European state.
Besides the damage done by nationalisation, timely technology replacement was ignored even by profitable segments of the private sector; exports of the huge yarn spinning sector froze after competitors in the regional markets revamped their technology base. Consequently, in 1997, non-performing loans of Pakistan's banking sector touched 22.5% of their total loan portfolio.
Rapid depreciation of the rupee beginning May 29, 1998 made the balanced modernisation and replacement (BMR) of their plants virtually impossible, and led to a steady decline in the industrial sector's competitiveness. What made it worse was the continued escalation in the demand-supply gap in the power sector because crucial projects like Kalabagh Dam became victims of politics.
Seeking the GSP+ concession from the EU is the latest effort to survive the miseries inflicted by rising inefficiencies. Regime after regime tried to contain this trend, but merely by offering fractional tax reliefs, subsidies, and state-subsidised bank credit, instead of incentivising technology replacement, plugging the demand-supply gap in the power sector, and depoliticizing the law enforcers.
Given this fiscal and administrative backdrop, the rupee weakened even more making things tougher. Year-after-year, higher fiscal deficits (funded by ever-higher domestic and external debt) prevented the build-up institutional arrangements that allow capitalising on the potential of our bludgeoning youth population whose consequences were a staggering rise in petty and mega crimes.
Replacing the country's industrial base with modern, far more efficient technology is going to take years. This implied that, in the interim period, the focus should be on sectors that are based on local raw materials, don't require overly sophisticated technology, and for their operation, require large numbers of skilled (even though illiterate) workers.
However, what continues to be ignored at a huge economic cost is focusing on such sectors - fishery, hatchery, animal husbandry, meat, dairy farming, and milk and fruit processing sectors - all based on domestic inputs and their technology requirements can be met by the domestic industrial sector. Above all, they have huge employment potential for workers with low skills.
Pakistan is the 5th largest milk producing country, but produces minimal volumes of value-added milk products. Pakistan's annual output of milk exceeds 35 billion litres, but according to United Nations' Comtrade database, during just the last three years, Pakistan's annual powdered milk imports from India alone averaged 33 million KGs worth $97 million.
Pakistan is the sixth largest producer of fruits, but nearly 30% of the annual crop rots because of inadequate capacity for processing and preserving fruits. This is another example of how successive regimes overlooked the potential of the basic sectors with huge economic potential. Similar infrastructure gaps impede increased output in the other sectors referred to above.
We need cold chains-specialized transport networks that transport these perishable goods intact- and country-wide network of processing plants to cut transportation cost; this set-up will allow converting fruits and milk into their value-added by-products, packing them, and thereafter selling them locally as well as exporting them. This set-up offers huge potential for country-wide investment and employment.
The side benefits will be higher activity in specialised auto, refrigeration, processing, packing, packaging, and related input and component producing sub-sectors. While this infrastructure will be useful for fruit, milk, and fishery sectors, improved dairy farming practices, production of up-graded animal food, and country-wide chains of veterinary clinics offer huge output and employment opportunities.
These are the sectors wherein huge tax incentives on investment must be sought by Pakistan's chambers of commerce and industry. The chambers must also assist in establishing vocational training centres all over the country, and make it mandatory for the beneficiary sectors to provide strategic guidelines, input, and assistance in providing the trainees purpose-oriented skills.