Economic experts have called for a pragmatic yet ambitious industrial policy as the need of the hour for Pakistan’s economic growth as they shared their views during an online session organised by the Institute for Policy Reforms (IPR) on 'Role of the state in economic development’ on Saturday.
The IPR is an independent think tank established to support policymaking in Pakistan.
Former federal minister and IPR CEO IPR Humayun Akhtar Khan, in his opening remarks, said that for the past 25 years, Pakistan has been borrowing excessively from abroad to meet all kinds of external shortfalls.
“We borrow to meet foreign exchange needs for imports, to meet current expenditure, and only one-third of what we borrow actually goes to development expenditure — that's why Pakistan external debt has continued to grow," he said.
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He added that in Pakistan the share of GDP in productive sectors like agriculture and manufacturing is on the way down. “In developing economies the share of agriculture to GDP declines but it is accompanied by an increase in the manufacturing sector but unfortunately, in Pakistan, the share of both agriculture and manufacturing is going down and growth has basically come from the services sector.”
The ex-minister emphasised the need for increasing exports, and to create jobs for the large number of young people entering the workforce.
“We feel that the state must play its role in achieving these objectives. At the bare minimum, it must ensure critical investment in the structure needed by the private sector. Labour productivity is also low so the state must invest in the people of Pakistan,”
“There exists little to no innovation in the product in Pakistan,” he said, citing it as the primary reason why the country's exports have not increased.
Comparison with South Korea
Speaking at the session, South Korean economist Professor Ha-Joon Chang, reader in the Political Economy of Development at the University of Cambridge, compared the economic policies implemented in South Korea and Pakistan.
He said that in the late 1950s South Korea's exports were primary commodities but presently, the country’s main exports are mobile phones, semiconductors and other technologies. “Pakistan, unfortunately, is stuck in the basic stages of economic development with textile exports,” he said.
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Shedding light on the role of state-owned enterprises (SOE), the scholar shared the example of the United States, saying that through its military it went on to create major inventions such as computers, the internet, and the GPS system. “Without military research funding, there would have been no Apple, no Intel, no Silicon Valley,” he said.
Ha-Joon said that in order to achieve growth one needs to enhance productivity, which can only be accomplished by developing individual and collective production capabilities.
“You need to develop not just individual capabilities i.e. high skilled employees, but also collective production capabilities i.e. public research institutes, physical infrastructure,” said Ha-Joon.
He added that the countries need to provide protection and nurture businesses in the infancy stages. “However, one also needs to invest in better technologies, train their workers so that they develop their own technologies.”
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The Cambridge scholar was of the view that the government's industrial policy should be both ambitious and pragmatic. "Each country including Pakistan should develop it on the basis of their strengths," he said as there is no one-size-fits-all model.
Asad Umar echoes views
Meanwhile, Federal Minister for Planning, Development and Special Initiatives Asad Umar echoed similar views saying that what works for one country does not necessarily mean it will work for another country. He also highlighted the role of state-owned enterprises.
“I have been of the view, based on observations in Pakistan and around the world, that this mantra that has become very popular in Pakistan – the government has no business being in business – is a nice catchy line, but isn't necessarily true. I believe that the state-owned enterprises can play a vital role in the economy of Pakistan,” he said.
Citing the example of major global SOEs, Umar said that companies like Saudi Aramco, Petrobras, ADNOC are state-owned that presently dominate the global energy landscape. He added that a major number of Chinese companies in the Fortune Global 500 are state-owned.
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Giving his views on the private investment scenario in the country, Umar said investors do not invest in businesses where there is significant risk in Pakistan. "In Pakistan a major chunk of private sector investment has gone to Independent Power Producers (IPPs). The investments were literally like in a corporate bond whose profits were predetermined and it has virtually no risk.”
Umar added that there are very few Pakistani brands that have resonance outside the country.
The federal minister pointed out that the 1960s era in Pakistan saw more industrial growth than any other era, and one of the most critical things was the role of the Pakistan Industrial Development Corporation (PIDC). “It created organisations and exited,” he said.
Replying to a query whether authoritarian governments work better than democratic governments in implementing industrial policy, Umar said both neighbours, India and Bangladesh, have done well economically being democratic states.
“I think Pakistan has to be run as a devolved state — there are no two ways about it. For example, to turn around the situation in Karachi, you have to have a local government system in place not only in Karachi but in all large cities of Pakistan.”
He emphasised the strengthening of the Economic Council and the Council of Common Interest. "These two organizations provide a platform for the devolution of powers in Pakistan to work," he added.