Labour productivity stands in the way of TFP growth | Pakistan Today

Labour productivity stands in the way of TFP growth

The slower growth of labour productivity in comparison with regional competitors is the most crucial economic challenge the country faces. Research indicates that Pakistan displays the least productive labour in the region and its performance has deteriorated over the last two decades. Referring to a study conducted by the Asian Productivity Organisation, Planning Commission of Pakistan in its ‘Framework for Economic Growth’ has highlighted that the performance of domestic labour is not exemplary in any of the major sectors of the economy. Low productivity levels in electricity, gas, water and services sectors in general are a matter of concern. Poor performance in transport, storage and communication also points towards room for improvement in connectivity and domestic commerce. Low labour productivity, coupled with capital constraints, results in lower Total Factor Productivity (TFP).
The Planning Commission has mentioned diverse reasons for alarming rates of low productivity. It points out that macroeconomic stability, foreign direct investment (FDI) and financial sector expansion play an important role in enhancing TFP and Pakistan’s experience in each of these areas requires drastic improvement. For Pakistan, evidence also suggests a relationship between growth in TFP and performance of the science and technology apparatus.
An official draft of the ‘Framework for Economic Growth’ made available to Pakistan Today, underlines that low productivity in agriculture has limited the growth of the crop sector. It estimates that the unachieved potential in agriculture is about 67 to 84 percent, of which the extension gap is 31 to 75 percent and the research gap is 25 to 75 percent. The reasons for such large productivity gaps include traditional farming practices, inefficient irrigation methods, high input costs, lack of bio-safety regulations and inadequate institutional credit to poor farmers.
It indicates that water scarcity is a principal constraint in the agriculture sector of Pakistan. Irrigation efficiency in the country is very low as 60 percent of irrigation water is lost during its transmission. It estimates that almost 50 percent of the losses are at watercourse level and 33 percent are at canal level due to inadequate operations and maintenance of a deteriorating canal system.
An official document suggests that efficient use of water is a prerequisite for accelerating agricultural growth. In addition, it stresses upon water conservation and a shift in the pattern of production towards higher value-added activities such as animal husbandry and dairy farming.
The document further elaborates that livestock contributes around 52 percent of value-added goods in agriculture and has a promising potential for growth. Though the livestock sub-sector has developed over the last few years, there still remains room for improvement productivity. Figures show a 78 percent yield gap in the dairy sector when compared with minimum standards required for global competition.
Figures reveal that an extension gap of 61 percent and a research gap of 52 percent were the main determinants of poor performance in the livestock and dairy sector. It underscores that 30-40 percent of livestock is underfed and only 10 percent is vaccinated, which makes it vulnerable to infectious diseases.
Similarly, in the manufacturing sector, despite the fact that substantial excess capacity exists, TFP growth remained only 1.6 percent during 1990s and only rose by 0.9 percent from 1998 to 2007. Referring to the Ministry of Industries and Production estimates, the Planning Commission has indicated that excess capacity in the manufacturing sector is around 51 percent but this capacity is being underutilised owing to a constrained energy supply, high costs of production and a depressed external demand.
It indicated that total manufacturing sector losses on account of energy shortfall are estimated at a 2.5 percent of GDP. In addition, public sector enterprises (PSEs) are also a source of inefficiency and low productivity, the official document adds.

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