Employment generation is the biggest challenge facing the economic managers of the country and will have to form the backbone of the growth strategy if the current stagflationary and poverty cycle is to be overcome. A good 60 per cent of the 180 odd million population is below 25-years of age, giving Pakistan one of the youngest potential workforces in the world. This demography translates into roughly three million new entrants in the job market every year. However, the current low growth and resulting stagnation has compromised absorption of this workforce, increasing poverty and retarding the output and production cycle. Improving employment is not only necessary from an economic and financial perspective, but also has a direct bearing on the country’s social and security situation. The present wave of terrorism owes in no small part to disgruntled youth unable to afford basic subsistence. Creating jobs, therefore, will have a direct impact in the war against terrorism.
The young population base has to be converted from a demographic bomb into a demographic dividend that Pakistan needs to capitalise on. Our working-age population distribution is much younger than regional contemporaries like India and China. The segment above 60 years of age is only five per cent, compared to more than 20 per cent in Japan. Our youngsters will retire many years after their Indian and Chinese contemporaries retire from the workforce. Thus, they will fuel growth in our economy for the next 50 years. Incorporating this youth potential in the productive process through effective job creation will be a virtuous cycle that will reduce poverty on the one hand and a be an engine of growth for the overall economy on the other hand, by increasing demand for goods and services as these new workers earn and consume.
Our medium to long term growth strategy should aim at making Pakistan the workshop of the world. But the exercise will require careful planning and coordination. We are confronted with two major trends of globalisation and urbanisation that can be harnessed by us to give our economy a big boost forward. We can build a large and growing human resource base capable of exploiting the fruits of urbanisation and the globalisation process. The first step should be directing the excess working youth from agriculture towards manufacturing and services based in new urban areas. This would need that in addition to our traditional comparative advantage in agriculture and textiles, we need to diversify our production capability in sectors like engineering, chemicals, oil and gas, biotechnology, construction, retail and wholesale commerce and IT.
Employment generation should focus on sectors where targeted investment can bring economic as well as political windfalls. The oil and gas cluster, for example, was tapped to be established as a vast processing zone between Karachi and Gwadar. At the mouth of the Gulf, Gwadar will not only receive shiploads of oil tankers from the Arabian Peninsula but pipelines from Iran and Central Asia will also culminate there, making it a big transshipment hub. Pipelines to china and logistics chain northward into Central Asia will generate immense wealth for Baluchistan and jobs throughout Pakistan. It will be the centre of regional trade and shipping activity. Our signing in 2007 of a joint venture $5 billion oil refinery with UAE at Khalifa Point in Baluchistan was the first step in this direction.
This is all the more important considering the regional race to establish oil and gas hubs. The new Port of Salalah in Oman will route oil and gas from Arabian sources to the Indian Ocean from where it would be shipped globally by bypassing the Straits of Hormuz. India is establishing a similar port in Gujrat which will be India’s answer to Gawader and its hub for oil and gas processing and reshipment. No doubt it would prefer that it becomes more reliable than Gawader. This sector undoubtedly represents huge potential, power and wealth for the nation.
We must also consolidate our resources and natural endowment to provide jobs in sectors that stand to bring most benefits. The engineering sector is one such sector. There is enormous potential for example, in the shipbuilding industry. Pakistan can fill a growing void between Korean and European shipbuilders, boosting production and exports. Two sites at port Qasim and Gawader had been selected by our government for shipyard establishment that could manufacture and repair super tankers. The industry is labor intensive and ideally suited for our coastal areas. Similar inroads need to be made in automobiles, electronics and especially the high-tech industry. The engineering industry spawns a huge vendor industry comprising the SME;s that create enormous employment opportunities. We simply cannot continue to rely on our traditional export mix to snap out of low growth and high unemployment. There must be a coordinated effort in which the government demolishes the hurdles in the way of industrialisation by deregulating the economy and initiating long-term infrastructure projects that open job opportunities and eventually materialise the second round multipliers.
To confront this tricky issue, though, prime focus must be placed on the country’s investment climate. A simple three-step program can enable considerable investment in viable areas. Firstly, the interest rate regime needs revisiting. Our monetary authorities must bring the rate down to single-digits, more in line with regional partners like India and China. Secondly, the government needs to provide fool-proof security to special investment zones so issues of terrorism can no longer keep needed funds away. Thirdly, and perhaps most importantly, the government must immediately launch projects to enhance and improve infrastructural requirements, especially with regard to energy and logistics.
Large public works programs like large dams and logistics through public private partnerships are perhaps the best policy to counter economic downturns, especially when high interest rates compromise private sector industrial investment. These programs not only erect productive social overhead capital, but also provide immediate employment relief, with the obvious uptick in consumption.
To develop our competitive edge, the issue of dams needs to be taken up urgently. The government must muster the political will to start work on the Kalabagh project. If it is initiated now, it will be completed by 2016, immediately reducing energy prices to about 10 percent of current cost and providing a big push to industrial competitiveness. Moreover, the additional water reservoir will bring a revolution in value added agriculture particularly in Sindh province. The past record shows that biggest beneficiaries of dam water are new rural farm and non farm workers even more that land owners. Financing such high return projects is not an issue as demonstrated by the financing of the Neelum Jhelum power project.
A direct attack on unemployment can be made by supporting 99 per cent of Pakistan’s industry establishment that comprises small and medium enterprises, a sector in continued and almost criminal neglect. In Pakistan we spend about one cent per capita on SMEDA whereas Brazil, a country as big as Pakistan spends seven dollars per capita on its SME agency. The neglect is obvious. To make a start we must spread the SMEDA network to every district in Pakistan, providing help in terms of ideas, consultancy, technology, finance and marketing to small entrepreneurs. This promises better results than some projects recently initiated. One yellow cab, for example, benefits one person at the cost of Rs500,000. In the SME sector, Rs100,000 investment stands to benefit approximately 10 people. Complementing skill development workshops should concentrate on short programs aimed at vocational training, so most of the youth population can become part of the productive process.
Pakistan’s problem is more of vision and policy than resources and constraints. By undertaking an orderly and targeted focus on employment generation, we have the potential to unlock growth enough to snap out of the lingering downturn.
The writer is a former finance manager
