Real investment, the key driver for creating new employment, has fallen for the third consecutive year in FY 11
There has to be a greater emphasis on the supply side of the economy. Knowledge, innovation, productivity are key drivers of the supply side economy. Unfortunately, Pakistan is falling behind in all three areas which have choked growth and slowed the innovation process. In the absence of effective competitive environment, Pakistani firms seem uninterested to invest in R & D and business sophistication to improve productivity gains and earn dividends thereafter. Thus domestic markets and consumers are faced with the inefficient goods market syndrome. Protections, subsides and other concessions provided by the government have put both private firms and public sector enterprises lazy, and inefficient.
Knowledge refers to the pool of educated/skilled workforce and technological readiness which can be effectively put to use to improve the business sophistication and productivity. It is said that Pakistan’s economy must continue to grow at a rate of 6-8 per cent if GDP is to be doubled in the next 10 years. The stop-go economic performance has suffocated the process of alleviating poverty and improving the standard of living of Pakistanis and as a consequence, the atmosphere of uncertainty runs deep across the economy.
Now the question is what should we do to take the economy out of reverse gear and run it on its smooth path of recovery? Well, building knowledge economy which is driven by technology and innovation should be the broader objective of all the stakeholders. Creative, intelligent and wise minds can improve the efficiency and efficacy of the supply side of the economy without putting extra strain on the resource market. Hence knowledge creation is the key driver in pulling the economy out of slow growth rut. To meet this end and improve the labour market efficiency, a strong nexus of industry and academics is seriously needed as the technologically advanced countries have already successfully demonstrated it.
To speak about productivity, Pakistan’s economic growth largely comes from the agriculture, manufacturing and services sectors. Services sector contributes around 50 per cent to the GDP now. To drive these sectors in top gear, educated and skilled human resource is a must. Unfortunately, the total factor productivity of the above sectors is painfully low when compared with other regional countries. Among others, low levels of literacy, use of obsolete technology and unskilled labour force are perhaps the leading challenges.
On the demand front, macro drivers are consumption, investment, government purchases and next exports. To improve the supply side determinants, key drivers, as stated above, must grow faster than the supply side determinants so that besides producers, investors also can reap the benefits in real terms. Unfortunately, as per the Household Integrated Survey, food expenditure constitutes close to half of total expenditure of a majority of Pakistanis. It is also learnt that a large size of potential consumer’s market is believed to be living on dis-savings. Nonetheless, remittances from overseas Pakistanis have risen sharply recently which has stabilised the consumption indicator to some extent yet it is not enough to plow consumption. In real terms, the indictor operates well below its potential capacity.
Real investment, the key driver of creating new employment opportunities has fallen for the third consecutive year in FY 11, according to the SBP. Also savings which feed into investment have remained low as compared to world averages. The third component is government spending or purchases, in particular, the Public Sector Development Program (PSDP). Ironically, this has already been cut so badly that it has hit the socio-economic indicators and the poor perversely. Exports on the other hand have done remarkably well despite of having an energy crisis and deteriorating security situation in the country yet the sector has immense potential to grow.
To conclude the above discussion, high growth and a competitive domestic market are pre-requisites to alleviate poverty and standard of living of Pakistanis. There can be substantial transformation in goods and labour market if growth is sustained for a longer period of time and the private sector welcomes the competitive environment including foreign competition. Local firms must learn to compete domestically before they start looking outward. As millions of fresh graduates join the labour force every year it becomes increasingly important for Pakistan to sustain high economic growth for a long period of time and create jobs for the youth. If political will exists then the task of achieving high sustainable growth can become easy.
The writer is director Szabist, Islamabad. He can be reached at asad.syedd@yahoo.com.au