Pakistan won independence in 1947. At the time of independence, Pakistan was primarily an agrarian economy with almost zero industry with minimal energy producing resources. Services like ports, transportation and banking were under developed.
Prior to independence, the British had developed an extensive irrigation system which was a source of cultivation because of limited rainfall. The main source of income, hence, was from agriculture. Early leadership in Pakistan aimed for a high rate of economic growth to reduce poverty level. Industrialisation was considered a basic necessity and early planning was also done in the same format.
Various economic planning bodies were formulated with defined agendas but recommendations for most of these bodies were not implemented in totality because of various reasons which included: Unavailability of accurate data; shortage of trained staff; political instability and army intervention; and lack of continuation of economic policies.
Despite all these issues, Pakistan was able to maintain an annual growth rate of around five percent since inception with as high as around 10 percent in a few years. This growth rate, however, was not much higher than the population growth, which averaged around 3.4 percent. Let us have a quick look at the various parameters that are important to determine the economic status of economic activity in any country.
1. GDP: During the early years of Pakistan, GDP was primarily based on trade. With industrialisation the component of trade in growth started increasing. Pakistan was able to maintain consistent growth in GDP, with GDP around $3.7bn in 1960 to $19.7bn in 1980 and $63bn in 2000 and $243bn in 2014. Though there were some years of recession as well, the trend is generally positive.
It would be interesting to see the contribution of various sectors in GDP growth. At the time of inception, Pakistan was an agrarian country; hence, GDP contribution was mostly from agriculture – around 48 percent in 1960 while from the industrial sector it was merely 14 percent and from the services sector 38 percent. However, as industry developed, the contribution was around 29 percent from industrial, 52 percent from services and 19 percent from agriculture in 2014.
This is a positive trend, but needs to be improved. This can only be increased with focus on industrialisation-skilled manpower, and improved exports. It is also interesting to note that the contribution of large-scale manufacturing has been more prominent in this process as compared to small scale manufacturing.
2. GDP per capita:
The increase in GDP has been a useful parameter in determining the economic health of the country. Population increase plays an important role in monitoring how GDP growth has been contributing towards welfare of the population at large. GDP per capita, hence, provides a measure of the same. During the early decades of Pakistan the average population growth rate has been around little over three percent, which has dropped to little less than 2.5 percent during the last two decades.
Since the GDP growth rate has been increasing at a rate of around 5.5 percent per annum, while population is increasing at a rate of about three percent per annum. Hence, there is a general trend of increase in GDP per capita. GDP per capita which used to be around $200 in the 1960s has increased to $270 in the 1970s and further to $330 in 1980 and now around $700 in the current century.
3. Trading: During the British rule, agriculture was a major source of livelihood for more than two-thirds of the population. For this purpose, the British developed a very good canal system for irrigation. However, growth in this sector was quite limited.
At the time of independence, there was a movement of people between the two countries. Areas that came under Pakistan were primarily agrarian and produced raw materials. Pakistan had a very small share of industry and it is estimated that only about five percent of the industries of the Subcontinent were in Pakistan. Some individuals who settled in Pakistan had some liquidity and started trading activities which were primarily imports. Imports were done from all around the world but primarily from India. However, trade with India was disrupted in early years.
During the first two decades, trading activities were minimal. In the 1950s and 1960s, Pakistan pursued import substitution policy in which the imported goods are substituted with locally produced goods in order to meet the internal demand. The key driver was government intervention through quotas, tariffs, exchange rates and interest rates. Hence, government intervention was used to boost the local production. This helped Pakistan boost trading activities. Later, in the 1970s, Pakistan pursued the export promotion strategy.
The following are some of the basic parameters for analysing the trading activities and how various policies and events affected it.
Imports: Since there was a lack of industry in the early days Pakistan relied on imports for manufactured goods; imports were very strictly controlled which kept the import bills low during the first decade. The same trend continued during the second decade. However, the import bill kept on increasing year after year.
A policy of import-substitution was pursued in 1960s and 1970s and subsequently followed by a policy of export promotion. The import bill, which used to be Rs3bn in 1960 increased to Rs52bn in 1980, then Rs160bn in 1990, Rs580bn in 2000 and Rs4,500bn in 2015. The primary items for import were crude oil, refined oil products, machinery, chemicals, transportation equipment and edible oils.
Exports: Pakistan started with very little exports to begin with. Being an agrarian country, its exports were primarily raw materials. As industrialisation took shape and banking and commerce developed, export activities also started. However, exports were always less than imports – resulting in a trade deficit. In order to reduce the trade deficit, a policy of import substitution was exercised during the late 1950s and 1960s, which was later replaced with export promotion in the 1970s and onwards.
The major export partners are the UAE, China, the US, the UK and Germany and export items include cotton and knitwear, carpets and rugs, and rice. More than 50 percent of the export proceeds come from textiles with yarn in the forefront.
The writer is the chairman of the Atlas group of companies.