ECONOMY
Managing the economy during terrorist activities around the country is a difficult job, but other countries like Sri Lanka have managed to successfully curb terrorism for years without compromising on their economic growth.
It is true that consumer confidence and stock prices both take hits but all of these aspects of the economy tend to recover robustly within a quarter or so. The terror impact has been factored in by the stock market. Terror attacks and political unrest has now become a new normal in our economy. We complain about slower pace of growth, ignoring the fact that resources have been shifted away from the production of other goods and services towards law enforcement and defence.
The nation must understand that higher resources for law enforcement are needed for a while and all stakeholders have to double their efforts for growth. A growing economy plays a vital role in generating these resources.
Pakistan is in a fragile situation. The nation's psyche has been deeply scarred, leaving its population vulnerable, scared, and enraged. This calls for a sober and prudent approach to the problems faced by the country. The government must introduce reforms to provide a level playing field to all.
The silver lining in this regard is that the private sector in Pakistan has remained committed to push the economy up. While the terrorists target every vulnerable spot in big cities, the business centres and commercial markets are maintaining their pre-terror routine. The factories keep running, and there are no absentee workers. The trade and manufacturing activities came under pressure in Pakistan, not because of terrorist activities, but due to the skewed government policies.
In all of the turmoil, businessmen have remained fully focused, but unfortunately, in the last ten years, the governments have neither shown maturity nor kept promises. In fact, the impact of flawed government policies has been more severe on the businesses than the impact of terrorism.
Businessmen consider terrorism a temporary affair as the terrorists lack public support. The government’s inability to create the required number of jobs and train youth in market-based skills has lured some towards terrorism. Only a strong economy could eradicate both terrorists and poverty. The government needs to bring transparency in its economic affairs to remove irritants impacting growth.
Other countries that tackled a similar situation prudently have been able to move their economy ahead. During over a decade of insurgency in Sir Lanka, its per capita income more than doubled from $750 in 2008 to $1,780 in 2008, rising to over $3,600 in 2015. The Sri Lankan government focused on fighting the insurgency and terror, and at the same time looked after its economy. Today, Sri Lanka has the best human development indicators in South Asia and highest per capita income.
Pakistan also passed through a similar fragile situation. Pakistan’s per capita income has declined from over $1,000 in 2007-08 to $980 in 2008-09, increasing to $1,300 now. The growth at one time declined to a low level of 2-2.5 per cent, mainly because the focus of the government shifted from the economy to foreign assistance as terror attacks accelerated in the country. The growth is picking up now because the government is focusing on economy. However, the growth is slow because the entrepreneurs that lost fortunes in the last seven years are sitting on industries that lack capital.
Terrorism does impact growth. Despite terror and war, there are other countries as well that have high per capita growth rates in the developed world, especially among states that came into being between 1948 and 1974.
The present regime must make only those promises to the businessmen that it is able to honour. The interaction with the private sector needs to be regular. The Prime Minister met leading businessmen and exporters in September 2015, and made some promises. He met them again one year later in 2016; however, sadly, most of the earlier commitments made in 2015 have not been honoured so far. He has made new commitments now. Let us see if the government is able to deliver on these or not.
Clearly, there is a growing recognition that peace – largely, the absence of internal and external violence – enhances economic activity, while conflict has the opposite effects. Peace contributes to economic development and conflict has negative effects.
Still, countries suffering conflict cannot abandon economic activity until violence subsides. But it is understandable that impediments to doing business exist in conflict zones more so than elsewhere. The exporters suffer because foreign buyers avoid visiting terror ravaged countries. This has happened in Pakistan. The foreign buyers are not coming to Pakistan. At the same time Pakistani exporters face difficulties in obtaining visa for developed countries where their buyers are.
The companies in business before 2001 are increasing their exports on the basis of their past reputation. Still they have to bear a terror premium of around 10 percent against their other global competitors. Small exporters are slowly closing their business activities. It is very difficult for new entrepreneurs to venture into exports as face to face contact with buyers is very rare. Foreign investors demand high guaranteed returns to establish industries in Pakistan. Business investment benefits from security and stability. During peacetime, economies prosper and business becomes efficient.
In contrast, conflict impinges upon traditional business activities and pushes businesses into otherwise less transparent and competitive settings. With fewer opportunities, private sector activity is stifled. Globally, companies tend to eschew investments in conflict zones, as the physical and financial risks are viewed as outweighing the benefits of such high-risk venues. In such milieus, businesses also become targets of kidnappings and extortion, further undermining private sector activities.
The Chinese are investing heavily in Pakistan because the Army has raised special division to protect the Chinese investment and their nationals working in the country. The provincial governments are also providing exclusive security to Chinese nationals.
This adds to the administrative costs of the state. Things are improving and situation is much-much better than it was a year back. Target killings and extortions have largely been controlled. The real confidence will come when foreigners in Pakistan move around in the country without official security.
The writer is a staff member
