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September 21, 2018

Supporting select sectors, a disservice to long-term growth

Business

September 21, 2018

LAHORE: In the current scenario, it was essential to support a few export sectors, which, for the time being, could reduce the trade deficit, but in the long run, the government should think beyond textile and four other sectors to spur real growth.

It is worth noting that every new government claims to come up with a different growth strategy that actually resolves around textiles. We have not learnt our lesson, as despite all support, our share in the global textile trade is shrinking, while newcomers like Vietnam, Cambodia and Bangladesh have overtaken us. No country has ever become rich by making more of the same thing. To achieve economic success they innovate and grow by venturing into new fields.

Growth in the country would come by changing what we produce and the way we produce it. We should support our overall exports instead of specific sectors. All exporters should be facilitated in finding new markets, increasing their product base, and going for innovative ways to attain efficiency in production.

Some of our planners are distracted by the global success stories of few individuals coming from humble backgrounds. Examples of people like Bill Gates or Steve Jobs cannot be applied in any country’s growth strategy. Billions earned by newcomers by launching Google, YouTube, or Facebook are a result of the brilliant use of information technology (IT) especially innovative software. These successes cannot be used as a blueprint for the rest of the economy. Any individual having exceptional knowledge of IT and a groundbreaking vision could attain such high level of success but such individuals are few and far between and flourish in countries where intellectual property rights (IPR) are fully respected.

We should provide the IPR security to our innovative upstarts as software industry has one advantage that other industries lack; it lowers the barriers to entry for startups and provides them with unlimited huge market through information highway. Aspirants with good programming skills and forward-looking ideas could enter the field without going through the hassle of arranging high finances or expensive land or machinery to establish a factory. Internet provides them free marketing and potential customers. Investors are ready to provide finances for expanding the business.

It is, however, not that easy to set up a steel, automobile, or fertiliser plant. Establishing large industries or tourist resorts requires a larger organisational setup and lot of capital and a competent team of professionals. Entrepreneurs in these fields would need more infrastructure, logistics, regulation, certifications, supply chains etc. This cannot be achieved without a vibrant private sector that has confidence in the country they live in.

Pakistani private sector lacks that confidence which is why the average flight of illegal capital from the country is larger than the average exports of the country. This confidence must be restored by bringing full transparency and accountability in the culture. The coordination with public and private organisations would be essential to make the venture a success. Pakistan lacks capabilities that growth industries demand. Capabilities could only be developed when such industries are already operative in the country. Many of these issues could be resolved through vertical integration of firms that can solve internally the coordination of the supply and demand for any new capability.

In developing economies the conglomerates or the big business houses play a key role in transforming an economy and its exports. Conglomerates can use their knowledge, managerial skills, and financial capital to venture into new industries.

They can start things at a scale that would be impossible for a startup. They can make credible commitments to future suppliers and influence the business ecosystem to make new industries feasible. Far Eastern economies like Japan and Korea developed on the strength of their conglomerates and India has its own conglomerates like Tata, Ambani, Birla, Infosys, Mittal Steel etc.

Conglomerates have not played that role in Pakistan. Most of the big business houses started as exporters but then adopted a focused approach on non-tradable goods and services. These goods and services could neither be imported nor exported. This way they have avoided international competition. They are rapidly moving into banking, construction, distribution, retail etc. This is one of the reasons that conglomerates are looked down upon by the masses in Pakistan. They are serving their own purposes only.

Conglomerates could be the greatest facilitators of economy and growth in developing countries if they support rather than obstruct development of trade and industry. Society would look favorably at conglomerates if they create jobs, increase exports, and pay due taxes.