Wednesday June 19, 2024

Making the economy scream

By Syed Mohibullah Shah
April 30, 2019

How did Pakistan land in such a predicament? For 40 years, Pakistan has been following the same beaten track of finding funds from abroad to finance its import-addicted consumption economy and balancing its books by more borrowings. This has resulted in impoverishment of the domestic economy which lies in tatters even as the country kept going back for repeated bailouts.

From importing cereals and cell phones to viceroys and lower factotums – who don’t even make Pakistan their home – our import addiction knows no bounds. Having lived their lives abroad, when have they ever handled the critical components of our domestic economy to understand potentials and pitfalls? Quite often, it is like a doctor prescribing medicines without examining the patient. You are forgiven if your mind goes back to the days of the Raj when all kinds of factotums were sent down from London to guide the natives and, once their reign ended, they swiftly went back to where they came from, never to be seen in the native land again.

For 30 years now, globalization has been the dominant force in the world economy. It is driven by free movement of investment and goods across borders and it delivers immense benefits to economies that are efficient and competitive producers. But even though we moved in that direction by setting up the Board of Investment and improving production efficiencies, we reverted back to becoming a consumption economy, using products made elsewhere and then borrowing money to finance this consumption.

For these follies, Pakistan has been severely punished by the negative forces of globalization. Since then, we have remained a closed economy with exports making only 11 percent of GDP compared to 25 percent for Turkey and over 60 percent of Malaysia’s GDP which have benefitted immensely from the positive forces of globalization.

If we had continued to focus on being a production economy and kept upgrading it, we would not have been running up to the IMF and elsewhere for bailouts. But if we continue to squeeze the economy to merely balance the books, there would be much pain and suffering for the people and no end to our bailout binges.

“Make their economy scream”, Richard Nixon instructed his aides when he wanted to destabilize a target country in South America. Do not also forget that in ‘Confessions of an economic hitman’, John Perkins confesses that on behalf of his organization he was sent to developing countries to convince their leaders to adopt policies that would, in reality, impoverish their own economies and plunge their countries under debt so that they remained vulnerable to various pressures. If that be the case, then our governance system and the leadership it has been throwing up seems to have accomplished this feat in spades by adopting policies that have impoverished Pakistan’s economy and pushed it down under a mountain of debt. Sadly, we have been under the leadership of those who do not learn from history and are condemned to repeat it.

Take a brief look around to see how the potential of this country and its people was ravaged by ignorant, incompetent and ill-advised governance, even as other countries went on overtaking Pakistan.

Many developing countries, as they became independent, started industrialization of their economies with what the colonial managers had left behind. Since the British had promoted cotton in the Subcontinent to feed their textile mills in the UK, textiles was the first industry that developed in Pakistan.

But, 70 years later, Pakistan has largely remained a single-industry (textiles) economy. Even here, our value addition in garments and textile products is lower than that of Bangladesh, India, Sri Lanka, Malaysia and Indonesia- despite being fourth largest cotton-producing country in the world.

Other countries, in the meantime, widened their industrial base and, besides textiles, added plastics, chemicals, engineering, household electrical goods, electronics and heavy industries like steel making, shipbuilding and others to create wealth from their own economy and open up employment and business opportunities. But instead of encouraging domestic investors or attracting FDI into growing our own economy and generating wealth from its expanding base, we have been busy borrowing to feed consumption and balancing the books by squeezing a stagnant economy.

Another example. Cotton is an agricultural product but that is not the only product of our rural economy. We are also large producers of wheat, rice, fruits, vegetables, milk and livestock. But even as other countries applied industrial processes and created billions worth of value from each of these products, we never developed strategies to create wealth from these products with which we had been familiar for centuries.

Not only that. Even the productivity of our agricultural produce is 50 percent lower than that in many developing countries. This means that our wealth creation from agriculture is half of what others are achieving. But, besides losing half of its wealth, we lose further as 30 percent of these products are wasted because we have not invested in simple silos and other storage and transportation facilities. This hemorrhage of the real economy which runs into hundreds of billions has been continuing for decades.

Talking of the services sector, we haven’t grown beyond the decades-old practice of exporting able-bodied workers who are at the lowest rung of compensation in foreign countries. We don’t recognize the value of human resources, which is why we do not plan on how to create new assets out of them, which – among other benefits – would have also increased the value of exports of qualified manpower and substantially added to remittances. For instance, if Pakistan were to invest in the annual production of 100,000 qualified nurses – male and female – every one of them would be guaranteed high-income jobs abroad and also provide a big jump in the country’s remittances.

All of which leads us to recognize the critical role of investment. Wealth creation in the economy is a function of investment and quality human resources applying technology to exploit opportunities.

A quarter century ago, $1.5 billion FDI was coming into our economy, which at that time was the best performance in South Asia. But as we reversed course and became a consumption society financed by borrowings, investment flows declined in Pakistan, but continued to rise in rest of South Asia and are now in high double digits. Thanks largely to investment flows through CPEC, we have now crawled back to a measly figure of $ 2 billion a year.

Pakistan must plan for an annual inflow of $5 billion of FDI within two years and $10 billion a year within five years if we want to benefit from globalization. For this to happen, our investment strategy should be proactive, segmented and designed to tap into several markets with special products. That would enable Pakistan to close the books on bailouts and stand on the strength of its own economy.

If Prime Minister Imran Khan were to set one strategic objective for his team, it should be to ‘position Pakistan to benefit from the globalization of the world economy.’ If they succeed in achieving that, the forces of globalization will lift the economy and he would deliver on the promises he has made to the people of Pakistan.

The writer designed the Board of Investment and the First Women’s Bank.