Tuesday November 30, 2021

The import trap

December 16, 2020

LAHORE: Pakistan has got multiple growth options, each of which with the potential to surpass our total annual exports. Each needs some government facilitation and nominal funds.

Pakistan could become the manufacturing hub of the region because of its strategic geographic location. After China-Pakistan Economic Corridor (CPEC), it is now the shortest and cheapest route to China, landlocked Central Asian Republic and Russia (Russia was aspiring for warm waters of Balochistan when it almost occupied Afghanistan).

These countries can trade with Europe and America at lowest cost through the CPEC route that culminates at Gwadar port. Global manufacturers could establish their industries in the heart of Pakistan and gain access to over 1.5 billion consumers in the north (China, CAR, Russia, and Afghanistan), and 1.3 billion in its east (India, Bangladesh, and Sri Lanka).

The major hindrances in investment are inconsistent government policies, non-transparent practices leading to high corruption and very weak regulatory institutions. Improvement in these spheres even otherwise is in our national interest.

The other potential sector is information technology services. We are fortunate that the globally accepted IT language is English, and all English-speaking countries are rich.

They need IT services which are very expensive in their countries (each having per capita income of over $25,000). They acquire these services from developing countries where the per capita income is below $3,000.

Human resources in these countries provide them software and call centre facilities at a very low price. Pakistan after India has the largest English-speaking population.

Indians entered these services much earlier than Pakistan and their current IT exports are over $110 billion (five times our average annual exports in the last five years).

Unfortunately, we could not gather our act in time when India was penetrating global IT markets. Lack of a skilled IT force was one reason.

However, we have now produced enough IT professionals to compete globally in IT markets. Somehow, we have not been able to leap forward in a big way because of the bad perception about our country.

IT is one sector that operates seamlessly in even the worst circumstances, because the use of technology is not hindered in unrest or spread of disease (as in Covid-19). The work from home concept has been most successfully adopted by the IT services sector.

We hardly export IT services worth $4 billion (formally or otherwise). Pakistan could comfortably cross the $25 billion IT export barrier in next five years.

But for that the government would have to patronise IT exporters by ensuring top class internet services 24/7 for the IT exporters at reasonable rates and uninterrupted quality power supply at all software hubs (since software houses require less space most are located in the same building or vicinity).

The third avenue of potential growth is agriculture. We have brutally massacred our most comprehensive agriculture infrastructure in the last seventy years.

Our barrages are in shambles, the canals badly need repair and removal of silt. The water distribution through canals has eliminated poor farmers.

We have made our seed research centres redundant (they once regularly provided us with new quality seed varieties). The provincial agriculture extension departments have simply crumbled.

They now mostly provide services to the big and influential landlords who also have at their disposal the equipment meant to facilitate small farmers. The extension officials are required to spend most of their time in fields rather than sitting in their offices and doing nothing.

Chinese mechanised and upgraded their agriculture development before opting for mega manufacturing activities. Their per hectare yield in all crops that Pakistan cultivates was lower in the 1960s.

Its productivity in all these crops is now double than that of Pakistan. We have lower sugarcane, wheat, and rice productivity than India.

Though claiming to be an agricultural economy, we import more agricultural products than we export. Pakistan has excess agricultural labour that accounts for almost 40 percent of its total workforce.

We would have to modernise agriculture by accelerating mechanisation, use of reliable high yielding seed. Adopting the sprinkle irrigation method and moving from manual to mechanised harvesting.

Static industrialisation is also keeping our agricultural practices backward. Mechanisation would spare a lot of agricultural labour force that only industries could absorb.

The United States agricultural workforce has reduced from 20 percent of the population to only one percent, still it is generating exportable surpluses in agriculture.

Our agricultural exports could cross $25 billion in five years if we increase our yields to near global best (we have the potential, as some farmers match global best). We will also have to establish agro-based value-added export industries to exploit our export potential (instead of exporting citrus fruit and mango we should export quality juices).

Achieving these potentials would not be easy. It needs a dedicated team of selfless individuals who keep national interest over their petty personal interests. The entrenched economies of China and India would resist our penetration in their markets.

We can do it by ensuring low cost, efficient and quality exports of goods and services (their costs should be higher because of their higher per capita income if we remove our inefficiencies).