Friday May 24, 2024

For high-tech exports

By Atta-ur-Rahman
September 28, 2022

The single biggest challenge to enhance the exports of Pakistan is to establish industries in high-technology fields so that we can manufacture and export high value-added products. Lessons can be learned in this respect from China in respect of policies that need to be designed and implemented.

Since the very beginning of the process of economic reforms that China began in 1978, the focus was on linking Foreign Direct Investment (FDI) firmly to the manufacture and export of high technology (high value-added) products. This resulted in annual average economic growth of up to nine per cent during the period 1979-2004, transforming this nation to an economic giant. This is where Pakistan failed completely, as it was not realized by planners in successive governments, that gone are the days when low value-added textiles could contribute to significant socio-economic development.

About 60 per cent of our exports are in the low value-added textiles sector. We must move forward to the manufacture and export of engineering goods, automobiles, electronics, computers, sophisticated software, artificial intelligence-based products, chemicals, pharmaceuticals, vaccines, biotechnology goods, nanotechnology materials, processed minerals, gems and jewelry, and a host of other such technology-driven high value products.

China attracted foreign investors to establish manufacturing plants of high technology goods by offering its huge market, excellent trained manpower and upgrading its technical infrastructure to meet the requirements of the foreign investors. A large number of science parks were established across China to facilitate the development of high-tech industries. It started sending its brightest students abroad in hundreds of thousands each year, thereby building up a formidable work force, highly trained in every sphere of science and engineering.

Last year, for example, some 600,000 students were sent by China for PhD and post-doctoral training to top laboratories in the US and Europe, and some 500,000 students returned to China last year after such training. The addition of half a million trained professionals to the academia and industry of China, has led to an almost miraculous transformation of China in almost every sphere of innovation-driven industry.

China today has far more patents than the US. In 2021, China was the leading international filer of patents for the third year in a row. For instance, in the important and rapidly emerging field of artificial intelligence, Chinese firms had 75 per cent of the world’s international patents. Similarly in the field of 6G technologies it had more patents than the US.

A major milestone in this effort of China was the ‘Decision of the Central Committee of the Chinese Communist Party Concerning the Reform of the Science and Technology Management System’ in 1985. This decision allowed the funding system to be reformed to allow the incentivization of private enterprises in the manufacture and export of high technology goods. The budget of those institutes that were contributing to the development of such technologies were substantially enhanced. The Plan identified the weaknesses of the economy in technology and technical infra-structure. As a result, three major areas of activities were identified: a) education and science; b) energy and transportation; and c) agriculture.

To make science and technology more goal-oriented, it was decided to strongly link science and technology to commercialization activities. Accordingly, the process of transforming the R&D system from a centrally planned one to a market-driven one was initiated, and private enterprises were persuaded to provide incentives to scientists so that they worked on product development that would enhance the exports of China in high tech areas. Chinese scientists were required to undertake technological work for private industrial companies in their spare time and get paid for these consultancy services. Chinese research institutes were also expected to establish their own commercial ventures, strengthen linkages with industry, and expand the range of high technology products that China could manufacture and export. As a result, the Chinese Academy of Sciences, a public-sector institution, established dozens of spin-off companies.

Chinese scientists and engineers under a deliberate policy were encouraged to leave public sector research institutes and start their own commercial enterprises. In this connection, the Torch Programme launched in 1988 proved to be a game changer, as it allowed liberal funding to be provided to non-governmental enterprises. It also helped to strengthen the linkages between private companies and science parks. The programme helped to establish Economic and Technological Development Zones (EDTZs) and High Technology Industrial Development Zones (HIDZs).

Until the mid-1990s, China like Pakistan was confined to low and intermediate technologies and had little capability in high technology fields, where the big money lies. In 1995, two further important decisions were taken to promote technology-intensive industries. The first of these was the 1995 ‘Decision on Accelerating Scientific and Technological Progress’. The second was the 1999 ‘Decision on Strengthening Innovation and Developing High Technology and Realizing Industrialisation’. The 1995 Decision was focused on the implementation of recommendations regarding raising the standards of science and technology as well, as education. It also focused on improving the “indigenous technology capability”.

In another State Council Decision in 1999, tax deductions were approved for private enterprises that invested in R&D. All income derived from the commercial application of new technologies was given complete tax exemptions. A lower six per cent value added tax was approved for software products developed and produced in China. High-tech exports were given complete VAT exemption and were offered subsidized credit. The companies involved in the manufacture of high-tech products were preferentially listed in the Shanghai and Shenzhen stock exchanges. As a result of these and other measures the export of high-tech products increased exponentially from $16.3 billion in 1997 (5.3 per cent of total exports) to $165.4 billion by 2004 (27.9 per cent of total exports).

Pakistan needs to follow the same path as China. Our R&D policy must be directed to developing an innovation-based economy by nurturing indigenous technology development, developing enterprise-centered technology innovation systems and promoting the innovation capabilities of our companies. The focus should be in a few selected key targeted strategic areas of technological development.

An excellent beginning to transform Pakistan was made by the establishment of a powerful Task Force on Technology Driven Knowledge Economy and important projects in fields such as artificial intelligence, mineral extraction/processing, advanced agriculture, and human resource development initiated. However, the need of the hour is to change the entire vision and strategy for socio-economic development focused entirely on just one key issue: the national ability to manufacture and export high technology products so that our exports can start matching those of tiny Singapore which are about $400 billion.

Pakistan’s exports are alas confined to about $30 billion because of myopic past policies. This can be achieved only with a visionary, honest and technologically competent leadership.

The writer is the former federal minister for science and technology and former founding chairman of the HEC. He can be reached at: