The finance minister for the new government as well as other Ministry of Finance officials have clarified, and at a number of forms, that the growth strategy and economic policy of this government is going to centre on agriculture and manufacturing. The context for this declaration has been the understanding that the last period of decent growth, over the past few years, was based mostly on service and non-mainstream manufacturing sectors and lack of sustainability of this growth period had a lot to do with the sectors that were the basis for this growth.
By and large, the assumption of this government is correct. If the Pakistani economy is to achieve high growth levels and on a sustainable basis, the growth has to come from sectors that a) have a large potential for growth, b) are fairly large to start off with, c) have a large employment base, d) have the potential to create a lot of new employment with growth (have a high employment elasticity), and e) have the potential of providing significant level of export earnings for the economy.
If one thinks of sectors that could fit the bill, agriculture – with livestock, dairy and non-traditional agricultural sectors in it; agribusiness – including processing that qualifies both as manufacturing and as agribusiness; and certain manufacturing industries, especially textiles, fit the bill beautifully.
Agriculture employs the largest segment of our workforce, we have good human resource in it already, but given our yields and the state of processing industry, the potential for expansion is mind-boggling. Hence the potential for expansion, in earnings, export earnings and employment creation is significant. Most importantly, given the size and geographic distribution of agricultural activities, expansions in agricultural activities and output would provide us with one of the best ways of tackling poverty and economic inequality in the country as well.
The case for focusing on textiles, within manufacturing, is similar to the above. It employs a large number of people already, we have a developed human resource and knowledge base in the industry, the industry is/was our largest foreign exchange earner and, though it has been stagnating and not doing very well for the last few years, has the potential to grow a lot. Although the potential for poverty reduction here might be limited in the first go, if the industry can give us sufficient foreign exchange earnings, it could contribute a lot through stabilising the overall economy and thus could contribute to poverty reduction indirectly, through stabilisation.
Then there are other sectors within manufacturing that have the potential too. A lot of manufacturing clusters that have developed in Pakistan over the last few decades might be in a position to leap to a higher level with a little bit of help from the government. The light engineering clusters in Gujranwala, Gujrat, Wazirabad, and the sporting/surgical goods clusters in Sialkot are examples.
So, where the pronouncement from the new government, that they are going to focus on these sectors, is welcome, there are serious questions about the governments’ ability to follow up on these pronouncements. There seem to be a number of issues here. Even if one sets aside the cynical position that few governments in Pakistan, in the past, have ever lived up to their pronouncements and promises, there are still serious issues that could derail government efforts.
Pakistani economy has fairly serious macroeconomic stability issues to tackle right now. These were highlighted in the press conference of the finance minister. The government is going to be focusing its efforts on managing the fiscal deficit, managing the trade deficit, stabilising the exchange and interest rates, managing inflationary pressures and the food crisis, and managing oil price issues.
Though it appears that with some help from friends (China is giving some money, some will come from the Gulf, US might pitch in and so on), these things might indeed be managed in the next few months, it is still going to be a tough job to accomplish. The fear is that the Ministry of Finance will be fairly busy fighting on these fronts, then who is going to look at the issues of agriculture and manufacturing?
If the short run takes precedence over the medium and the long run, which it has a tendency to do in politics, and given the high expectations from this government the pressures will be significant, the government will end up focusing on macroeconomic stability issues way too much and to the detriment of opportunities in other sectors. And the stability that it will achieve, for the short run, is likely to be short lived and it will not be based on long-term trends in industry and agriculture.
It should be clear to everyone that while the potential in agriculture and manufacturing is clear for all to see, and successive governments have been talking about it (even the previous government talked of the white revolution in dairy), no government has so far been able to tap that potential.
One reason for this is that sector level policy making requires very detailed and meticulous planning and execution. It requires almost single-minded focus on the sector and the issues related to it. This was one reason Japan had ministries such as Ministry for International Trade and Industry (MITI). Pervious Pakistani governments have never been able to show that kind of single-mindedness. With macroeconomic stability on the front burner, and taking most of the time of the Ministry of Finance, it would be impressive if this government is also able to find the time and expertise.
Furthermore, two more factors will mitigate government efforts. Firstly, so far, the government has not signalled any seriousness in tackling planning, industry or agriculture related issues. Planning and development department has been given to the foreign minister as an additional charge. How can the foreign minister lead the efforts on planning – especially when the situation with our neighbours and the issues surrounding Pakistan’s support for war on terror should take a lot of his time?
Secondly, industrial policy and to an extent agricultural policy in Pakistan, historically, have always been about sectional interests, rent seeking activity, getting the right SROs, getting monopoly powers and specific benefits for big industrial and agricultural lobbies. It is not going to be easy for the current government to do away with that history, if they can, and to create a structure that provides policies that are for the benefit of the entire sector and country.
The small farmer, the small manufacturer (the so-called micro, small and medium enterprises), the trader and the retailer have historically always been ignored by the government or bypassed to provide benefits to the larger companies, the multinationals and other special groups Will this government be able to rise above these issues and think of the sectors as a whole and plan for their future? That will be the question for the concerned ministries to mull over.
The plan to base future growth on agriculture and industry, being announced by the Ministry of Finance repeatedly, is a sound one. This might be the only way for Pakistan to get on and remain on a sustainable, reasonable path to high growth. But the devil is in the details.
The short term imperatives of stabilisation, the lack of ability to form focused and single minded cross ministerial groups to concentrate on the issues at hand, the historical legacy of hijacked policy making, all will mitigate against government wishes to base the medium to long run performance of the country on growth from agriculture and industry. Will this government be able to face and take up the challenge? The gauntlet has been thrown, let us see how the democratic government responds to the challenge.
Source: The Nation, 21/4/2008