Industrialisation — ensuring level playing field
By Shahid Javed Burki
Monday, July 13, 2009
THE Planning Commission may have to look at a number of issues as it begins to focus on providing the country with an industrial sector that meet its needs. To begin with, what kind of direction and help should the state provide to the industrial sector in the light of developments taking place in the global economy and the evolution of the world’s industrial production system?
In its most recent report, the UNIDO has indicated that concentration on “tasks” rather than on the production of final products provides better opportunities to the countries such as Pakistan that have been left behind in the process of industrialisation. By “tasks,” the UNIDO is referring to the assistance in producing the final products rather than the products themselves. If there is some substance in this advice how should Pakistan go about it?
In focusing on the future structure of the industrial sector, policy makers must bear in mind the competitive pressures under which the country is operating. Of these none is more important than the competition emanating from China. Trade with China is an area of enormous interest for Pakistani businesses. Some have concerns while some others see opportunities. The conclusion is obvious: the dynamics of this trade needs to be studied carefully by the public and private sector working together and recommending policy actions for the state. By focusing on tasks, policy makers could achieve better integration between the Chinese and Pakistani industrial systems.
Businesses in Pakistan also believe that an important aspect of the trade policy is the PakistanAfghanistan Transit Trade Agreement. While providing Kabul with an outlet to the sea is important, the agreement should not create opportunities for enormous leakages that have occurred in the past and continue to occur at present. The modalities of this trade needs to be determined in a way that Pakistan’s economic interests are protected.
Large businesses feel that the growth of the black economy is hurting development of the industrial economy. There is an urgent need to develop a level playing field for enterprises of various sizes. At the moment, small enterprises, by avoiding to pay taxes and by avoiding a number of fairly stringent regulations, have increased their market share in the local market place at the expense of large firms. The large producers find it difficult to compete with SMEs.
The SMES can also deal with energy and water shortages by making under-the-table payments to officials responsible for providing these services. While the development of the SME sector is vital for the country’s economic future it should add to the overall efficiency of the economy. Operating in an uneven field reduces the economy’s efficiency. How can a level playing field be produced for all businesses?
One way of doing it is to review laws and regulations that are in place. Such a review will reveal that many of them are no longer needed; the purpose for putting them on the books was to realise a particular goal or solve a certain problem. For instance, the Agricultural Marketing Acts in the provinces were originally written to protect the Muslim peasantry and small landholders from the non-Muslim shopkeepers. They have lost their original purpose but they remain on the books. A review done jointly with the private sector would indicate that many laws and regulations only create rent seeking opportunities for the regulators. They serve no particular economic or social interest.
Taxation and revenue generation is one particular area where a great deal of cleansing of laws and regulations needs to be done. As was recognised in the recent budget speech, it is of vital importance for increasing the tax to GDP ratio. Many among the private sector feel that the regulations in place should be carefully studied by a joint working group of officials and private sector people.
It is also important to develop international trade as an important determinant of efficient industrialisation. There is an anti-export bias in the traditional approach to policy making.This is another area where the private sector could work with the govern ment to; (a) identify changes in policies that would create a pro-export orientation and, (b) identify the institutions that need to be improved or established to realise the government’s objectives.
Businesses are deeply concerned about the state of physical infrastructure which has lagged behind the development of the economy and does not meet the needs of a trading nation. They have taken cognisance of the fact that India, having lagged behind Pakistan in developing its highway system, is rapidly catching up. Indians have developed an ambitious programme for developing a national highway system closely involving the private sector. The users will be required to pay for the facilities they use. The private sector should be asked by the government to present it with the contours of an action plan that would involve it in the development of this vital sector of the economy including the prospect of raising additional resources for investment in the sector.
Belonging to the sector of infrastructure but demanding a separate treatment is shipping, an area in which a decent beginning was made in the 1960s but has allowed the industry to run it down.
Absence of appropriate shipping facilities imposes enormous burdens on exporters, adding significantly to costs. How could this situation be remedied?
The businesses recognise that Pakistan has not given the sector of agriculture the attention it deserves. Properly developed, agriculture could be a major source of exports, not only of grain and other low value- added products. Pakistan could carve out a decent space for itself in processed foods. But this will need investment by the state in infrastructure (cold chains, for instance), technology to increase productivity as well as the quality of products, finance and market advice. Once again, the public and private sectors could be partners.
Given the serious shortages that have developed in recent years in supply of energy, the government needs to develop a well thoughtout strategy to ensure that supply keeps up with demand. It is clear that the gap between supply and demand cannot be closed by the government alone making investment from public funds. There has to be a partnership between the public and private sectors.
Pakistan has seriously lagged behind developing the technological base of the economy. There was eloquent talk in the Planning Commission’s Vision 2030 statement about providing the economy a strong technological foundation. That goal is still searching for an operational answer. What kind of strategy is needed and how could the private sector support it? Should the development of e-government be given more attention than it has received and whether egovernment could serve as the catalyst for advancing the pace of technological development?