Economic Development and Entrepreneurship in Pakistan

1. Economic Growth & Entrepreneurship in
Pakistan
Dr. Vaqar Ahmed
Sustainable Development Policy Institute
30th January 2012 1

2. Outline
• Revisiting Growth in Context of Pakistan
• Growth Experience of Pakistan
• What is the Current Growth Strategy?
• Why Move Towards a New Growth Strategy?
• What is the Proposed Growth Strategy?
• Themes in Growth Strategy
2

3. How Economy Grows?
State of Workforce
Entrepreneurial Availability of
Streak Capital

4. How Economy Grows?
Physical Capital
Social Capital Human Capital

5. Development Approach
Consensus-building
Governance plan
Security plan
Pakistan’s strategic potential
5

6. Consensus-building – Social Capital
Social Common
Identity Language
fabric goals
6

7. Governance Plan
Accountability
Civil
Regulation Service
Reforms
7

8. Security Plan
Security for Internal and
assets and external
profits threats
8

9. Pakistan’s Strategic Potential
Transit and
Logistics to
China and
India
Link with Energy
Central Asia Corridor
9

10. 12
10
2
4
8
0
6
10
15
-5
-20
-15
-10
5
0
1961 1961
1965 1965
1969 1969
1973 1973
1977 1977
1981 1981
1985 1985
Pakistan
Bangladesh
1989 1989
1993 1993
1997 1997
2001 2001
2005 2005
2009 2009
10
-4
-2
0
2
8
4
6
10
15
20
25
-5
0
5
-10
1961 1961
1965 1965
1969 1969
1973 1973
1977 1977
1981 1981
India
1985 1985
Sri Lanka
1989 1989
1993 1993
1997 1997
2001 2001
Growth Experiences Across South Asia
10
2005 2005
2009 2009

11. Investment & Savings Performance (1979 – 2010)
Country GDP Fixed Domestic ICOR
Growth % Investment to Savings to
GDP (%) GDP (%)
China 9.1 32.2 37.9 3.5
India 5.3 23.9 22.0 4.5
Malaysia 6.4 27.4 35.0 4.3
Indonesia 6.0 25.9 29.2 4.3
Thailand 5.9 29.5 28.8 5.0
Pakistan 4.9 16.6 11.9 3.4
11

12. Structural Transformation 1970 - 2010
10 Sectoral Growth Rates (%) 60 Sectoral Shares in GDP (%)
8 50
6 40
4 30
2 20
0 10
1970s 1980s 1990s 2000-10 0
1970 2010
Agriculture Manufacturing Services Agriculture Industry Service Sector
Agriculture growth rate declining. Decade average slightly above population growth
12
rate. Issues for food security, unemployment and poverty.

13. Exports, Imports and Current Account 1980s – 2000s
20 Other Percentage
1980s Items, 6 Shares in
15 Total
1990s Food Exports
Other Group, 17 (2010)
10 2000s Manufact
ures, 19
5 Petroleum
Group, 5 Textile
0 Manufact
ures, 53
Exports % of Imports % of Current
GDP GDP Account
Deficit / GDP
Since 1990s openness decreased in terms of both exports and imports. Export to
GDP ratio low. Highly concentrated, lacking diversification and prone to ToT shocks.
13

14. Infrastructure – Hardware of Economic Growth
Global Quality of ICT Usage Quality of Quality of Quality of Quality of
Competitivenes Electricity Roads Railroad Port Air
s Index (out of Supply Infrastructur Transport
139 countries) e
Malaysia 26 40 50 21 20 19 29
Thailand 38 42 79 36 57 43 28
China 27 52 78 53 27 67 79
Indonesia 44 97 103 84 56 96 69
Vietnam 59 98 70 117 59 97 88
Philippines 85 101 106 114 97 131 112
India 51 110 118 90 23 83 71
Pakistan 123 128 109 72 55 73 81
14

15. Management & Organization – Software of Growth
Property Corruption Education Goods Labour Financial Technological
Rights & Market Market Market Readiness
Training Efficiency Efficiency
Malaysia 37 44 49 27 35 7 40
Thailand 87 71 59 41 24 51 68
China 43 47 60 43 38 57 78
Indonesia 74 65 66 49 84 62 91
Vietnam 88 61 93 60 30 65 65
Philippines 102 135 73 97 111 75 95
India 61 80 85 71 92 17 86
Pakistan 99 108 123 91 131 73 109
15

16. Fiscal Pressures on the Economy
Losses of 22 State owned enterprises now over
Rs. 300 billion annually
Government borrowed from banking sector
(crowding – out private investment)
Untargeted subsidies still in place
Public Sector Development Program is shrinking.
Already has preoccupation with brick & mortar
Due to low growth, tax revenue and domestic
savings expected to be low.
16

17. What is the Current Growth Strategy?
• Growth policy by default
• Public Sector Investment
• Sector Picking and Regulated Markets
• Result
• Sporadic growth usually created by external resources
• Preoccupation with crises and stabilization
• Lack of structural reform
17
No Long Term Thinking on Growth Strategy

18. Why Move Towards a New Growth Strategy?
• Expected long run labor force growth 3.6 % annually
• Absorbing incremental labor requires GDP growth in excess of 8 %
annually
6 Rising Unemployment 14
Real Per Capita Income Growth
12
Unemployed Labour Force
5
10
4
8
(millions)
(%)
3 6
Falling Per 4
2
Capita 2
1 Incomes 0
0 -2
2001 2002 2003 2004 2005 2006 2007 2008 2009 18

19. New Economic Growth Strategy
Economic
Productivity
Discipline
Responsible Fiscal & Governance &
Monetary Policies Institutions
Market Reforms
Restructuring of PSEs
Urban Management
Rationalization of PSDP Youth & Community
19

20. New Economic Growth Strategy
Short Term: Getting Back to Potential
Utilization of Macroeconomic Removing Major
Existing Capacity Stability Constraints
• Up to 50% in • Inflation eroding • Energy (Electricity &
fertilizer, auto competitiveness Gas)
sector, sugar, cement • Resource Mobilization • Availability and pricing
and steel & Expenditure of credit
Management
20

21. Potential Governance Agenda
Business
Civil Service
Devolution process PSE Reforms
Reform
reengineering
Need to
Structure and Devolving Reform for Power
address
Incentives to powers, respo Sector Under
outdated Implementation
Attract Talent nsibilities and
regulations
resources to
lower tiers Remove
Monetized Reforms Strategy
multiplicity of
Salaries, Merit for Railways &
processing Gas Formulated
based Performance layers
Promotion, an based
d Easy Entry & Governance
Exit TCP & PASSCO to
be examined for
closing down
21

22. Markets & Entrepreneurship
Modernize Laws
Deregulate Encourage Domestic
& Regulations
Markets Innovation Commerce
for Markets
Wheat, Sugar Innovation
Agriculture Taxation
& through
Market Regime, Rent
Commodities Incubation
Committees Laws etc.
Exchange Centers
Review Cluster
Legal System
Investment in Sectors where Strengthening
for Common
New Sectors Government (e.g.
Property
may Exit Sialkot, Gujra
Ownership
nwala, Wazira
(shops & flats)
bad)
Bankruptcy
Law
(legislation
drafted)
22

23. Cities as Hubs of Commerce
Modernize Laws
Address Excess
& Regulations Land Markets Property Rights
Demand
for Cities
Need to Need to
Bridge Excess Freeing
Reform Address
Demand for Government
Zoning & Issues of
Commerce, O Land for
Building Titles, Taxatio
ffice Commercial
Regulations n Structures
Space, Wareh Purposes
etc.
ouses etc.
23

24. Reforms for Connectivity
Incentivizing use
Revisiting ‘PPP’ Freight sector Aviation of ICT services
Phase 1: Partial Increasing Taking PaCCS
Adding ‘PPP profitability to all custom
Option analysis’
privatization +
opening rail through 6th posts of
in PC-1
track freedom rights Pakistan
Reviewing Phase 2: Facilitating
Reducing CAA’s
‘procurement Unbundling of clearance of
role to
law & rail assets and goods at dry
regulating
processes’ privatization ports
Bringing land E-government:
Auctioning of
acquisition Reduction in ‘Electronic
routes against
laws in-line import tariffs signature act’
preferred
with on modern to give cover
allocation to
international trucks to the use of
PIA
norms digital IDs etc

25. Youth & Community Engagement
Youth Youth
Social Capital
Engagement Development
Empowerment
Making Social Capital
through Voice and Education and Skills
Available for Youth
Citizenship
Social Infrastructure
Framework for Youth
Service Learning (Libraries, Community
Self Employment
Centers etc.)
25

26. Planning with Line Ministries and Provinces
Strategic Decentralized Results
Level Planning Planning Monitoring
Service Delivery
Review of Key Towards Provincial
Plans with
Socio-Economic Growth & Reforms
Sectoral Ministries
Challenges Strategy
& Provinces
Local and Setting
Developing Vision
Municipal level Performance
& Mission
Strategy Targets
Helping Provinces
Monitoring Key
and Line Ministries
Performance
Formulate
Indicators 26
Execution Plan

27. New Role of Government
Markets Government
Ownership Policy
of Assets
Financing Regulation
of Assets
Production &
Management
27

28. Thank You
Thank You
www.sdpi.org
vaqar@sdpi.org

29. Socio-economic Plan
Revival of Poverty
Productivity Reforms
Growth Intervention
29