THIS article articulates a strategy for integrating Karachi’s economy with that of the rest of Sindh, which is of vital importance for promoting national solidarity.

Towards this end, the government of Sindh can play a crucial role by developing an incentive package for identifying integrative firms and stimulating integrative resource flows. Sindh’s annual development plan (ADP) also provides opportunities for maximising such integration.

As announced in the FY15 budget, the principal objective of the provincial fiscal strategy is to promote service delivery. Promoting intra-Sindh integration is not a fiscal priority. Reducing intra-regional disparities is an explicit priority of this fiscal strategy.

As a specific feature of capitalist development, and as a result of policy liberalisation since roughly 1991, interpersonal and inter- and intra-regional inequalities have been growing rapidly.

Rising inter-regional inequality is the single most salient macroeconomic distortion in Sindh. Per capita consumption in rural areas is less than one-third that of Karachi. According to estimates by Arby and Rasheed, Sindh grew at a faster rate than the national economy during FY05-FY12, but this did not benefit the poor in the province’s slums and rural areas.

Sindh includes Pakistan’s richest (Karachi) and poorest (Tharparkar) districts. Although agriculture accounts for only 16pc of Sindh’s gross provincial product (GPP), it accounts for 45pc of the province’s labour force. Sindh is the country’s most financially developed province, but in CY12, only about 5pc of total bank deposits in it were outside the metropolis. Karachi’s financial pre-eminence has not stimulated the growth of the rest of the province’s economy.

Quality health and education facilities are all concentrated in the city. The government’s policy of dovetailing public to private investment through its public-private partnership programme further exacerbates income and asset concentration in Karachi, for it is here that private investment is focused.

Official estimates of the city’s economy — value of production, gross capital formation, private consumption, in-country trade and exports and imports — are not available in published sources. There is, however, no doubt that Karachi is the principal commercial and financial principal city of Pakistan.

Karachi accounts for around a third of Sindh’s population, and during the past decade, its rate of population growth significantly exceeded that of the rest of the province. With the exception of Malir, all other districts of Karachi are almost exclusively urban.

Karachi remains the heart of the manufacturing industry. According to the latest census, its share in reporting the province’s manufacturing establishments was about 70pc, while that of the value of the sector’s fixed assets was about 75pc. Its share in average daily employment and the value of production in the manufacturing sector was 72pc and 75pc respectively.

No other district is remotely comparable to Karachi as a hub of manufacturing business. The second and third maj or centres of manufacturing activity in Sindh are Dadu and Hyderabad respectively. However Dadu’s share in the value of Sindh’s manufacturing sector’s fixed assets is about 6pc, and its share of manufacturing employment is 9pc.

While manufacturing activity is heavily concentrated in the premier city, horizontal and vertical production structure linkages between entrepreneurs based in Karachi and in the rest of the Sindh are very weak.

The growth in the city’s economy does not significantly filter through to the rest of the province, and intra-provincial production, investment, trade, employment and transfer of technology are weak. Given that Karachi is the main growth power house of the Sindh economy, this should be a cause for considerable concern.

Developing a viable strategy for integrating Karachi into the Sindh economy is crucially constrained by the lack of relevant micro and macro data. The provincial government has yet to develop a system for estimation of annual provincial product and expenditure accounts. And of course, such accounts do not exist in any form at all for Karachi or any other district. The first step in the development of a coherent integrative strategy must be setting up of an institutional framework for regularly updating the mapping of the macro economies of Sindh and Karachi.

There is a need to identify the structure of production, technology transfer and investment linkages between Karachi’s economy and that of the rest of Sindh in an input-output framework. The purpose of this exercise should be to identify:

a. The manufacturing and service sectors, where there is the greatest scope for increasing production and finance linkages between Karachi and the rest of Sindh

b. The major ongoing businesses in which production is intra-regionally sourced

c. The constraints — infrastructural, financial, technological — for growth of competitiveness and productivity of such integrative businesses

Such a study should identify the firms that have been running efficient and profitable integrative projects in different sub-sectors, and then provide tailor-made incentive packages — like preferential government procurement and tax treatment, human and technological capital build-up support, infrastructural support and other subsidies — in exchange for meeting specific integration targets, such as procurement of raw material and sale of output shares, intra-Sindh recruitment, investment, financing, technology transfer etc. Public investment in integrative projects on a profit-sharing basis can also be envisaged.

While the primary focus of this programme should be on developing incentives and monitoring packages for encouraging private investment and public private partnerships, IoBM has been able to identify 189 ongoing and 138 new projects in the Sindh ADP for FY15, which can be structured to serve as an integration mechanism for several sectors, linking Karachi to rural Sindh.

Published in Dawn, Economic & Business, July 28th, 2014