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HERE are a few uncomfortable facts: Pakistan’s formal economy has been in the doldrums for the past seven years. Growth rates have been spectacularly low; commodity, energy and balance of payments crises unfalteringly regular; and revenue generation persistently elusive. This coupled with an archaic, largely self-serving bureaucracy, and frequent episodes of political mismanagement results in poor service delivery, and high levels of misappropriation (or misdirection) in development spending.
Here are some more facts: Pakistan’s formal economy (and more broadly, its political economy) has remained structurally trapped in low value-added manufacturing for close to three decades. Going by standard political economy comparisons, Pakistan should have moved higher up in the production value chain around 20 years ago. We should have been selling the world something slightly more complicated than grey cloth or towels (or cheap labour for oil-fuelled, vanity construction). The fact that we’re still hostage to cotton, remittances, and development assistance, just as we were in the 19whenevers, is indicative of a continuous malignancy.
This piece, however, is neither about the structural trap of almost entirely our own making nor about the political economy of Pakistan’s economic stagnation. Economists on these pages and elsewhere have dealt with those issues fairly comprehensively. This piece is more about the public face the economy (and capital investment) has taken, broadly in the past 20 years, but more so in the past 10 years.
Much of the retail development is currently taking place in upscale (or upstart) neighbourhoods.
Friends across the border in India call it the great ‘retail revolution’ — the rise and rise of the micro and mid-tier retailer and wholesaler, currently the contributor-in-chief to a services sector picking up the slack from a manufacturing slowdown.
Here in Pakistan we’ve witnessed a retail revolution (or at least a sustained spurt) of some kind as well. Lower duties, better smuggling strategies, and generally freer borders on all sides (except one) means more Pakistanis now have access to more goods than at any point in the past. The size of this retail pie is now close to $50 billion. It has been growing at a real, (inflation-adjusted) rate of 5.3pc per annum for the past few years. That alone is fairly exceptional given the sloth-like (non)-performance of everything else — especially manufacturing — in the country.
At the end of every month, the Securities and Exchange Commission of Pakistan publishes numbers of new company registrations, broadly categorised by nature of economic activity. Unsurprisingly, the first six months of this fiscal year show the highest numbers of new businesses were registered either in the ‘services’ category (280 new firms) or the ‘trading’ category (250). If we go by two, not wholly unreasonably assumptions — 1) taking this as roughly indicative of where new investment is heading, and 2) taking these numbers as roughly proportional to the numbers of undocumented new enterprises — it’s quite clear that this is where the money’s going and that there are little signs of it slowing down.
If you’re sceptical of this positivity, or cynical about Pakistan in general, here’s where the story drops down a fairly dark cliff: our particular retail revolution is not only quite obviously skewed in terms of the demographic it serves, its overall impact on socio-economic development is mixed at best. For starters, the consumption boom is being ridden and enjoyed by the top economic quintile of households in Pakistan — ie the only ones who’ve experienced an increase in real, disposable income of close to 15pc in the last eight years (compared to 1.5pc for the lower four categories).
This is why when you step out in a city like Lahore or Karachi, most of the retail development is currently taking place in upscale (or upstart) neighbourhoods, and consists of clothing retailers, restaurants, and flashy outlets that stock rows upon rows of consumer goods. Beyond the public brick-and-mortar manifestation, a parallel, internet-based elite economy — consisting of designers, bakers, photographers, and event managers/wedding-planners — has also emerged as a cash-rich, tax-free little island.
The creation and growth of this elite-owned and elite-serving retail economy is one of the most obvious features of Pakistan’s economic journey from the past decade. Is this necessarily a bad thing though? Is a new Ralph Lauren store or another Fatburger outlet something to be worried about? After all, both are generating economic activity of some kind, providing some manner of employment (even if most of it is informal), and serving as avenues of investment in a country otherwise besieged with crises of all varieties.
Unfortunately, evidence from elsewhere (and basic economic sense) tells us that a country of Pakistan’s population simply cannot rely on a low-value services sector to resolve its development problems. In a country where the median individual is young, poor, under-employed, and under-skilled, the services sector by its very nature cannot a) absorb more than a certain portion of urban labour, b) provide the productivity and skill gain needed for households to improve their standard of living.
In contrast, economic history shows that the only activity capable of resolving both these problems — employment and productivity — in the developing world is manufacturing. Whether you look at Latin America, Turkey, East Asia, or increasingly in India, manufacturing — export-generating or import-substituting — remains the one constant in helping previously low-income countries achieve a higher standard of socioeconomic development.
Structural conditions (historically inherited factors and newly drawn-up policies) nudge money in the direction of profitable frivolity, so one cannot possibly blame an individual investor or entrepreneur for surfing Pakistan’s retail wave. The responsibility, however, for redirecting our economic priorities towards higher productivity and dignified employment lies squarely with the government and the policy elite. And while their plate may be full with the existential concerns thrown up by militancy and Islamic fundamentalism, planning for a future beyond these two problems should not be too far down the pecking order.
The writer is a freelance columnist.
Twitter: @umairjav
Published in Dawn, January 19th, 2015
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