State of play

Published March 6, 2015
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

THE London Stock Exchange hosted Pakistan Investment Day on Feb 20. The minister for privatisation, the Pakistan high commissioner in the UK, directors of the Karachi Stock Exchange, fund managers, officials of top listed companies on the KSE and from the international bank co-hosting the event, along with several high net worth non-resident Pakistanis attended the event.

I was invited to speak on Pakistan’s macro-economic dynamics. Instead, in an effort to avoid embarrassment, I chose to speak on Pakistan’s economic potential. (Even so, I could not help making a few observations about economic management and performance in the last few years that caused the minister and the affable and hardworking high commissioner to squirm uncomfortably in their seats.)

The undeniable economic potential of this country stems both from its demographics as well as its endowment of natural resources. Pakistan is on course to becoming the fourth most populous country in the world well before 2050. How good or bad that is, is of course open to debate. But a population of this size, which is both young as well as urbanising at a rapid pace, confers huge economic opportunity. The size of its middle class — the fourth largest in absolute terms in Asia, according to the Asian Development Bank — and its increase since the early 2000s have been underpinning a consumption boom that many of us have commented on, and one that is so visible and hard-to-miss, especially in the cities.


The issue is not Pakistan’s potential but how much of it has been actualised by different governments.


(However, as an aside, a profound change has occurred in the rural landscape that many urban-centric observers have failed to notice. Towns in rural Pakistan have not just grown larger, they have grown visibly more prosperous: a greater percentage of houses are no longer mud-built, but constructed using materials such as bricks or cement. The bulk of the sales of fast-moving consumer goods come from rural Pakistan — as do 55pc of motorcycle sales.)

To those of us who have been commenting on this transformation, the numbers are unsurprising to an extent. After all, Pakistan’s huge unreported economic activity means that the overall size of the economy is, conservatively, 50pc larger than captured in official statistics. This means that the actual size of the economy is closer to $400 billion, rather than the officially recorded $250bn — which makes the per capita income a more plausible $2,050 in nominal terms, and over $5,000 in PPP terms.

The issue is not Pakistan’s potential — but how much of it has been actualised by different governments. As we know, till the end of the 1980s Pakistan was an above-par performer relative to its peer group of other emerging economies. Since the 1990s, however, it has performed progressively worse. Why has this occurred when its economic potential remains unchanged (also, untapped and untouched)?

We know the answer to this, of course, especially in the unfortunate backdrop of yesterday’s Senate elections where corruption and bribery was on shameless display. While the country’s institutional framework has been weakened since its early days to cater to the whims of the elite, the brazen assault since the late 1980s from elected kleptocrats — and a power-hungry general — has dealt a mortal blow.

How does the short-circuiting of the institutional framework show up in poor economic — as well as cricketing — performance (or, more aptly, non-performance)? Take the case of Pakistan’s energy reserves. The country has the world’s ninth largest deposits of shale oil and gas. Given its geography, Pakistan has the potential to generate 50,000MW of electricity just from wind and solar power. This is on top of its hydro- resource potential. And, yet, it is facing one of the acutest energy shortages in its history. Moreover, rather than its vast indigenous energy resources being tapped, the country is becoming ever more import- dependent.

Why? Partly because import-substitution is not on the agenda, and partly because appointments in key positions have been made with a lack of merit. Both these factors could be related: after all, when the country imports energy worth over $15bn a year, a figure which is likely to increase to over $20bn within the next few years, a lot of money can be — and unfortunately, is — made by keeping the country import-dependent.

The same could be the case with the Pak-China economic corridor. If people at the helm of affairs are thinking of ways of how money can be made for themselves and their sons from this undertaking, and a pliant Planning Commission is made to provide politically ‘suitable’ studies tailored to personal rather than national gain, rest assured we will have a sub-optimal outcome from this all-important strategic venture.

Given this model of operation, it is no surprise that, two years into this government’s tenure, around 80 institutions, organisations, and public-sector entities are functioning by giving ‘acting charge’ to junior officers, rather than by appointing heads according to laid-down rules and procedures.

The same institutional malaise is evident in cricket. The Pakistan team’s pathetic performance in the World Cup is not for want of talent. The lack of merit in team selection and the cultivation of a ‘personalities-bigger-than-the-institution’ culture has led to some atrocious selection decisions for the World Cup, including the omission of Fawad Alam and Sarfraz Ahmed and the inclusion of Nasir Jamshed and Shahid Afridi. Not surprisingly, it has also resulted in the near-absence of planning, intensity and focus in the team’s performance. (The fielding coach’s complaint against three senior players for lack of effort, and respect, should have resulted in automatic disciplinary action. But not in Pakistan.)

The country’s immense potential remains underexploited because politicians and their cronies are too distracted by ‘extraction’ and asset-stripping. And in this model of operation, institutions are a hindrance.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, March 6th, 2015

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