THE economy must grow at eight per cent per annum to accommodate the annual entrants to the labour force, as against the average rate of below 5pc that we have achieved since the mid-1970s. Can this shift to a higher growth path be achieved on a sustainable basis? The challenges in the short to medium term are formidable, with a large young population already in the market looking for productive jobs. In the long term, these tests will become more daunting with many current skills, and even technologies, becoming redundant.

This article will focus on the potential sectors that can serve as the drivers of growth in the short to medium term on a sustainable basis.

Apart from a higher rate of investment of 30pc plus of GDP needed to achieve this objective we need continued improvement in the productivity of resources — capital and labour. The contribution of our increases in productivity to GDP growth has been significantly lower than those of our competitors in Saarc.

A major part of the solution to our problems lies in reducing the footprint of the state in the economy.

The impediments to productivity increases include availability of reliable energy at reasonable rates, an educated, skilled and healthy labour force and entrepreneurial and managerial skills. Entrepreneurial and managerial skills have been deficient because of our weak educational systems, poor work ethic and incentive structures that do not create a demand for professional skills. An entrenched culture of SROs and a variety of policy crutches have protected different sub-sectors of industry, rendering irrelevant the need for quality skills to improve industrial competitiveness.

We have also not been successful in improving ‘inclusiveness’ in ‘economic growth’. Much of the recent growth has been in the relatively capital, skill-intensive and high-value sectors of finance, telecommunications, IT, oil and gas and motor vehicle assembly. These do not provide mass employment and the bulk of our population has been unable to participate meaningfully in these sectors owing to the poor quality of education and skills imparted by government institutions.

Resultantly, globalisation and technology have accentuated the divisions between those with skills and resources and those without. Another dimension of these developments is that parts of the country have been left behind, with those born in these regions suffering from an almost irreversible lack of opportunities. Hence the need to reduce inequalities and cushion the less privileged from the ensuing disruptions of technology.

For creating adequate employment, we will need to focus on relatively labour-intensive sectors like housing and construction, information technology and communications and wholesale and retail. Even industrial sub-sectors like consumer appliances, engineering, and communications, which are relatively capital intensive, can generate large work opportunities through the related service sector for after-sale maintenance of these products.

To this end, three economic sectors will require special attention, services, housing and commercial development in urban areas and agriculture (with limited long term potential). This is partly also because in the long-term manufacturing will again become a local industry, given long shipping times, high transportation costs and technological developments like 3-D printing of goods. This will make exports difficult (and the financing of imports more challenging) while also exposing the quality of our education to supply the market with updated skills to exploit the promise of technological developments.

Services (representing 55pc of GDP and 34pc of employment) can make a major contribution to growth and exports. With low levels of productivity, poor connectivity with markets and a distorted national tax structure, the provincial governments have imposed an infrastructure cess on external trade in goods and raised taxes on productivity-enhancement instruments, telecommunication and associated technologies like the internet, and on the export of IT services.

Assisting ‘creative’ industries will stimulate growth and trade; our global ranking in the creativity of goods and services is an enviable 12, and 55 in the export of cultural and creative services. Supporting our bright young artists, singers, musicians and designers of clothes and jewellery will also help change our image from a ‘hard country’ to a ‘soft’ one, critical in this age of soft power, especially since many of them are females.

A virtuous circle of high and more ‘inclusive growth’ can be set into motion by modifying zoning and building regulations. An example of the latter is height restrictions, which, by increasing the cost of housing, are forcing labour out of business and commercial centres, making commutes longer and leading to increased imports of fuel, traffic congestion and limited use of the most efficient public transit system invented to date — the elevator. Other related changes involve rationalising the structure of government levies on the development and commercialisation of properties and freeing prime commercial land tied up in unproductive state functions (eg elaborate housing for officials) in urban areas.

Today, modern agronomic practices make doubling of yields possible through better management of the key inputs of water, technology and better infrastructure of farm-to-market roads, instead of the aimless subsidising of crops (like wheat) and inputs like fertiliser and irrigation services.

A major part of the solution to our problems lies in reducing the footprint of the state in the economy with all its accompanying inefficiencies. These include poor policy design, weak institutional coordination, outmoded and bloated regulatory structures (lacking clarity on the objective and design of regulatory systems) and business processes (burdening businesses with the heavy cost of compliance with tax and regulatory laws), and overall governance issues (adversely affecting trust in government). These factors raise the cost of doing business, thereby constraining private investment. Hence, we find that in the trade of goods we are not competitive, our trade costs being 80pc higher than those of Vietnam and 40pc more than those of India and Thailand.

In this era of globalisation, intimidating changes are taking placing. This requires a quick-footed, competent and highly skilled bureaucracy updating its knowledge and skill set regularly to address these challenges swiftly enough for the country to remain relevant in a highly competitive international economy — a major ask. Unfortunately, the policies and instruments being designed continue to follow 20th-century models. Take services like education and health where thinking continues to be in terms of bricks and mortar instead of the potential of technology-based solutions being harnessed.

Regrettably, there are doubts about the effectiveness of incentive structures (of rewards and penalties) in getting the political leadership to focus on economic issues and on delivery of key social services for succeeding at the hustings.

The writer is a former governor of the State Bank of Pakistan.

Published in Dawn, August 7th, 2017