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An emerging market?


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A RECENT Global Research Report by HSBC Bank noted that 19 of the top 30 economies in 2050 will be countries that are “emerging”. It is “not just the likes of China and India that will be powering global growth over the next four decades.

Countries as varied as Nigeria, Peru and the Philippines will also be playing a significant part”.

The study projected Pakistan as the 30th among 100 economies in 2050, in the ‘growth’, but not ‘fast growth’, list. It observed that Pakistan makes it into the top league, less because of individual prosperity, than because of population size.

To some extent, this is true of all populous countries — China, India, Indonesia, Brazil — among them. However, these large countries have been growing at seven to 11 per cent annually in recent years while Pakistan’s GDP growth has hovered around four per cent.

With its population growing at 2.5 per cent, and given the gross inequality in income growth, the ranks of the poor has increased from 20 to over 30 per cent of the population. Poverty will continue to enlarge unless economic growth accelerates and the benefits of growth are more evenly shared.

Over the past 60 years, several countries have registered very high growth rates, multiplied GDP and per capita incomes and broken the shackles of poverty. These include Japan, South Korea, Taiwan, Singapore and, most recently and prominently, China. Is Pakistan capable of such growth? What are the preconditions, policies and actions required to achieve this?

Empirically, there are a number of preconditions that are essential for dynamic economic expansion: good governance, reasonable security and clarity and consistency of economic policies. These preconditions do not exist in Pakistan today; obviously their realisation must be the highest priority for the growth-oriented government Pakistanis hope to instal in the near future.

These conditions are necessary but not sufficient for dynamic growth. The economic factors responsible for growth are both common and different for each country.

The availability of capital, usable natural and/or human resources, and consumers, domestic or foreign, are the common factors that generate economic growth. But national strategies differ according to endowment and opportunity. China has relied on building a manufacturing base initially for export markets, India has focused more on the domestic consumers and the services sector, and Brazil and Indonesia have concentrated on natural resources.

To double per capita income within a decade, Pakistan’s economy will need to grow at nine to 10 per cent annually. It cannot achieve these growth rates without massive investment — domestic and foreign. Unfortunately, investment has been stagnant for the past several years and is declining at present. A conscious and concerted effort is required to generate investment in the Pakistan economy from all possible sources.

The most important sources are the national development budget, foreign direct and portfolio investment, exploitation of natural resources, export earnings, expatriates’ ‘home’ remittances and official investment and transfers from friendly countries and international institutions. Mobilising investment from each of these sources confronts specific challenges.

For several years now, the national development budget has provided no significant input for the country’s growth or socio-economic development. It has been diverted for current consumption and political patronage. Unless national revenues are augmented through tax reform, the restructuring of public-sector enterprises and an end to leakage and misuse of national money due to corruption and incompetence, the federal and provincial governments will remain unable to contribute to growth or to creating the foundations for economic dynamism in the country. Indeed, in many ways, the government has become an impediment to Pakistan’s growth. The current energy crisis is a case in point.

Foreign direct investment has ground to a halt; inflows in the last quarter were the lowest in recent history, no doubt due to the current political uncertainty and security concerns. Yet, Pakistan’s laws and regulations are vastly more ‘friendly’ to foreign investment. And foreign corporations have recorded significant profits in Pakistan (and are among the largest taxpayers).

There are several sectors where domestic and foreign investment would be highly profitable: energy (hydro, coal, gas, wind, solar), transportation, housing, telecommunications, health and education, agriculture and food processing, electronics and light and heavy machinery.

Portfolio investment can be an important input to growth specially for private-sector companies. But Pakistan’s public equity market is ‘thin’ and subject to manipulation. Like several other countries, Pakistan also needs to build barriers against the volatility of capital flows into the market.

Similarly, home remittances are at best an auxiliary source of productive investment. The higher than expected expatriate inflows last year prevented a foreign exchange crisis; but the levels may decline. Moreover, since the inflows are ‘dedicated’, they cannot be utilised significantly for investment purposes.

Pakistan’s natural resources are a promising option. They lie under-explored and unexploited. Thar coal and Balochistan copper are two advertised examples. Pakistan is one of the least explored areas of the world for oil, gas and other resources.

There are authentic studies indicating that the minerals underground in western Pakistan could, for example, supply the requirements of China for copper and several other strategic minerals for 50 years.

Here again, it is the poverty of government budgets and the greed and ignorance of involved politicians and officials that have prevented the realisation of Pakistan’s potential.

Likewise, Pakistan’s export potential is grossly underutilised. Apart from exploiting and exporting natural resources and other commodities, Pakistan has considerable potential to enlarge the volume and value-addition of exports in agriculture, food products, textiles, electronics, engineering goods, heavy and light machinery as well as IT, banking and other services.

With focused investment inputs and adequate government support, Pakistan can multiply its export earnings tenfold within a decade to reach ‘parity’ with countries of similar size and endowment, for example, Mexico.

Finally, in the pursuit of rapid growth, Pakistan enjoys advantages in its external relations unavailable to other ‘emerging’ economies — a strategic relationship with China, besides traditional aid and trade relations with the US and Europe. The latter will remain important for Pakistan’s growth, notwithstanding the slowdown in their economies and the current crisis in Pakistan-US relations.

Yet, a large part of Pakistan’s growth can be best achieved through a close partnership with China. Beijing is already making a vital contribution in the shape of the numerous infrastructure and other projects which Chinese companies are executing and, in many cases, financing. However, it would be even more productive to secure investment in Pakistani venture from China’s state and private enterprises. Such Chinese investment is taking place all over the world, even in far-flung countries in Africa and Latin America. India too has secured Chinese investment.

So far, Chinese private-sector investment has taken place in cellphones and the acquisition of British Petroleum oil assets. But there are as yet no major investments or joint ventures with major state enterprises. Such collaboration with Chinese companies can enhance production and exports inter alia by integrating Pakistani companies into the global production chain of Chinese enterprises.

In short, Pakistan is eminently capable of not only becoming one of the ‘emerging markets’. It can also be one of the fastest-growing economies in the coming decades.

The writer is a former Pakistan ambassador to the UN.

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Comments (12) Closed
Jan 22, 2012 12:30pm
we should talk this in legal formation
Shahid Ahmed Memon
Jan 22, 2012 01:24pm
writer has given the broader picture of the potential Pakistan is endowed by God. our country has natural resource as well human capital. we can tape them for well being of country and people. it is unfortunate to say that we have not made desired progress due to various factors such as political unstability, insecurity and lack of education,. inspite of all thing we will have to move forward rather repeat past mistakes. there is no doubt that our country can also emerge as progressive nation in the comity of nation if we bring our home in order.
Jan 22, 2012 01:24pm
Goldman sachs did a similar report back in 2003. Its called the n-11. There needs to be an overhaul in the regulation of the stock market to bring it on par with more developed exchanges in the west. This is a well written article, yet one thing i would mention is the importance of indigenous energy production in order to prevent exogenous shocks from rising energy prices across the globe in a period of rapid economic growth. Other than that, Pak has the ingredients to become a major growth story, And im very bullish on its prospects.
Mohammad Ali Khan
Jan 22, 2012 04:02pm
Mr.Munir Akram should have pointed out the role of religious fanaticism in Pakistan's economic stagnation.
Jan 22, 2012 04:15pm
Mr Akram has written a decent, though quite an obvious piece. I am interested to see that he doesn't highlight the main 'drainage' of the budget; i.e. defense. Until our budget allocation to defense is not curtailed quickly and with significant effect--which remains as elusive as good governance by civvies--we won't even proceed towards realizing our potential. It would do well for people to openly cite all solutions needed. True most of Pakistan somehow thinks China is now our key to a successful emerging market future, it will be futile if we don't set our house in order and start diverting a large portion of our budget from GHQ to education, health care and other non-political agendas.
Jan 22, 2012 05:21pm
anil merani
Jan 22, 2012 06:45pm
Although India has been growing around 7-9% for last many years yet there is large scale poverty New Delhi needs to reduce defense expenditure and move it to social sector . So Pak have a very long way to go . All the best
Jan 22, 2012 06:59pm
What is emerging Pakistan or its markets or marketing efforts globally plus it reputation.
Jan 22, 2012 11:12pm
How can Pakistan achieve its potential when most of the existing industrial units are closed due to a lack of gas and electric supplies? Politicians have failed the people of Pakistan repeatedly!
Jan 22, 2012 11:21pm
Yes, there is no reason why Pakistan cannot also do well like China etc have but we do have a problem besides corruption, lack of governance etc. India is also not free from these ills but is doing fine. We have to create 'space' for ourselves in the world of trade. The problem is that the biggest markets are to be found in the West. Even China depends on exporting to the West. China might have a 'strategic partnership' with us but sadly it does not reflect in the trade we do with that country. Problem here is most of our products compete with their. If allowed Chinese exports would kill our exports. That goes back to where we can export , which is the West. The reality is most of what we export goes to the US and Europe but every day our relationship with our primary export partners is getting worse. Since most investment comes from the West and most exports go there by burning US flags we are creating hurdles against investment. Investors ( largely western ) just avoid Pakistan and prefer India or even Bangladesh. Take one example of this false bravado that hurts us more then the West.We have shut of NATO supply lines because of our soldiers. For a start how do we know what happened without a investigation? Second by doing so all we have done is force the West to supply its troops through the Northern Route which cost more. Will they like it? No. Can they afford it? Yes. But meanwhile think of thousands of our truckers who have no income coming in, many have borrowed money to buy those trailers. We are hurting our transport industry, its our people we are hurting. Those trucks belong to Pakistan owners not to NATO.
Jan 22, 2012 11:31pm
@Salman: Before we talk about slashing the defense budget, we should consider good governance and eliminate wide spread corruption. Defense budget is needed for obvious ground realities that exist in Pakistan today. Besides, we will still need a strong defense to provide a security environment that ensures stability for economic growth.
Riaz Haq
Jan 23, 2012 10:15pm
I'm not sure what assumptions this forecast makes about GDP growth in Pakistan. It appears to be a more conservative assumption than that justified by Pakistan's historic growth rate of 5% since 1947. Based on the historic 5% growth rate, Goldman Sachs has predicted that Pakistan will be among the top 20 world economies by 2025.