Productivity challenge

Published July 24, 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.

AFTER an officially-sanctioned five-day Eid break, workplaces in much of Pakistan are still partially deserted. It is accepted that work will resume at normal pace from the start of next week – nine days after Eid. The same week-long holiday fest will be repeated two months from now. (Capturing the frustration of the business community, a prominent industrialist has shared a cartoon on the social media of a manager with a shotgun rounding up delinquent workers while shouting “Eid is over, now get back to work!”)

The official Eid holidays are part of the 22 gazetted holidays Pakistanis are entitled to during a year (including two applicable to Sindh only) – which are over and above the numerous unscheduled stoppages of work that occur, especially in Karachi, due to strikes, dharnas, protest rallies, etc.

All told, employed Pakistanis work on average 46 hours a week (the mean across all economic activities for both genders), according to International Labour Organisation (ILO) statistics. While on this particular indicator Pakistan does not appear to score too badly, the number of hours worked does not indicate the productivity of the labour force. To measure this, indicators such as output per worker or output per hour worked provide a better picture – with the latter a preferred indicator where available.


The efficient management of resources is strangely alien to Pakistan’s policymakers.


Unfortunately, on productivity measurements, the Pakistani labour force, in aggregate, scores extremely poorly. According to international estimates, output per worker in Pakistan is roughly one-tenth of the US, while in India’s case it is around one-sixth and for China it is less than one-fifth. In terms of average annual growth in labour productivity, the figure for the period 2000-2008 is illustrative. According to the ILO, labour productivity during this period, measured as GDP per person employed, grew at an annual average rate of 10.9pc for China, 5.1pc for India, 4.8pc for Vietnam, 3.3pc for Malaysia, and 3.1pc for Sri Lanka. In Pakistan’s case, the corresponding figure was a paltry 1.7pc.

Put another way, the productivity of Pakistan’s labour force was increasing at roughly one-third the pace of India’s during this time, and only one-sixth when compared to output per worker in the case of China.

Another measure of the overall quality of a country’s human capital is the Human Capital Index produced by the World Economic Forum. Pakistan ranks 113th globally, 11 notches above bottom-placed Yemen, and the lowest in Asia.

The reasons for low productivity of the labour force are myriad and can be a complex inter-play of social, structural and institutional factors. Educational attainment is the most obvious factor that comes to mind when explaining the divergent outcome with regard to labour force productivity across countries; however, it is not the only one. The structure of the economy, the type of economic activities engaged in (in terms of value-addition and ‘sophistication’), the size of the informal economy, the structure of the labour force in terms of distribution of highly-skilled and low and unskilled workers, the state of physical infrastructure, and the overall health and nutritional condition of the workforce are all important factors that can also affect overall productivity levels.

Whatever the factors, such low productivity levels of the labour force have important ramifications for the country’s international competitiveness – and increasingly for investment decisions of global corporations. Between 2007 and 2014, Pakistan recorded the biggest decline in ranking for any country in the Global Competitiveness Index – a drop of 50 places.

Given the degree of globalisation in today’s world, international competitiveness for a country’s firms is required as much for capturing export markets as for protecting market share in domestic markets. Hence, the loss of international competitiveness by Pakistani firms will have implications for new investment as well as job-creation in the economy.

This was starkly illustrated a few years ago on one of the first major development projects undertaken by a Chinese construction firm in Pakistan. Their welding crew was all-Chinese and all-women; according to the Pakistani investor, they were at least three times more productive than their Pakistani counterparts.

One of the paradoxes in operation in Pakistan over the past few years is the persistence of high levels of unemployment at the same time as firms have been reporting difficulty in hiring the ‘right’ employee. In informal interaction with growing small businesses, the quality of human capital available for hiring appears to be emerging as an important constraint to expansion.

The poor utilisation of inputs and the resultant low productivity is not restricted to labour. The yield obtained by Pakistan for most of its major crops is a fraction of what other countries manage to realise. In many cases, this is despite indiscriminate use of scarce inputs such as water.

Efficient management of resources and productivity improvements are strangely alien to Pakistan’s policymakers, with a wholesale emphasis on creating new brick-and-mortar “hard” infrastructure, which is more amenable to making commissions and indulging in corrupt practices. The previous Planning Commission’s now-shelved New Growth Framework was an important stepping-stone in this regard, despite its flaws and incompleteness.

With limits to achieving growth by increasing inputs (factor accumulation) having been reached, or near to being achieved, across a broad spectrum – land, water, capital, quality of entrepreneurship (due to brain-drain from the country) – policymakers have to increasingly focus on productivity improvements to generate incremental economic growth.

This government’s preferred strategy – like most of its predecessors – is to try and extract growth from expensive, swanky, high-visibility projects. However, the growth-impact of many of these projects appears to be low as well as residual. On the other hand, the pay-offs from a strategy that focuses on effecting productivity improvements in different areas of the economy can be immense as well as less costly.

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

Published in Dawn, July 24th, 2015

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