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For Punjab: a guide to tackle key challenges

Updated June 25, 2018

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Formulation of a robust industrial policy to prepare Punjab for both economic opportunities and risks posed by the China Pakistan Economic Corridor (CPEC) will be one of the key challenges that the new government, which comes into power after the July elections, will be required to tackle on an urgent basis.

For starters, the new government could build on the work already done by the previous government to develop a policy. An updated draft of the strategy has already been uploaded by the provincial industries, commerce and investment department on its website.

The draft expects the Corridor initiative to create “significant opportunities for industrial growth in Punjab.” Indeed, CPEC and the planned economic zones (in Punjab and elsewhere in the country) under it will, in themselves, attract domestic and foreign investment, create jobs, boost exports, substitute imports and fuel economic growth.

For starters, the new government could build on the work already done by the previous government to develop a policy

The Chinese investment in infrastructure has significantly improved electricity generation and new domestic and foreign investments are expected to build an industrial ecosystem; addressing a major challenge currently facing the industry. Further, China’s investments in modernising Punjab’s infrastructure and the accompanying entry of Chinese companies will help the much needed technology transfer.

Simultaneously, CPEC’s growing expansion poses certain risks to the economy and local businesses. With the opening up of borders and development of a new economic corridor, the project is likely to pose unforeseen risks to local industry.

While a few domestic businesses might join hands with Chinese counterparts and figure out new partnerships, others may crumble owing to increased competition, according to a paper co-authored by Usman Naeem, country economist at the International Growth Centre (IGC) and Hasaan Khawar, a international development and public policy professional at the Consortium for Development Policy Research (CDPR).

The policy draft rightly argues that Punjab holds tremendous potential for industrial growth. But the ‘untapped’ potential notwithstanding, the manufacturing sector is declining. So are exports from the province that contributes 55 per cent to GDP (national gross domestic product).

“The manufacturing sector has faced years of under-investment thanks to a combination of challenges (like energy shortages, higher cost of doing business, unfriendly regulatory and legal framework, poor governance, and so on).”

The share of manufacturing in Punjab’s economy has already decreased from 20pc in 2014 to 17pc in 2016, and its industrial base is still dominated by textiles, leather goods and other labour-intensive sectors.

The transformation of the province into a competitive manufacturing hub will require development of an attractive ecosystem for private companies to invest in industry in order to meet domestic and overseas demand with increasingly value-added and sophisticated products.

The draft policy states the goal of this industrial strategy is to increase the ease of doing business to stimulate investment and build an enabling environment for the private sector by a) revamping existing industrial zones as anchors for Industrial transformation, b) transforming productivity through people and processes, c) expanding access to financing for industry, especially the small and medium enterprises, d) improving business environment by increasing private sector consultation before introduction of any new regulation, and e) developing strong industrial clusters.

“In addition to these targeted interventions, the government will ensure that industrial development produces broader societal benefits, increased and improved job opportunities for all of Punjab’s residents, with a particular focus on creating opportunities for currently disadvantaged segments of society.

“The government will put in place policies that support growth in less developed regions, increase opportunities for women, focus on the elimination child labour, and enable participation of people with disabilities in the labour market.”

In their paper, Usman and Hasaan contend: “While the government has shown considerable interest in establishing new industrial estates or providing infrastructure, it has, historically, shied away from more substantive issues, such as changing the legal and regulatory structure, and providing or withholding incentives to spur industrial expansion. Arguably, controversies and political issues surrounding approval or withdrawal of support and subsidies have remained the key culprit behind this inaction.”

According to them, the future industrial policy can either be horizontal: aiming to cater to a broad range of firms across various sectors, or vertical: prioritising selected industries as potential ‘winners’. “In both cases, government will need to ensure it opts for the right sector-specific considerations.”

Their advice to the policymakers is to avoid a knee-jerk approach, build on strengths and have a clear driving thrust.

“Despite multiple competing priorities and wide-ranging actions, the policy must have an underlying thread. Innovation can in fact be such a link, providing a clear sight of the goalpost. Therefore, the policy must support industrial diversification, nurturing new industries and capabilities, leading towards industrial (and export) sophistication.”

They conclude: any policy, no matter how robust it is, will only be as good as the government’s implementation capability. Therefore, there is an urgent need to fix the relevant institutions and develop adequate capacity, which can make use of the policy framework and help lead Punjab towards greater industrialisation.

Published in Dawn, The Business and Finance Weekly, June 25th, 2018