For the people who do not enjoy the luxury of the option to relocate their activities, the year ahead would probably be more difficult than the closing one. However, many have learned not to expect solutions from the government that, they understand, lacks both, intent and capacity. - File photo

 

The self-driven informal sector may perk up the documented economy and despite multiple challenges, the country may grow at a faster pace in the year ahead. The GDP 2012 may match World Bank growth projection of 3.9 per cent against 2.5 per cent achieved in 2011.

And the fear of spill over effects of a dysfunctional state in a volatile region may persuade neighbours (India, China and Iran) and multilateral agencies, (the World Bank, IMF and ADB) to lend support to Pakistan directly or indirectly by offering greater economic cooperation and trade access to ward off the possibility of a deeper crisis.

Official circles were less optimistic. For them, the chances of recovery depend on the implementation of reforms to improve revenue generation (expansion of tax base) and curb wasteful, misdirected public expenditure (costly commodity operations and maintenance of SOEs). They believed that the political environment and strong lobby of the vested interests would not allow the government to do the needful.

For the people who do not enjoy the luxury of the option to relocate their activities, the year ahead would probably be more difficult than the closing one. However, many have learned not to expect solutions from the government that, they understand, lacks both, intent and capacity.

They have not given up on their quest to improve their families living even if the government has failed them. The economic compulsions have conditioned them to adjust and respond innovatively. They work two jobs, are constantly on the lookout to capitalise on investment opportunities to earn extra, involve other family members to supplement family income, etc. Sometimes they falter but they never stop trying. Sometime they protest to vent their frustration over failing public utilities but the focus has always been positive: to improve the household economy.

The struggle of the people of the country, petty businesspersons, traders, carpenters, electricians, masons, plumbers, doctors, lawyers, engineers, unskilled workers, etc. has been and would be the key source of resilience for the economy.

“The role of informal sector is huge. I advised the government not to fiddle in that pie. There is a lot that needs attention in the documented sector that could keep the bloated inefficient state machinery occupied”, a heavy weight in Islamabad confided.

“If you ask me how it all will work. I have no clue. Yes, I know for a fact that it works efficiently enough to keep the economy from crashing head on,” an important member of the government economic team admitted speaking to Dawn over telephone.

Pakistan is certainly a complex country full of surprises. It is a country with one of the worst tax-to-GDP ratio (about eight per cent of the GDP); however, its vibrant and extensive philanthropic network is way ahead of others. The free ambulances, clinics and free kitchens offering meals to hundreds of thousand of poor in all nooks and corners of bigger cities, operate fairly efficiently. Little wonder that despite shamefully high poverty incidence (at around 40 per cent) the face of poverty in the country is less ugly than in galloping India.

Pakistan is a country with most macroeconomic indicators (current account and trade deficit, inflation, investment) spelling meltdown coexisting with an astonishing pace of growth in certain key sectors such as cell phone density and private consumer spending.

The persistent visible growth in retail sector in urban centres belies the official figures of capital formation that has been stagnant for the past few years. Households are managing higher income that is sustaining the trend of relentless purchasing of ordinary consumer products, consumer durables and high ticket items such as cars and motorcycles. The current car sale figures of July-November 2011 show additional sale of 10,000 cars as compared to the corresponding period in 2010. This is in addition to expanding market of imported used cars.

The deepening energy crisis co-exists with a recent growth in the country’s exports.The fragile economy has yet to weaken the corporate Pakistan. The strong corporate performance in selected sectors such as automobile, banking, fertiliser, drugs and textiles persists despite low private credit offtake from the financial system. The un-utilised capacities, high profits and stashed cash must be substituting for bank loans to sustain and expand business operations.

The employment opportunities have dwindled as squeezed development spending and the new investment in the formal industrial base has stagnated but the innovative small businesses in informal sector have sprung up all over the country financed by private resources absorbing sizeable manpower.

“I meet young Pakistanis everywhere, more so in Karachi, brimming with excellent business ideas. I have suggested to the government to encourage venture capital to provide material support to budding entrepreneurs. As long as people have drive and are prepared to take on the challenges I cannot give up hope”, Khalid Mirza, known for his boldness and administrative skills told Dawn.

“You have a stellar economic team but so far they have not been able to deliver primarily because they accepted a subservient role. As long the demands of the fragile economy are compromised for political considerations, the policy making alone will not deliver”, he added urging the economic team to act independent of politics.

Experts who foresee a better performance of the economy in 2012 also base their optimism on performance of the rural sector. “With profitability improving, I see food security assured in the country. People may get lesser gas and electricity in 2012 but they will get uninterrupted food supplies.”

The informed farm producers must be striking better deals boosting their confidence/earnings and improving their capacity to employ better inputs efficiently leading to better yields and higher productivity.

The agriculture, particularly the crop sector performance has improved, much of it in the informal sector. With indications of net capital transfers from urban to rural economy over the past three years because of high support prices and global commodity price boom, the supply of wheat, rice, sugar and greens is expected to be comfortable over the next year. The current moderation in international commodity prices may improve local supplies bringing the food inflation down.

“If people get food at affordable prices they can make do with other challenges”, commented another expert.

The sentiments in the corporate sector are also better than expected. They seem to be more concerned about the political activism during 2012. “More than the energy shortfalls it is the public reaction to closure of CNG stations that perturb big companies. The protests, strikes and the running political rallies unnerve businessmen more than anything else,” Humayun Bashir, IBM’s country GM told this scribe over phone. “I foresee unrest in Punjab over the gas outages.”

“Businesses have factored in the energy deficit by investing in private energy generation. Where companies have pricing controls it did not affect their volumes or the profitability either. They pass on the cost to consumers by increasing the price of the product as in the case of packaged milk, water, etc.”

“The environment has actually been upbeat at many forums of multinationals. They have plans in place for massive expansion over the next two years. More than economic indicators it is the rising political temperature that pushed them towards a wait and see policy,” Bashir who also heads American Business Council told Dawn.  Despite positive business sentiments in multinationals he expected the GDP growth to be anaemic in 2012 though he believed that US-Pakistan relations will be normalised over weeks and months and aid inflows resume soon. He hoped for about a billion dollar investment in the mobile sector alone after the government issues the 3G licence.