A consumer-driven economy is far better than no or too low economic growth in a high population growth country after many years of economic stagnation, as in Pakistan.
But the quality of the consumer drive and the identity of the larger consuming groups also matter in a developing country in which a third of the people lives below the poverty line of a dollar a day.
What we have been seeing now is not a widespread consumer drive.Nor is that drive adding to the productive wealth of the country and enabling a large number of people gain by that; what we see is quick spending by the rich consumers, or those who are making money easily and quick, as through spirited speculation in housing plots or on the stock exchange. The country cannot count on such merry-go-around for long when its population is as large ? as 150 millions.
The government, of course, presumes this is the first stage of economic revival and the trickling down of the wealth which this process has initiated can be made faster and far more widespread, and a far larger number of people will gain eventually. The question is: how long will that take and how many people will perish meanwhile, judging by the increasing number of unemployed, suicides or rise in major crimes.
The high consumption drive is often not financed by the affluent consumers themselves unless they had made a big killing on the stock exchange or in speculation in plots. Much of the consumer drive is funded by bank loans at relatively low interest rates unheard of in Pakistan for decades together. The banks have the liquidity and they want to lend as much as they can to add to their income and declare large profits, as they have been doing after they give very low interest on deposits to the agonized savers.
All these may be welcome developments in a country which until recently had a bleak economy with low growth and lower investment and varied key deficits. But the kind of consumer drive we are seeing has not been promoting the much needed large scale employment and far larger volume of manufacturing which the country desperately needs.
There are several kinds of industrial growth in a country to meet the varied demands of consumers. 1. The country uses indigenous machinery and home grown raw materials. The best example is the US in the earlier years. 2. Locally made machinery but imported raw materials: 3. The best example are Britain in the earlier years 4. and Japan later. 5. Imported machinery but local raw 6. materials. The best example is textile industry in 7. Pakistan and earlier in India before the manufacture of machinery began. All these kinds of industries provide employment to the locals.
Our consumer-driven economy does not have many of these ? advantages as it largely patronizes imported luxuries which are widely advertised.
Whether they are the Mercedes cars and other luxury vehicles, Rolex and Omega watches, the vast and varied electronic goods, including musical sets or cinema screen sized video equipment, or elaborate computers to impress friends, they make the foreign exchange go out but do not add to the employment in the country. Only some hands join the trade in such items.
When it comes to the locally assembled cars the vast vendor industry flourishes. The local inputs have been on t the increase and provide larger employment. Not those cars which arrive fully assembled and loaded.
The small and medium enterprises add to the employment in a big way. The machinery too can be local and so are the spare parts. Their investment cost is very low and the cost of providing employment to a person is small compared to what it takes to provide him with employment in large scale industry.
It is a pity that though we are a large textile manufacturing country yet we are dependent on imported machinery, and the move of the All Pakistan Textile Mills Association to import cheap machinery from India has been far from a success for purely political reasons.
One industry to which consumer finance has been provided by the banks, now at interest as low as 7 per cent, is the the housing industry. Over 21 million people are estimated to have no proper housing and need to be helped. But when the official move to provide housing to the low income groups was initiated by the government the price of steel shot up and the cement price too rose.
It has now been found that many of those who got housing loans from banks had used them to buy plots to speculate and make large profits. As a result, land prices shot up by 60 to 80 per cent or more. Instead of poor housing we came to have rich speculators who misused the bank finance on very low interest. So the State Bank has now stopped the banks from giving loans for only acquiring plots of land and using them for wild speculation.
Even now the banks have to be on guard. The borrowers may use the bank funds to acquire large plots and then build only very small houses to meet the legal requirement and then sell parts of the plot at far higher rates. Abuses in this area can be plenty.
The earlier hope that the boost to the housing industry can help 40 industries to develop and provide employment to a large ? number of persons has not materialized. The speculators and ? racketeers have grossly misused their low interest loan facility.
Now two major projects have been announced in Pakistan with a great deal of fanfare. The Sundar industrial estate near Lahore is expected to receive private sector investment of Rs 30 billion and provide employment to 600,000 on a regular basis. The project is to be completed by the end of next year - 15 months from now.
The Punjab Chief Minister Chaudhri Pervaiz Elahi says while the provincial government will invest in a revolving fund of the one billion rupees the private sector would invest Rs 30 billion on its industrial units. After the completion of that project he would launch a similar project near Faisalabad and then a smaller one near Rahim Yar Khan. The Sundar estate is being developed on ? the model of the project in Thailand which the Punjab ministers studied.Ninety per cent of Sundar will be similar to the Thai project.
The other highly publicised project is the Port Tower Complex which will be among the ten tallest buildings in the world. It is to cost Rs 20 billion and is to be financed by the Karachi Port ? Trust Qater Company and a Malaysian Company.It will provide ? office space for a number of companies and be the high-light of the city.
Should the KPT provide such a high priority to the Port Tower Complex instead of using a large part of the fund for the ? modernization and expansion of the port? Many office towers are ? coming up all over the city and there is no urgency to add to ? them a mega one now at a cost of Rs 20 billion.
It would be more appropriate to make the large investment of ? the 20 billion a truly job creating one, like the Sundar.
What is happening to the special industrial zone we are ? supposed to have near Port Qasim, why Sindh is lagging behind Punjab in this area while the Export Processing Zone in Karachi has been limping along for nearly 20 years with its poor performance.
Instead we seem to prefer digging up the sea and creating the ? Creek City with its luxury flats while the old Sea View Apartment along the coast are crumbling. The Askari Bank will finance 90 per cent of the cost of the Creek City and so those who had bought the apartments have nothing to fear.
The accent now all the time is on luxury and exhibitionism, and not on making the grass roots strong. Now that the consumer ? banking had its run for a few years, let the poor and low income ? groups, too, have a break and be better for improving the economy of the country.
Consumers need affordable prices for essential goods and ? services and not merely envy the rich and super successful. They need equality of opportunity in all essential sectors, and not lag behind everywhere.