The growth, it seems, so far is auto driven. The figures of the economy such as the performance of large scale manufacturing, exports, import of raw material and machinery, etc., boasted by the government as a proof of its economic wizardry are hardly that. In all probability it shows the inherent potential of the economy rather than the efforts of the government. As someone puts it these sectors grew despite the government's failure to do the needful. The fact is that the government has, so far, not succeeded in capitalizing on an opportunity of a life time that reverse inflow of remittances has opened up.
If an engine malfunctions, the test of expertise is not in knowing the fact that there is something wrong somewhere. Anybody could tell that. An expert would know how to put it right so that it performs up to the mark. The government is cognizant of the problem of mismatching of potential and actual performance of the economy. It however, has so far failed to show the acumen to ensure optimum or near full utilisation of resources for the benefit of the economy.
Million of dollars of expatriates and locals flowed into the country both formally and informally over the last three years. Had the managers of the economy been alert, they could have created an economic environment to channalize these resources in areas where they could have given better returns to the country.
Some of these monies did get employed where it aught to be directed in telecommunication, oil and gas sector, auto sector and to modernize the existing industrial base in textiles. A major chunk, however, kept circulating in search of quick gains, creating further distortions in an already disorderly economy marred by disparities and imbalances. Real estate bonanza, car premium scams, misdirected commodity market interventions and capital market boom are cases in point.
In fact the trend created by this excess liquidity was so deep and the base was so wide that it sucked funds from banking sector as well. For reasons, grounded in economic wisdom, the banking sector during all this while had an easy credit policy with interest rates touching the floor. The policy obviously was not directed to promote rent seeking attributes of credit worthy people in the country. It was intended to encourage industry by curtailing the credit component in the cost of production to make production competitive. It was also directed to promote activity in certain preferred sectors such as housing industry.
With desired results nowhere in sight and inflation gaining momentum, distortions getting deeper, the SBP changed gears and interest rates have started to creep upward. The bank also closely monitored money market to keep rupee from free fall. The State Bank last week made another move to curb speculation in real estate that easy credit policy supported. It barred all commercial banks and development financial institutions from providing finance purely for purchase of land or plots. The step, though in the right direction will at best is symbolic but would anyway give the right signals to the concerned quarters.
The issue of escalating real estate prices did appear on the agenda of the Economic Coordination Committee of the cabinet a few times over the last year or so, a source privy to these meetings revealed, but no decision was taken to reverse the situation.
"Well its money in the hands of the private sector and all government could do is to facilitate industrial expansion. We are not in business of setting up industry ourselves. The government promised to let market function freely and so we did. We could not direct the private sector per force to invest in industry", Wasim Haqqie, Chairman Board of Investment said commenting on the issue.
'Under invoicing by importers, smuggling and unhindered dumping by regional powers in the market has driven the local manufacturer out. It has become difficult for even the existing industry to survive in this environment. Who would than be inclined to set up a new project?" Majyd Aziz, an out spoken senior businessman from Karachi commented. "Shoe industry is closing.
Several hundred cottage shoe units are already out of business. Plastic industry seems to be next in line. Manufacturing of many electrical appliances, bulbs, tubes and other consumer products is just not viable because of availability of cheap foreign items", said Naqi Bari, another businessman from Karachi.
Recently a senior Chinese official revealed their government's formal figures of exports to Pakistan which was reportedly $2.5 billion. These were several times our import figures of China disclosed businessmen discussing the issue of industrial development. "The government needs to reassess the levies and their impact on the business activity. Our neighbours in the East started to open up much later but are already ahead in many sectors. Any delay would be suicidal. A lot of homework needs to be done to identify demand and market and adjust the relevant industry accordingly.
The private sector would need government support for that", said Haji Shafiqur Rehman of KCCI. The thrust of the argument of private sector representatives was that the government policies are too generalised and ineffective and do not promote industrial activity the way it should. If there is a tilt, it is in favour of trade even when it hurts industry.
"Most decisions concerning trade and industry are taken in consultation with the private sector. Their representatives are accommodated in all specialised committees constituted to promote economy. Their interests are not compromised even when it costs dearly. They still remain unhappy unwilling to undertake industrialisation. The withering away of the protectionist environment has probably unnerved them. It will take some time but they will overcome their fears and lead the country to a higher growth trajectory", BOI Chairman said.
To direct monies towards industrial development, the private sector representatives gave many suggestions. Some of them are listed below:
1. Housing Laws need to be amended to discourage speculation. All data should be computerised and NTN of purchasers and sellers should be made necessary to complete a deal.
2. The government may also ban resale of plots next five years in new schemes.
3. It may fine owners of more than one plot if construction is not initiated within a timeframe.
4. Interests of industry must be given priority over trade.
5. The government project feasibilities must also identify the market for product in the medium term.
6. The must keep demography of a place when planning specialised zones.
7. The government may use a portion of its foreign exchange reserves as collateral to raise finances to carry out a crash programme of infrastructure development necessary for industrial development.
8. Pakistan should try and get gas from Iran for industrial purposes.
9. The government should adopt a crash programme to develop both social and physical infrastructure in two to three years.
10. The government, with immediate effect should stop letting dry ports be used for imports. They were meant to promote exports and should only be used for that purpose.
11. Must give priority to Thar coal project and Gwadar Port.
12. Labour Laws should be amended in a way that they become compatable with the requirements of WTO regimes.
13. The tax and government levies structures should be simplified and any discretion should be removed.
For once the country is in a position to finance industrialisation with its own resources without the support of foreign donars.