Improve Governance and Infrastructure

Improve Governance

The problems of governance stem from the inability of governments and public sector institutions to deliver public services in the face of rising demands and expectations. As this is discussed elsewhere in this volume it is sufficient to emphasise that without improved governance, delivery systems and effective implementation, Pakistan will find it difficult to educate its citizens, build infrastructure, increase agricultural output and ensure that the benefits of economic growth are efficiently distributed.

Improve infrastructure

Pakistan’s infrastructure constraints are evident in the present power crisis, lack of a modern railroad system, shortage of low—to middle—income housing, congestion on urban roads and main highway systems and an inadequate port capacity. There is grossly inadequate primary, secondary and higher education and healthcare facilities. Pakistani companies suffer as a consequence of these factors, for example, by experiencing production delays in exports due to limited port capacity and cumbersome customs procedures. The lack of availability of a well-trained, healthy and productive work force further inhibits business potential. In addition, poor logistics and transportation also hamper the movement of inventory between farm and market or factory and market.

If Pakistan’s growth continues at an average rate of 7-8 per cent in the coming decade, this will fuel the demand for energy, transport, logistics, communication, healthcare, housing, water, education and communication. Urbanisation is also increasing. Almost a third of the population now lives in four major urban centres. A 2 per cent in- migration rate means that this number will grow by over half in the next twenty-five years. These unprecedented levels of urbanisation present challenges but can also bring opportunities as vast numbers of people can have access to information, services, communication facilities as well as standards of living which do not exist in the rural areas. Official estimates of new infrastructure requirements in terms of ports, railroads, hospitals, schools, low income housing and energy are approximately $30 billion in the next five years just to sustain current levels of growth.

So there is a dual problem: the current infrastructure is inadequate and future growth is burdened by lack of resources and poor planning. Obvious examples include: the current energy shortage, which is the consequence of neglect of the power sector by successive governments, and the shortage of trained technical staff and engineers—impediments to any rapid infrastructure roll out. Lastly future growth is hampered by the challenges of security. Building dams in Khyber Pakhtunkhwa, mining coal in Baluchistan or establishing a modern port capacity on the southern coastline are all dependent on the security of human capital.

What can be done?

1. Pakistan needs to resolve its financing issues, Pakistan needs to further develop its capital markets as well as create market access for long term foreign capital inflows.

A vibrant and liquid corporate bond market, the ability to source fresh equity from the domestic and international equity markets, deregulation of the insurance and pensions markets, and a stable banking system are all areas for greater focus. Previous governments have achieved some measure of success in this regard to the extent that the country was able to tap international markets for debt and also improve its international credit rating.

Pakistan has also set up the Infrastructure Project Development Facility (IPDF) that needs to be better utilised to bring about more robust public-private partnerships in energy, health care, transportation, agriculture and education.

It is also important to focus on infrastructure projects, which can be more easily delivered by a combination of government initiatives, foreign assistance or domestic private investment. Examples include projects for low-income housing, a modern irrigation system, high yield crops and development of human capital with particular focus on skills needed to help existing and new industries grow.

Becoming the region’s food reservoir. Even though the setback from the floods may in the near term affect Pakistan’s ability to feed itself, a country that has been self-sufficient in food should be able to effect a recovery.

The country’s major agricultural products include cotton, wheat, rice, sugarcane, fruits and vegetables while its livestock and dairy resources provide ample milk, beef, mutton and eggs.

It is, however, essential for Pakistan to improve its agricultural output levels and productivity. Agriculture generates around 22 per cent of the GDP while employing 45 per cent of the labour force.

Almost two thirds of the population is dependent on agriculture for their livelihood—hence changing the complexion of the agricultural sector through a focused investment drive would help to radically change the complexion of Pakistan’s economy.

Over the past twenty years land under cultivation has remained relatively static and yields per hectare have only improved marginally. Intensive farming and environmental degradation have resulted in soil erosion. These factors will continue to impede agricultural growth as urbanisation results in a loss of arable land.

To enable Pakistan to become the granary of the region, not only productivity, but also scale, quality, continuity and reliability of agri-food production needs to be ensured. The world’s largest distributors of food in the region, which include Wal-Mart, Nestle, Unilever, Metro, Sears, Carrefour and Spinney can then be persuaded to increase investment in downstream production which feed agri food businesses in the region.

Investment, particularly in better seeds and new technology, is required to raise yields.

2. Agriculture needs to be deregulated to allow greater degree of commercialisation and economies of scale.

Eliminating price controls, restrictions on inter-provincial movement of goods and strict curbs on smuggling of food products to neighbouring countries will allow greater flexibility to farmers to sell directly to the organised retail sector.

3. A comprehensive national agricultural policy needs to be evolved to offer incentives to indigenous and foreign investors.

To promote sustainable R&D in the sector, that policy should encourage joint ventures between global and local companies. In particular, large local landowners should be encouraged to forge alliances to enable ‘contract farming’ which invites expertise, technology and finance with an enhanced regional market focus to boost both production and productivity. However, the current system of land holdings, price controls and lack of legal enforceability may inhibit the entry of new players, technology and expertise into Pakistan.

To overcome such obstacles, a combination of removal of subsidies and public sector investment could act as a catalyst for growth.

4. Due to the small size of farm holdings, there should be a comprehensive programme of education for farmers at the basic level about better agricultural practices, information and availability of better seeds, use of fertiliser and crop patterns.

The village farmer is the key to increased agricultural productivity.

Raise education standards. Pakistan’s abysmal literacy figures need to be frontally attacked by a national policy. This is discussed in the next chapter.

Build a skilled work force. Reaping the demographic dividend will depend on having a skilled workforce. The present size of approximately fifty-five million people means that Pakistan’s labour force is the ninth largest in the world, and growing by at least two to three million workers 227a year. In addition to education initiatives, it is critical to unleash a parallel effort aimed at bridging the skills gap.

There are several problems here.

1. The skills needed for low-paid agricultural jobs are very different from the skills needed for higher paid jobs such as in healthcare, plumbing or construction.

While vocational training centres have been established in different parts of the country, there is insufficient effort to identify and provide the skills that are needed.

2. The higher education institutes that produce doctors, engineers and business graduates are not numerous enough to churn out enough trained professionals.

Some studies have shown that there is an exodus of trained manpower nearly the size of fresh incoming graduates particularly in the field of engineering. These trends are alarming and need to be reversed.

This means:

1. A list of skills that are required across sectors should be developed

Some of these skills may be common but others may be sector specific. In this regard, the government sponsored National Vocational and Technical Education Commission (NAVTEC) can be used to upscale its programs to give technical and vocational training a quantum jump and ensure that standards of attainment improve.

2. A public-private partnership should be set up by the Ministry of Technology to bring together all the technical manpower resources in the country and use this as a pool to harness technology, expertise and ideas.

These can then be commercially applied in areas and sectors in which Pakistan ought to focus to achieve competitive strength. Such a pool can also be applied to build the capacity of highly skilled technical managers needed to produce and disseminate high middle- and low-end technologies and products.

One area where highly and technically skilled manpower exists is in the Pakistan Armed Forces. This ‘hidden’ talent reserve has a demonstrated ability to absorb and learn the use of new technologies. This resource ought to be leveraged by the private sector to ’leap-frog’.

Corporate leaders could join hands with leading technology experts in the Armed Forces in a joint effort to identify those areas that could provide the basis for export driven growth in areas where the industrial sector can be transformed. A case in point is Brazil where government policy has over the last three decades helped to make Brazil among the largest exporters of defence 228technologies and equipment by combining technological expertise in their domestic auto sector with defence expertise.

Pakistan must align its labour market policy with a sound policy for competitiveness in industry, agriculture and the service sector. One initiative that attempts to identify indicators on skills and wages using labour market force data is the Pakistan Employment Trends Report produced by the Ministry of Labour and Manpower in collaboration with the International Labour Organisation (ILO). More specifically the report has looked at the technical and vocational training capacity in the country and how this can improve competitiveness. The key message here is greater investment in education and training, particularly for young people and women.

While government and private sector initiatives are focusing on upgrading the infrastructure in both these areas, much more needs to be done to create alignment between those industries and sectors which are being targeted for export growth and the skills and education levels which are required for people entering the labour market to be employed at levels which allow them to climb the income curve.