The policymakers rightly recognized that factors that increase productivity in the developed world are different than that of Pakistan. The Western economies are keeping interest rates near zero to stimulate growth. They increase productivity through innovation to compensate the high wages and want consumption levels to increase to maintain growth. They do not face problems like inadequate infrastructure or low labour productivity. Because of their aggressive monetary stance these economies are also creating huge risks for some of the emerging economies where capital flows increase because of higher interest rates. However, they would ultimately be forced to increase interest rates and the reverse flight of capital from emerging to developed economies may devastate many economies.
In Pakistan, we can increase productivity by building infrastructure and roads. There is a need to improve human capital with better primary to tertiary educational institutions. The shortage of vocational institutes should be supplemented by the industries through on-job training. This is, in fact, what the manufacturers are doing. After achieving macroeconomic stability the government should now focus on simplifying business regulations and taxation. Efforts should be intensified to increase access to finance.
Decline in our exports was on the cards even if there has been no global recession. Our competing economies upgraded their technology while textiles, our mainstay in exports, continued using older technologies. The high power and energy cost further aggravated the situation. However, the government during most of the last three years concentrated on macroeconomic stability. In times of huge fiscal deficit it did not provide any monetary incentives to the exporters but stepped up efforts to lower the power generation cost and bring LNG in the system on war-footing. This policy has ultimately paid off. There is no power shortage for the industries and 24/7 gas is available to all manufacturers. Out of the 110 textile mills that were closed down during the past 12 months almost 80 mills are back in full production. Others will revive soon, baring few that would remain permanently closed.
This revival in the textile sector has proved the policymakers right that there is no need to “encourage” the distressed industry through subsidies or monetary benefits. It was essential to remove the irritants that led to their failure. Prudent policy makers know that encouraging the industry through subsidies is the surest way of killing it. The job of policymakers is to provide an enabling environment for the businesses. Providing incentives clearly indicate the government is dictating the manufacturing operations as it has failed to provide an enabling business environment.
The major challenge that the government faces, however, is to satisfy the general public that economic stability should be ensured first before embarking on a high growth path. However in spite of focus on stability, global recession and periodic flash floods in different regions of the country the economic growth has increased from an average of three percent during the PPP tenure to an average of over 4.2 percent in last three years.
Policymakers and the businessmen in Pakistan should also realize that global trade for the first time in decades has grown more slowly than global output. It is because in most of the developed economies and in fast-growing economies non-traded services constitute a greater share of output. Thus the share of services in the GDP is increasing and that of trade declining. This is the reason that the GDP now grows faster than trade. Another point worth noting is that new technologies have not only increased the efficiencies but also the capacities of global manufacturers. They are sitting on capacities that have slowed down growth in trade. This has intensified more competitive, and as China moves up the value chain, more inputs are being sourced within countries. For all these reasons, the heady days of double-digit growth in Indian trade in goods and services will not return soon.
The exporters want the government to devalue the rupee to boost exports. However, past experience has shown that the exports never increased due to devaluation and have in fact gone up during period of rupee stability. Recent examples are that of the Shaukat Aziz era when the rupee was stable for a long period and exports more than doubled from $8 billion to $19 billion in 10 years. The exports inched up by only 25 percent in next eight years during which time the rupee regularly depreciated. It is stable for the last two years and exports are expected to rebound next year. Undervaluation is implicit subsidy to Pakistani producers.
Meanwhile Pakistani businesses should realize that business models of the 20th century are becoming obsolete as digitization has changed the way trade is conducted. Everyone and every place are connected through digital networks; it’s time for Pakistani companies to rethink what it means to be global.
Digitalization is rapidly impacting every economy and has the ability to make its presence felt across borders. Recent studies have shown that digital flows in the economy have added 10 percent additional growth in the global GDP in last one decade. These combined effects of data flows on the GDP exceeded the impact of global trade in goods. This is an important development as only 15 years back cross-border data flows were negligible. The digitalization in globally traded services has already exceeds 50 percent. Moreover 12 percent of the global trade in goods is now conducted via ecommerce. The global travelling is now managed almost exclusively through digital platforms.
Pakistani entrepreneurs should take cue from the fact that global trade in goods has almost flattened. Globalization in past decades had accelerated the growth in global trade of goods. Trade in goods that accounted for 13.8 percent of total global trade in 1985 ballooned to 26.6 percent in 2008 when global recession started. After that recession things have not looked as rosy for trade in goods as in previous decades. This, in fact, was also the time when digital technologies started disrupting 20th century business models. Major corporations are not prepared to operate in risky environment of managing risky and long supply chains. Now instead of looking at the labor cost only these corporation place higher emphasis on the speed at which goods could reach the market. To reduce costs they adopt efficient measure to compensate for the higher wages. This is the reason that companies prefer to establish production units in countries from where they could be easily moved at low cost to consumption centers. The advent of 3-D technology is going to further erode international trade as some goods will be printed at their point of consumption.
Pakistani entrepreneurs by now must have been aware that big corporations are in the process of building platforms to manage suppliers. They now prefer to connect to customers, and enable internal communication and data-sharing. The access of the direct customers to these platforms empowers businesses with huge built-in customer bases and provides them with an opportunity to interact with customers directly. These digitalized platforms can be reached around the globe with few clicks to provide the customers with details of the products and the allied services offered with them. The customers again through digital platforms can compare the prices, product features and services offered by alternate suppliers. Well managed companies are aware of this power of the consumer and therefore try to offer the best in quality, services and prices.
Post a Comment