Haroon Sharif, the former Board of Investment Chairman, discusses the opportunities for Pakistan, a country with 220 million people, a geo-politically strategic location, and immense resources.
Looking at Pakistan in a changing world, a strategic transformational change is taking place in the region. In the next 10 years’ time, Pakistan will be a gateway to a much bigger market. Western China is already connected to Pakistan. There is some good news on Afghanistan settlement, political settlement in the country and Central Asian markets being connected through belt and road initiative. Pakistan has the capacity to act as a hub for the entire region, connecting the Middle East, South and West Asia. That opens a huge market with concrete opportunities. For almost two decades, Pakistan struggled because of the internal and external conflict. Now that part has been taken care of that and that’s a huge opportunity to send out a message that this country is open for business and tourism.
Pakistan now has comparative advantages of having a large population and cheap labor. In a rapidly changing world, Pakistan might lose this edge. Pakistan currently offers food security to the region, as one example. Being an agricultural country, our neighbors can invest in Pakistan, adding value to our productivity. Pakistan can be the hub of the food sector for the whole of Western China, the Middle East. During my time as Chairman Board of Investment, this dialogue had already started, and research was being carried out.
The demand for cheese in China, for instance has grown by 200%. Where would that cheese come from? Italians are looking at Pakistan to use our dairy product and basically use Pakistan as a gateway to Western China and others. In 10 years’ time, I see this industry picking up in a big way. Pakistan’s textile has been the backbone of our exports but now the world has changed. We need to explore value addition. After the trade war between the U.S. and China, lots of big giants of textiles had started talking to Pakistan for relocation of their operations here. Sportswear produces by Adidas China in Lahore were being sold in Europe. This enabled China to cut through the geopolitical hurdles of international trade.
Another of Pakistan’s competitive advantage is the young, computer literate, managerial, labour force and not the unskilled labour force. If you look at the export markets in the world, it’s not the large-scale manufacturing leading the export sector. It is the IT-based fourth-generation of industry, which is leading the export sector. That is where Pakistan’s next opportunity lies, where you can use your engineers. For example, one of the largest brands in China for air conditioning is called Gree. Gree makes and assembles air conditioners here at 20% lower cost than what they do in China, but of the same quality. By scaling that up, it can be taken to a much bigger market.
The last point, which is very close to Prime Minister of Pakistan’s heart, is that Pakistan should open as a tourist country.
It will take a while because it’s not the only infrastructure that is missing, particularly for regional tourism. It needs promotion, a communication strategy employing our best ambassadors, which would attract the people who come. If Pakistan focuses on these sectors of competitive advantage, there is no reason why the country will not start catching up with the growth rates of its peer countries in Asia. It’s time for regional development. So we need to catch up with the region.
In terms of Pakistan being ready to encourage those opportunities, infrastructurally and administratively, let me add that unfortunately because of the stabilization program, the attention has gone towards fiscal management. Pakistan needs to very clearly identify priorities for a roadmap. It needs to pick winners as the country cannot compete in each and everything. The evidence suggests that the above-mentioned sectors could be the drivers for growth.
There are four stages of getting ready to be competitive in a global arena. Stage one is to be ready at the policy level. Are we ready? My answer is absolutely not! because we do not have adequate investments done in research in these sectors, which can give input for policymaking. Our policymakers at the political level remain reactive. They basically do not plan for longer-term. Pakistan needs to start investing in a medium-term planning process based on our competitive advantage. It is critical to first identify your advantage. At this point, we haven’t even identified that, 20 years down the road.
Second is the implementation, which is done by the bureaucracy of this country. Currently, that is the biggest hurdle I see and my advice as a government employee and an outside independent professional who has worked in 16 countries, is that Pakistan needs to invest in private sector partnerships in a big way, both for planning and implementation of these sectors.
For instance, why can’t economic zones be developed by the private sector? There is number of things for which private sector has the managerial expertise in this country, both in research and implementation, which needs to be taken out of state. When we talk about privatization or deregulation, I keep on telling my colleagues in the cabinet to look at only assets. Look at deregulating and prioritizing the policymaking, the implementation, the research. Otherwise, reshaping the bureaucracy will take decades.
The third part is the resistance from the private sector, which has developed under patronage. Pakistan’s private sector elite, which has had a very easy ride for years and years, their networks are embedded in our political economy. These are the three things which, if Pakistan manages to prioritize and focus on in next three to five years, there is great potential for growth. The developed economies have slowed down. The highest growth in the world now is in South Asia barring Pakistan. Pakistan needs to catch up on this momentum rather than just being stuck on fiscal management and stabilization.
The new government came with a huge promise. Is there a certain degree of movement towards meeting those expectations? I think there is a basic understanding of how to go, but politically the expectations had been raised much higher for a country of 200 million people. It takes time to show results. Politicians only pick up things which can show results to be reelected. Now that balance this government frankly has not managed to achieve. Now the attention is again on populous economic transactions which are good, but that give you very quick returns like social protection, the housing and the shelters but that is not the basis of sustainable economic growth. My message is that it needs to work on both. For that this government needs to take on board serious thinkers, who now are lacking in the government system. We need to bring in fresh thinking and I can guarantee you that this skill is available in the private sector.
This government must create a conducive space. I left because I was seeing that space being shrunk because all the focus was on very short-term interventions, but that is not the solution. I hope that now we will start getting the signals on some macro stabilization, but I would like to highlight that confidence in the market is only created by putting people who are known, tested and neutral, with a track record of doing things for these interventions. The prime minister should appoint key people, empower them and let them hire professionals from the market to deliver on priority projects. You just cannot continue putting more water in a leaky bucket, which we have been trying for far too long.
As far as CPEC is concerned, I don’t think the shortcomings that affect us internally are detrimental for the CPEC products. I think we need to understand the partnership in the China-Pakistan economic corridor better. The previous government was very highly involved because most of the partnership was linked to infrastructure development, which was the job of the state. So, all state resources were mobilized towards power projects, roads, bridges and tunnels. In the second phase of CPEC, if you look at the long-term document, the focus is industrial cooperation. Which is the domain of private sector? We must understand that in China the industry still is predominantly influenced by the state. Whereas in Pakistan it is 80% private. So, there is a difference in cultures.
We need to put a value proposition to China that you put in X billion dollars and private investment in these sectors. For that we need to bring in private sector in the lead role, the planning commission of Pakistan or the ministry of the industry cannot do it as they have no incentive because it’s not the job of the state, which is to basically create a conducive environment. The key to China’s model is the economic zones, for which the economic zones should be developed by large Chinese companies and Pakistani companies rather than state doing it because they will tailor it to the need of the private sector. Unless and until we do that, it is difficult to attract Chinese investors in the four sectors that we have a competitive advantage. I think China is open. They are looking at opportunity. It is up to Pakistan that we put in a proposition to them to come in these sectors.
Pakistan already has seven economic zones, but all are dysfunctional except for one or two. And the main reason is that state machinery has not been able to provide utilities. For instance, now we do have electricity available, but in economic zones only 15% of the industrial units managed to get gas and electricity. 85% do not have access. The focus of an economic zone is that you get uninterrupted supply of utilities, security, the regulation and cheap land, the land prices in economic zones are still very high because the land is owned by the provinces and provinces want to sell that.
This is Pakistan’s challenge, we need to give these economic zones to the private sector. We failed to develop, I must confess, an economic zone on IT industry in Islamabad because the ministry of IT does not have the capability. We need five, six people from Silicon Valley who are running the similar park to come here and do it as there are Pakistanis available, but they will only come if we empower them with decision making. If they need to run around a deputy secretary to get the file moving, nobody will come.
We must confront three main challenges. Firstly, it is our policy-making politicians, who basically do not understand what a public policy for economic growth means. So, we need to bring in people who understand it as advisors to inform the government about how modern policymaking is happening in the world. Secondly, our machinery is the bureaucracy, and that’s where we need to outsource things to private sector as much as possible. In this case, the government is very scared because of the accountability, judiciary and competence it implies. These three factors are needed to build real public-private partnerships.
I just recently had a discussion since we know that we are in a fiscal tight situation, why don’t we put solarization of all the government buildings and universities which will save a huge amount of money? But that requires a contract. The ability to give a contract to an outside partner in a transparent and efficient manner needs to be developed. It’s not there. So that the second part that how to use the private sector, there’s the policymaking weakness, the bureaucracy’s weakness to outsource things.
The third is Pakistan’s cozy elite which has grown on patronage and continues to grow on patronage. This can only be handled at the highest political level, not at the low levels, but that is not a hidden factor as their influences and interactions can be seen clearly. Unfortunately, the nexus of that elite with our political institutions has reached a dangerous level where country is suffering on economic growth.
To break this nexus only requires overcoming a psychological barrier. This or any other government needs to have the backing of the people who are frustrated. If you put a value proposition, people buy it. A popular leader like our Prime Minister Imran Khan can very easily do it because he has a connection with the people. Secondly, the onus is to show to the people what the alternative route of growth is. The bureaucracy creates a fear of pursuing this alternative because they are hands in glove with the same elite. My worry is that the consensus-building capability of state has gone down. We are living in a very intense political environment for challenging a crony capitalist elite, for which we need to build a consensus in the nation that we need a way forward and people who inspire confidence.
This Prime Minister understands the issue of entrenched procurement regimes very well, which have been consuming the majority of the country’s funds. His heart is in the right place. My worry is that he is banking on the same people who have vested interests in the system. The system cannot change from within. It needs to be brought in from outside, though technically superior systems. If you continue asking somebody who is already in a comfortable environment to change, I’m afraid it will not happen.
