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Saturday, April 13, 2024

The magic wand for Pakistan’s economic woes

The economy needs to be resuscitated and recovered immediately, or it would be too late. Pakistan also lags behind the developed world in technology by decades. No R&D, minimal manufacturing, and mostly assembling; we live in a fool's paradise if we think we can have any competitive advantage ever, with no technological leap in sight.

Unfortunately, Pakistanis have been made to believe in a lie that is spoken so often, that nobody can dare to think differently. What’s even more unfortunate is that the policymakers have also bought the idea. That oft-spoken lie is that the solution to Pakistan’s economic woes lies in industrialization. How is this theory flawed, and what should be the focus, if not industrialization? That is the million-dollar question.

Industry’s contribution is just one-fifth of our GDP, also employing almost the same percentage of the country’s workforce. Focusing all the energies and subsidies on this twenty percent, ignoring the other eighty percent, isn’t sane obviously. There are a number of factors that render reliance on industrial growth for prosperity a false hope. Firstly industrial sector has been getting exemptions and subsidies of hundreds of billions every year for years and years now, yet the growth is below par.

Read more: Pakistan economy in long term ICU – Editorial

Understanding the matter better

The typical Pakistani rent-seeking investor isn’t interested in stepping out of his comfort zone; in expansion, new ventures, new markets, or new technologies. Huge investments are needed to build infrastructure for massive industrial growth, be it FDI or local, and what we have in hand or in sight is peanuts, hence the pea-sized growth. When, and if, at all, infrastructure is developed, it brings huge surges in the import bill, first for industrial equipment, and later for raw material imports, aggravating the most critical ailment; the current account deficit. The time required to develop the infrastructure and complete ecosystems is too long, while Pakistan doesn’t have the luxury of time to mend its economy.

The economy needs to be resuscitated and recovered immediately, or it would be too late. Pakistan also lags behind the developed world in technology by decades. No R&D, minimal manufacturing and mostly assembling; we live in a fool’s paradise if we think we can have any competitive advantage ever, with no technological leap in sight. The energy costs, product quality, diplomatic relationships, tariffs and multiple other factors also render our industrial exports less competitive. To be realistic, what is the highest possible growth rate in the industrial sector? It can’t get doubled in a year obviously, and with all these impediments, it is always going to be a saunter, never a sprint. Now, if the industry is not the magic wand for our economic woes, then what is?

The magic pill

The magic pill for Pakistan’s economic ailments is (not so) obviously Information Technology aka IT.

Let’s talk little numbers to put things in perspective. Out of the nine billion dollars increase in exports since 2018, around three was from the IT sector, and six were from all other sectors combined. This tells everything (almost).

Read more: Did Pakistan economy really progress under PM Khan?

IT is a relatively nascent sector, hasn’t been around for long, and hasn’t enjoyed government subsidies or serious support ever, but it is still outpacing the industrial sector, the much-proclaimed star performer of our fragile economy. How? Within IT sector, the playing field is level, there are no vested interests, the growth is organic, the market potential is huge, and the indigenous talent is splendid. Let’s break it down.

How is IT the best bet for Pakistan?

India’s IT exports are over 120 billion dollars, while Pakistan has just crossed the 3.5 billion dollar mark, and that was after the exports quadrupled in the last 3 years. It doesn’t need much imagination to realize the potential exponential growth in an enabling environment, and the consequent effect on GDP, the balance of payments, per capita income and employment levels.

Unfortunately, the old school policymakers have no realization of the possible economic turnaround IT is capable of, and nor are there any vested interests of the economic elite, so it doesn’t enjoy the focus it deserves. IT doesn’t suffer from the impediments the industrial sector faces. Growth in IT can be rapid, unlike in industry. The infrastructure cost is minimal in comparison, so the investment required is just a fraction of that of the industry. Tariff barriers and logistics costs are key players in the industry, but IT doesn’t face these roadblocks. Establishing IT infrastructure is speedy, and raw material import is negligible. The major cost is the human resource, which besides being at par with the world, costs significantly lower than developed economies, handing us a significant competitive advantage.

Industrial growth provides more low-paid jobs, but the major beneficiary is the industrialist, whereas IT alleviates the inequality in wealth distribution, as it provides a generation of young graduates or students turning millionaires, or at least, getting into the highly paid income strata.

Read more: Matiari-Lahore transmission line to boost Pakistan economy: China

Is there a way? More importantly, is there the will?

What needs to be done? Redirect all the effort, energies, focus, policymaking, subsidies, support and facilitation from industry to IT. Declare the IT sector tax-free for a decade or half. The formation of STZA (Special Technology Zones Authority) in January 2022 was a much-needed step in the right direction, but it needs to be made truly functional, lest STZs end up having an SEZ-like fate.

IT zones with cheap land lease, concessional service provision, tax holiday and other incentives is the need of the hour, to form up complete IT ecosystems. Companies and individuals from Silicone valley and similar setups across the world should be engaged for JVs, ToT, FDI and capacity building of the local workforce.

Human resource is of vital importance in IT, and the technological base is there, the top professionals are already making their mark in the world, but the overall standard needs to be brought to par with the world leaders in IT. Curriculum change from school to university and a mindset shift is needed to develop a skilled workforce. Pakistani workforce lacks work ethics, which is a sore point. Right from the beginning, values like responsibility, honesty and hard work need to be inculcated along with entrepreneurial spirit.

Sellable IT skills should be a part of the school and college curriculum, to promote the learning of earning skills and financial responsibility in the youth, which is a much-needed cultural shift in our society. If the decade of 15 to 25 years of age, is spent earning, rather than depending on parents, it’d bring a huge macro- and micro-economic change. When these almost 20 million mouths to feed, turn into hands who feed, imagine the socioeconomic impact it’d have for generations to come. What we need is a little will, from the policymakers.

Read more: Food security in danger: Pakistan Economy Watch

IT exports grew from under a billion dollars to around four billion dollars in just four years. If done rightly, IT reforms alone can get Pakistan out of the balance of payments crisis, forever, in merely three to five years. Let’s hope and pray that sanity prevails, accompanied by competence, and information technology gets to drive Pakistan’s economy.



The writer is an aviator by profession and has a keen interest in public policy and governance. The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.