In the making of any nation, the most critical aspect is its approach to economic policy making. An area, which for Pakistan has been elusive. The economy has been on the move during the last 75 years of its existence but with ill-conceived and inconsistent economic plans. Even today, we have no blueprint for the economy. We live by the day. There is no consistency. There is no direction. A rudderless vessel floating on turbulent and choppy waters of financial misdeeds of several decades.
We decide, with befogged minds, on a day, to ban imports of all luxury items. In less than two weeks, we open up imports of all items, with the conditions of heavy Customs duty, charges, etc. We explain to the markets that prohibiting imports is an issue of aversion with the International Monetary Fund (IMF), upon whom we are now dependent, for coming out of the current economic morass.
In banning imports no thought was given to the damage such a step would inflict upon the automobile industry. There had to be reversal.
Why do we issue instructions with such confidence and then roll them back in quick time, with no remorse or guilt. Did we not know that protectionism is red rag to multilateral financial institutions, in particular, and to the West, in general? Do we not understand the English IMF uses in its communications? What’s the issue, really? Can we not think through what is proposed? A cursory examination of the letter of intent(LoI) given to the IMF, reveals a lot… admittedly our choices were limited for making a strong case, but it is almost an instrument of economic surrender. A falling rupee cannot be supported. Even if that be accepted as a fact of life — where is our economic plan for the next five, four, three and two years, none.
The tax structure undergoes changes almost every week. Retailers are taxed. They protest. The taxes are withdrawn. New formulas are devised, each worse than the previous in terms of adding anything substantive to the kitty. The exchange rate moves dramatically, in both directions; how can any business plan their production capabilities. The cost are in the realm of the unknown. This is too big a risk. Financial institutions sell dollars higher by Rs10 to Rs12 to the interbank rate.
In Bangladesh, some financial institution treasurers on motive of profit attempted to do, with the speed of light the regulator identified them and set them aside. To have saner corporate planning, we need stability in the market place; too much volatility, which doesn’t seem to be going away and doesn’t augur well at all.
Businessmen normally have short-term strategies; they rarely are in sync with the economic goals of the country. We have so many industries and individuals as an example of this approach. The primary objective is profit and that also preferably, made overnight. With this attitude, it is no surprise, we have no Tata’s, Birla’s, Warren Buffet’s, Godrej’s, etc. More about abuse of economic policy by business segments, later.
We, as a nation, are bright people, but lack commitment to the national needs and ideals. We are short on patriotism. We are proud Pakistanis but lacks in developing economic sentiment for growth and development of the country. Looking beyond our nose is not characteristically our national trait. Too narrow minded is our policy making, be it the corporate sector or the government. We believe in earning for ourselves; the gauge on this is to observe the dividend policy of the corporate sector; couple with the lowest tax-to-GDP ratio, says it all. How narrow and short-term is the view.
Nations cannot be built on sound economic grounds if the politicians keep changing the policies and direction, too frequently. There has to be stability of thought and action. The policies must reflect a perfect reconciliation between economic and social goals.
We can take a leaf from the countries such as Japan, South Korea and Malaysia in Asia or from the economic modelling of France and Germany, post-World War II. The reconstruction and rehabilitation was largely due to the well-thought out economic policies. There was De Gaulle in France and Konrad Adenauer in Germany. Both outstanding leaders. The main architect of Germany’s economic transformation and phenomenal growth was Ludwig Erhard, an economist and Statesman, who held the portfolio of economic minister from 1949 to 1963; he then served as the chancellor between 1963 and 1966. That’s stability. How many finance ministers we have had since say 2010? It is a circus, where the performance is the shortest.
Ludwig Erhard, alongside Adenauer is credited with the German economic miracle. Ludwig used a terminology of social market system, or in other words, social market economy. This thought represented the twin dimensions of the economic and social responsibilities. The objective underlying this strategy was that every citizen of the then newly-founded Republic should benefit from the economic planning and growth. This gained momentum in the 50’s and, since then, Germany hasn’t looked back. A resounding success has been their economic planning, also called the “Rhine Capitalism”; meaning fair market competition, coupled with the welfare state status. Konrad and Ludwig owned no industries; they had no reasons, by choice, to indulge and issue self-serving SRO’s.
The decades of the 90’s was for Pakistan, an economic mess, created by SRO’s. The SRO normally was issued before the arrival of the vessel and rescinded, immediately after the cargo was discharged and delivered.
What does Pakistan need today for its economic planning? Political stability. This has to be followed up with the creation of an export-led growth strategy. We must design an export policy, with strong accountability as its unshakable anchors.
The theory of comparative and competitive advantage is at the heart of production and consumption. International trade finance is based on these theories. They can never get outdated for the reasons that each country has its peculiar natural endowments. Oil is produced in one geography but is in more demand in other geography. Competitive advantage can be achieved by taking greater share in the market, only with enhanced efficiency and productivity. The centrality of this approach is dependent upon the ability to acquire valuable resources at a cost inferior to their value-creating ability. Countries that are endowed with natural resources, pursue policies that create a high value product or service, that can be sold at higher prices internationally; their approach is high volume at lowest cost. The semiconductor market is controlled by Taiwan, as a case in point. Price, location, quantity, selection, speed, turnaround and service capacities must be factored into economic policy making. The growth of the newly-industrialised countries, (NIC’s) is largely a consequence of the promotion of international trade.
China, India, Taiwan, Vietnam, etc, sit on large foreign exchange reserves due to their export industry. I have lamented enough on why there is a misunderstanding at the policy level, between borrowing foreign currency and earning from the foreign currency. They are not the same.
Globally, the governments through central banks have been offering finance facilities to promote exports; the intent being to provide the exporters with the liquidity at the lowest cost, either as pre-shipment or post-shipment finance. The peripheral benefits of the creation of employment opportunities are several, like the growth of vendor industry or in the development of value chain enhancing industries.
Pakistan also introduced export refinance facility in 1973. Our exports at that time stood at $1 billion. Despite a very high usage of the facility, our exports since 1973 have grown to $30 billion only. That is to say, a growth of mere $29 billion in 49 long years! The reason for this dismal performance is again ‘abuse’ of the facility. Refinance is meant to tide over liquidity crunches as a result of either receivables or payables, it comes into chip the operating cycle, so that there is no abandonment of production for the lack of liquidity. Hence, the nature is short-term. This is where massive diversion of funds took place. What was received earlier than expected wasn’t used to settle borrowings, instead the funds found their way into the real estate sector and the Pakistan Stock Exchange.
Ajman, which jovially was declared as the graveyard of Pakistani investors, was allegedly, the major recipient of such funds. The bankers callously ignore the operating cycle of borrowers and; hence, make available the liquidity that is not utilised for the purpose it is meant to serve. Low-cost funding is abused to make investments in high capital gains arena, that itself is fraught with grave risks of losing the principal amounts.
Unfortunately, we do not have a Konrad Adenauer, Ludwig or even Manmohan Singh, to work out a proper economic plan. Each government thwarts the good done by the previous government, this has been going on for the last 75 years; these handful of politicians and bureaucrats, members of the administration are frustrating and stunting the economic growth of this talented nation.
If Loralai in Balochistan doesn’t have gas, what does it mean? If gas is used for residential generators, what does it indicate?
We need to focus on looking at what are the areas where there can be exportable surplus. Still, the information technology software exports is a promising area, albeit we are late entrants but there is hope. We must have reliable broadband services available without interruption, if we want to take over, what resides in South India. We are a country that for political purposes shut down internet services, at what cost to the economy is this done — does anybody cares to gauge the loss.
Pakistan is undoubtedly blessed with amazing human resources, a population of over 220 million people, with 65 per cent of them being below the age of 35. It is a powder keg of potential; if directed this human nuclear energy, will create astounding results. We need a Ludwig or De Gaulle or Adenauer. Leadership is the answer to avoid further abuse.
(The writer is a freelance contributor)