ISLAMABAD, 10 November 2003 — Foreign investors and fund managers will need to find new industries and products to cash-in on Pakistan’s overall improved economic indicators and the hoped-for strong consumer expenditure during fiscal 2004.
This is the essence of central bank’s authoritative annual report for fiscal 2003 and the prospects for the current fiscal 2004. The State Bank of Pakistan (SBP) in its annual diagnosis of the country’s economy, is upbeat over the prospects for 2004, ranging from consumer spending to bank profitability, farm and industrial output, home remittances sent by overseas Pakistanis, reduction in foreign debts, and increase in fiscal space for larger social sector spending.
But, its findings regarding the poverty increasing from 19 to 33 percent over the last fifteen years will make the economic managers to sit up and think hard to speed up action on poverty alleviation. In order to this, development of human resources, particularly through larger state funding of health and education, faster job creation, and more money for physical infrastructure, will be necessary.
The SBP also strongly supports a larger private sector investment. Autos, thermal electricity generation, cement, sugar, and consumer electronics, according to SBP now have reached a level of “excess capacity, created by large investment” in mid-1990s. “No new investment is warranted in these big ticket and highly capital intensive industries,” SPB reports.
Overall, industrial capacity utilization ranges between 60 to 70 percent. But this conclusion on the part of SBP is questionable. This is because of its fallacy that the present “demand is fixed,” and there is no future potential. The demand is not only not-fixed or stagnant, but it is dormant. Also it is dependent on the pricing factor.
The cost of many Pakistani industrial products is still inexorably high. Once it is brought down — through the market forces of supply and demand, or the government’s pro-business or pro-consumer tax policy, reduction in prices of state-supplied inputs and utility — there will be a sudden boom in demand for a variety of products.
In fact, SBP itself confirms: “the monetary and credit policies, aimed at stimulating aggregate demand, through consumer financing, housing mortgage credits, construction, autos, and consumer durables should lead to higher use of existing capacity.” If that be so, will it not automatically provide an incentive to establish a wide range of new industrial units with the help of domestic and foreign private investment?
Will a growth in household incomes and population, and a continued low interest environment not boost larger demand and market for new products?
As such, there is no denying the fact that a vast, untapped, potential consumer demand, ranging from good quality electronics to telecom and office equipment, and heavy and specialized transport vehicles exists in this market of 145 million. That is the direction for future heavy foreign direct investment (FDI).
But, steel, fertilizers, paper, paper board, and chemical industries that are operating at nearly full capacity, can increase profits by net investments that will help them substitute imports, thereby also boosting growth. The backbone of Pakistani economy — textiles — have gone through capacity expansion, modernization and upgrading over the last three years through a $3.0 billion investment.This high-tech investment did not yield many new jobs. But, it helped expand production and increased value-addition, that in turn, meant larger exports and earned higher unit prices.
But, why is new industrial investment not taking place in Pakistan? Why are there no new jobs? The SBP claims, it is because of excess creation of capacity in 1990s, and high-tech investment now that needs only a few hands to operate industries. “Large inflows of FDI into oil and gas sectors since fiscal 2002 have also not resulted in concomitant employment expansion as this investment is highly capital and skill intensive,” it says.
But, such explanations are hardly a comfort to millions of jobless Pakistanis — mainly educated youngmen and women, whose number is growing by the year. They are the ones who should make every ruler to sit up, and do something positive and visible.
“The biggest challenge facing the economic managers, in the short terms, is to create as many jobs as possible,” the report admits. “Despite the impressive improvement in the macroeconomic fundamentals, a strong and secure external sector, increased development spending by the government, upsurge in growth rate, easy monetary policy and a quantum jump in private sector credit, the popular perception about the economy, amongst the media commentators does not reflect the improvements,” the central bank confesses.
Poverty can be contained and new jobs created through increased government spending on human resource development and infrastructure, and greater investment by the private sector. However, in the same vein, SBP admits “ poverty has risen from 19 percent fifteen years ago to the present 33 percent”.
