Reviving the Industry

Unfortunately, due to some health problem, I was unable to attend the entire session of the round table discussion on industry by the experts. However, I was able to glean some of their thoughts so as to give this document a direction. As always, this paper includes some of my thoughts as well e.g. all CPEC related comments and some other matters.

Introductory Comments

Agriculture and industry are the two pillars of every state’s economy. Both terms are rather loosely used. Agriculture includes, farming, dairy and meat products, even horticulture. Industry is no longer merely associated with factories; it also includes IT [which has become a fairly large industry in Pakistan as well], banking, marketing, even education and health care have become industries. In fact, even agriculture is an independent industry. In this document, the two terms are also loosely used and for ease of understanding; agriculture is not clubbed under industry.

Taxation is an entirely separate subject and will be addressed independently later. However, certain aspects of taxation which are relevant to the revival of industry will be mentioned where necessary. However, although agricultural issues have been dealt with in an earlier brief, there is too much of an overlap between the two and agriculture will appear repeatedly here again.

The Perspective

Pakistan was agriculture surplus but, no longer. We had in the early ‘60s, begun to develop a fairly large and strong industrial base but no longer. Our principal foreign exchange earning industries were cotton-based; textile and edible oils. Because of vested interests of the politically powerful, the cotton-based industries have been undermined so far that, this year’s cotton crop is likely to be negligible; which means that, next year, cotton-based industries will either dry up or purchase cotton from the international market. The latter course will make the cost of production too prohibitive to be competitive.

Although we have not yet felt the effects of CPEC as yet; we will. China has almost the same land mass as the US but has almost four times the population and, while the US has about 17% land under cultivation, China has a mere 13%. Consequently, China is also enormously agriculture deficient.

China is leasing land from our government(s) along the entire route of CPEC. Subsequently, this land is likely to come under technically advanced agriculture and, in support for agriculture there will be agro-based industries here. We should have been competitors of Chinese cotton-based industries but, it seems we are being eliminated by our own leaders. Is there some method in this madness?

Pakistan’s population growth is still hovering at just under 2% per annum and the median age is 22. The implications therefrom are: a) the annual increase in population is about 6 million. These need to be fed, housed, and educated. Our agricultural and industrial development plans will have to be futuristic to cater for this. The median age implies that the youth bulge is increasing. They will need employment. Employment is a separate issue that also deserves address but, the relevance here is that, if unemployment continues to increase; there will be the kind of violence that is unimaginable.

Some Suggestions

1. Our industry, like the agriculture, is still dependent in primitive methodology. It needs to be modernized and kept up to date. To this end, one of the requirements is an ongoing R & D program in a variety of subjects. Since dedicated R & D is an expensive venture, limited experts can be supported by hundreds of Ph. D and M Phil students of various universities. Students could select topics from a list provided by those who need their support and research ability.
2. Industries must be classified according to priority e.g. Strategic Industries. These would be security related and futuristic. Considering how wide is the spread of the modern term of “security” the industries under this categorization would vary from country to country. These may also be re-categorized in time. However, apart from those industries related to weapons systems and munitions of war, those relating to cyber and communication security, or space security etc. as well as those that the government considers essential to secure in case of war.  
3. Core Industries could also be emplaced under Strategic Industries or, categorized under Core Industries. These would be those that the government considers essential for the survival and wellbeing of its citizens in peace and war. Core Industries could include Foreign Exchange Earning Industries or these could be categorized separately.
   [Note: Now it must needs be reminded that all entrepreneurs, whether existing or fresh entrants, are in the business of making money, none of them is an altruist. Those in possession of funds to spare for investments are already rich. New entrepreneurs will be taking a risk and will also need some incentive to try.]
4. The implication from 2. above is that in countries like ours, strategic industries may be run by the public sector or, be outsourced under governmental supervision, due to sensitivities involved, core industries need governmental encouragement and support. Once categorized under Strategic or Core category, if there is a deficiency in this category, it will have to be met by either expanding existing core industries or bringing fresh entrepreneurs to enter the affray.
5. In case of the former above i.e. expansion of existing industries, if tax rates continue to increase incrementally, a stage will inevitably come when the increase in income from expanding existing industries will become lesser and there will be no incentive to invest further [the point of diminishing returns]. In which case the industrialist will have no incentive to expand. The fresh entrepreneur may have to borrow monies or raise it from somewhere to enter an arena already [partially] occupied and existing competitors may make his/her enterprise difficult. He/she might need some encouragement through incentives. The usual incentive for these are tax rebates, or scaled rates of taxation over initial year(s) to help tide him/her over the till his endeavor begins to pay back.
   Note: it is not possible to recommend the degree of relaxation here. It will depend on what the government can afford and may have to be found by negotiation.
6. On Foreign Exchange Earning Industries. Import deals are made on the firm conviction that deliveries will be on schedule and of the quality agreed upon. Over the years, Pakistani exporters have acquired a reputation of being unreliable. Either their goods are not up to standard or shipments are delayed. It is imperative that foreign exchange earning industries are facilitated in every possible procedural matter. Bureaucratic delays, including those resulting from corruption must be eliminated. Preferably, the entire process of exporting these goods should be a One Window Operation.
7. While responsibility of ensuring quality is that of the exporter but, if he/she is being allowed through, the quality control people also aren’t doing their job. The real complaint on this account is that Regulators [of all assignments] are not regulating; until they do, nothing can go right. In fact, most don’t even know their actual role. Regulators have a very special role. They mustn’t be allowed to turn into Wage Earners.
8. Luxury Industries are, as the title suggests, non-essentials for life but are required by those who can afford them. Obviously, these do not need the kind of support that the government needs to provide to the earlier three categories. The sole catch here is that these should not be so prohibitively expensive that they go out of reach of the ordinary man. Because, if that were to happen, it would smother ambition in the non-rich masses and, without ambition mankind can lose hope.

Concluding Comments

If Pakistan is to survive with any degree of pride and confidence, industry and agriculture must be revived. While both are in desperate need of modern technology to remain competitive in the international market, industries, including the entire lot of agricultural industries [in the wider sense] also desperately need entrepreneurs. This term was not used during the round table discussion and I fear it seems to have disappeared from our usage. But, without entrepreneurs in every conceivable field, the world would stand still. And, for reviving a dying economy, entrepreneurs are essential. Even though the word was not used but the cry in the pleas of experts focused on this deficiency and why entrepreneurship has died an untimely death..

The importance of industry to the economy need not be repeatedly repeated. This paper merely offers some suggestions.