Growing Economic Problems of Pakistan:
and
“Umeed”
a project to kick-start sustainable growth
and employment generation
at the
GC University Faisalabad
May 30, 2012
Sohail Jehangir Malik Phd
Chairman
Innovative Development Strategies (Pvt.) Ltd, Pakistan
Senior Research Fellow
International Food Policy Research Institute, USA
Layout of this Presentation
•
•
•
•
•
Some Stark Realities
Economic Performance - Alarming Trends
Official Explanations that defy economic logic
Deliberately Eroded Statistical Basis
Existing Development Strategy in Pakistan?
– Non existent - ill conceived - not implementable
• The Need for new thinking
– Connecting the Disconnects
• Taking matters into our own hands
• The Crucial Role of the Educated Young
Entrepreneurs of Pakistan
The People of Pakistan today face every conceivable risk that is possible
RISKS
Micro
(idiocyncratic)
Natural
Meso
Rainfall
Landslide
Volcanic eruption
Macro (Covariate)
Earthquakes
Floods
Drought
Strong winds
Health
Illness
Injury
Disability
Life-cycle
Birth
Old age
Death
Social
Crime
Domestic violence
Terrorism
Gangs
Civil strife
War
Social upheaval
Output collapse
Economic
Unemployment
Harvest failure
Business failure
Resettlement
Balance of payment
Financial crisis
Technology/trade induced terms of
trade shocks
Political
Ethnic discrimination
Riots
Political default on social programs
Lip Service to Reform
Environmental
Epidemic
Pollution
Deforestation
Nuclear disaster
Sectoral Real Growth Rates
20
Agriculture
Industry
15
Services
GDP
Percent
10
5
-5
Source: Pakistan Economic Survey 2010-11
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
0
Imports, Exports and Trade Balance
40000
Trade Balance
30000
Exports
Imports
US$ million
20000
10000
-20000
Source: Pakistan Economic Survey 2010-11
2010-11
2009-10
2008-09
2007-08
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
-10000
1998-99
0
17
15
13
as % of GDP
Investment and Savings as % of GDP
25
23
21
19
11
9
Total investment
7
National savings
5
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1990-91
1984-85
1980-81
Source: Pakistan Economic Survey 2010-11
Revenue, Expenditure and Deficit as %
of GDP
3,500,000
3,000,000
2,500,000
Rs million
2,000,000
1,500,000
1,000,000
500,000
-1,500,000
Total Revenue
Total Expenditures
Source: Pakistan Economic Survey 2010-11
Overall Deficit
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
-1,000,000
2001-02
-500,000
2000-01
0
Current and Development
Expenditures
3,000,000
Current expenditure
Rs in million
2,500,000
Development expenditure
2,000,000
1,500,000
1,000,000
500,000
0
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
Source: Pakistan Economic Survey 2010-11
Expenditure on Education and Health
as % of GDP
3.0
2.5
as % of GDP
2.0
1.5
1.0
0.5
Health
Source: Pakistan Economic Survey 2010-11
Education
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
0.0
Source: Pakistan Economic Survey 2010-11
2010-11 Mar.(P)
2008-09
2006-07
2004-05
2002-03
2000-01
1998-99
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1984-85
1982-83
1980-81
Rs in million
Money Supply (M2)
7000
6000
5000
4000
3000
2000
1000
0
M*V = P*Q
The Fundamental Identity
Source: Pakistan Bureau of Statistics (various issues)
Mar-12
Jan-12
Nov-11
170
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
140
Sep-08
Jul-08
CPI (2007-08=100)
Trends in Monthly CPI
(July 2008 to April 2012)
180
168
160
150
112
130
120
110
100
Source: Pakistan Economic Survey 2010-11
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
1990-91
Rs/US$
Exchange Rate (Rs/US$)
90
80
70
60
50
40
30
20
10
0
Real and Nominal Wages of Skilled and
Unskilled Workers
400
Mason
350
Unskilled worker
300
Rs/day
250
200
150
100
50
Source: Pakistan Economic Survey 2010-11
2011
2010
2009
2008
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0
Terms of Trade
It takes about 60 kilograms of wheat flour to meet minimum
requirements of a family of 6 for one month!
Lahore
Kgs. of Wheat flour per one
day of wage labour in 2011
13
Karachi
12
Peshawar
10
Quetta
11
How Official Numbers
Deliberately Hide
the Reality:
Two Examples
Example 1: The Increase in Employed between
2005-2008 – simply a definitional adjustment
Distribution of employed males by
employment status
Distribution of employed females
by employment status
70
% of employed persons
% of employed persons
50
40
30
20
10
0
60
50
40
30
20
10
0
1999-00 2001-02 2003-04 2005-06 2006-07 2007-08 2008-09 2009-10
1999-00 2001-02 2003-04 2005-06 2006-07 2007-08 2008-09 2009-10
Source: Labour
Force Surveys
% of employed persons
Distribution of emplyed persons by employment
status
50
40
30
20
10
0
1999-00
Employers
2001-02
2003-04
2005-06
Self-employed
2006-07
2007-08
UPFW
2008-09
2009-10
Employees
Example 2: Poverty in Pakistan
45
40
Poverty headcount (%)
35
30
35
31
25
24
22
New official
estimate!!
20
15
12
10
Urban
Rural
Pakistan
5
0
1998-99
2000-01
2004-05
2005-06
2010-11
Despite a decline in poverty, real household
consumption expenditure remained stagnant
25,000
Nominal
Rs per month
20,000
Real
15,000
10,000
5,000
2001-02
2004-05
Source: HIES (various issues)
For real expenditure (2000-01=100)
2005-06
2007-08
2010-11
Share of food expenditure in household
consumption expenditure shows a sharp
increase after 2005-06
50
49
48
47
% share
46
45
44
43
42
41
40
39
2001-02
Source: HIES (various issues)
2004-05
2005-06
2007-08
2010-11
Example 2: Poverty Estimates – Provincial Dimensions –
Poverty in Sindh was made to decline by 15% between
2001 and 2004 to show 5% overall decline!!
45
41 41
Poverty headcount (%)
40
38
37
36
35
30
32
30 30 29
26
25
22
33
30
28
22
20
15
10
5
0
Punjab
Sindh
1998-99
Source: World Bank (2007)
NWFP
2001-02
Balochistan
2004-05
Pakistan
Non-income measures of poverty:
Stagnant Gross Enrolment Rate at Primary Level
120
Gross enrolment rate
100
80
60
Male
40
Female
20
Total
0
1998-99
2001-02
Source: HIES (various issues)
2004-05
2006-07
2008-09
2010-11
Declining proportion of households
having access to piped water
70
60
% households
50
40
30
20
10
0
1998-99
2001-02
2004-05
Urban
Source: HIES (various issues)
Rural
2006-07
Total
2008-09
2010-11
Rising proportion of housing units with
one room since 2008-09
25
25
% housing units
24
24
23
23
22
22
2004-05
Source: HIES (various issues)
2006-07
2008-09
2010-11
Declining Perception about
household’s economic situation as
compared to previous year
60
52 52
50
% households
44
40
40
33
28
30
22
20 18
20
24
20
15
10
10
4
3
5
2
1
2
2
0
Much worse
Worse
2004-05
Source: HIES (various issues)
Same
2006-07
2008-09
Better
2010-11
Much better
15
10
'000' MW
One Binding Constraint amongst many
Installed Capacity of Electricity (000 MW)
25
20
5
0
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1990-91
1984-85
1980-81
Source: Pakistan Economic Survey 2010-11
Slump in the Sources of Transport &
Communications
200
Growth rate (%)
150
100
50
Motor Vehicles
Post Offices
Source: Pakistan Economic Survey 2010-11
Telephones
Mobile Phones
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
-50
2001-02
0
Existing Development Strategy in Pakistan:
New Growth Framework ?
Markets, Cities, Youth and Connectivity
No implementation
Continuing Reliance on:
1. Macro-economic Stability – Policy Choices?
or need to meet fiscal imperatives
2. Gains from Globalization?
or risk of snuffing out any possible growth
3. Demographic Divident?
or demographic death trap
Missing Links
• Weak Data and Weaker Analyses
• Absence of M&E and effective policy research and
extension
– Scant Regard for what works and what doesn’t and how it
can be replicated and up-scaled
• Little understanding or consideration of the complex
micro-macro linkages and sectoral inter-relationships
• No consideration of the importance of institutions
New Thinking Requires……….
• Focus on the neglected rural sector
• BUILD THE MISSING LINKAGES
• Evidence from Pakistan
– The Rural Investment Climate survey 2005
– The Surveys of Domestic Commerce 2006
• The need for focus on institutions
• The need to involve the abundant factor
Rural – The neglected sector in
Pakistan’ s Development Strategy
• 68% of the population is rural
• High incidence of rural poverty (39%?!)
• High agricultural growth appears to have
coincided with rising poverty levels
• Recognition that non-farm sector growth is
necessary to address rural poverty.
• Share of household income from rural non-farm
activities is growing
What Makes “Rural” Areas Special?
• There are sharp differences in economic and social
constraints and outcomes between rural and urban
areas
– Poverty rates in rural areas are generally higher than in urban areas
[although LGO2001 has obliterated the definitional distinction]
• Public service delivery and outcomes are generally
much poorer in rural areas
–
–
–
–
Infant mortality rates higher
Birth rates higher
Poorer access to health services
Poorer quality educational infrastructure, services and outcomes
• Major role of agriculture in the rural economy BUT
– Seasonal labor demand
– Large fluctuations in agricultural output, price and incomes related to
weather and pest
Share of Major Sectors in GDP and
Employment (2007-08)
50
44
45
40
% share
35
30
25
21
21
20
17
14
14
15
10
10
7
5
5
3
2
1
0
Agriculture
Min & manuf
Construction
GDP
Source: Pakistan Economic Survey 2007-08
Electricity and
gas
Employment
Transport
Trade
Relying on Government is NOT the
answer
Rethinking Development Strategy
THE FUNDAMENTAL QUESTION
The structural transformation of Pakistan’s
economy has not been accompanied by a
concomitant decline in the proportion of
labour employed in agriculture – WHY?
Distribution of Pakistan’s Poor Households
2007-08:
42% are in the Rural Non Farm Sector
Large farmers Medium farmers
1%
0.05%
Urban households
17%
Small farmers
18%
Landless farmers
9%
Rural nonfarm
households
42%
Source: HIES 2007-08
Rural agricultural
labour
13%
The growth linkages of the rural nonfarm economy run in both directions
•
•
•
•
•
Production linkages (forward and backward)
Consumption linkages
Labor market linkages
Investment linkages
Spatial linkages
Distribution of Enterprises by Type for
Rural and Small Towns in Punjab (2005)
60
56
50
50
% enterprises
44
44
40
40
35
30
20
12
10
9
10
0
Urban
Rural
Production
Service
Source: Rural Investment Climate Survey (2005)
Overall
Trade
Profile of Rural Enterprises in Pakistan
(2005)
Rural
Small
Town
Total
Average No. of Workers
1.97
2.05
2.01
No. of Family Workers
1.29
1.37
1.33
No. of Hired Workers
0.68
0.68
0.68
Average age (years)
9.17
9.03
9.10
Stand-alone businesses (%)
94%
67%
80%
Share of firms registered (%)
28%
20%
24%
Sole proprietorships (%)
95%
94%
94%
Source: Rural Investment Climate Survey (2005)
Forward Linkages of Rural Non Farm
Enterprises
(share of sales by location)
120%
Production
100%
Share of sales
Services
Trade
80%
60%
40%
20%
0%
Same tehsil
Different tehsil in Different district in Other province
the same district the same province
Source: Rural Investment Climate Survey (2005)
Other country
Backward Linkages of Rural Non Farm
Enterprises
(Share of inputs originating from)
60%
Share of inputs originating
50%
40%
30%
20%
10%
0%
Same tehsil
Different tehsil in Different district in
the same district the same province
Production
Services
Source: Rural Investment Climate Survey (2005)
Other province
Trade
Other country
Enterprises using some form of Modern
Practice/Service is extremely low
Transport
42
8
23
6
25
21
2
Engineering
Storage
33
21
27
26
22
12
Management
15
Marketing
Wholesale
12
7
21
8
10
3
Accounting
5
Legal
Insurance
Retail
13
4
16
7
5
4
5
Information Technology
0%
20%
40%
60%
Source: Rural Investment Climate Survey (2005)
80%
100%
Characteristics of Rural Non Farm
Economy of Pakistan
• Small Size of Enterprises – lack of collateral and high moral hazard
• Predominantly Sole proprietorship – unregistered and stand alone
• Primitive business practices and attitudes
• Lack of standards and quality in all aspects of transactions
• Limited Information Flow
• Low human capital - Inability to Assess Market -Inability to grow
• Limited Forward and Backward Linkages outside of Geographic
Area
• Lack of Access to Finance
• Lack of Contracts and Enforcement
Let us Turn these Weaknesses into an
advantage!
Accept responsibility for ourselves
Become the
Educated Young Entrepreneurs of Pakistan
Join “Umeed”
a project to kick-start sustainable
growth and employment generation
Pakistan Needs “Umeed”
• The Need to kick-start inclusive growth – bring
in the neglected segments, sectors and
regions
• The Need to Provide Umeed (hope) to the
burgeoning youth bulge in the demographic
pyramid
• The Need to provide gainful livelihoods to
these youth
Pakistan’s Population Pyramid
Intensity of Poverty
Poor
Intensity of
Houshold (%) Households (%) Poverty Index
Rice-Wheat Punjab
Mixed Punjab
20.3
12.3
10.5
10
0.5
0.8
Cotton-wheat Punjab
Barani Punjab
Rice-other Sindh
15.5
6
6.6
25.1
0.9
10.1
1.6
0.2
1.5
Khyber Pakhtunkhwa
11.3
10
0.9
Low intensity Punjab
6.7
12.9
1.9
Cotton-wheat Sindh
Balochistan
All Pakistan
17.3
4.1
100
12.6
7.9
100
0.7
1.9
1
Pakistan: Agro-climatic Zones by Intensity of
Poverty 2007-08
Based on FBS 2007-08 data
Structure of “UMEED”
1. Use the Network of District Level Universities/Institutions
as Incubators for Groups of Young Entrepreneurs
2. Operate from the Infrastructure of the Universities (both
hard and soft infrastructure)
3. Organize the groups, provide skills and get loans
underwritten (guarantee loans) through PPAF
4. Ensure that Commercial Banks lend against PPAF
guarantees and viable business Plans
5. Link up groups across districts to maximize on access to
markets and flow of information through internet.
• Groups pay for credit and use of Incubators facilities
Khyber Pakhtun Khwa
Punjab
Sindh
Balochistan
Structure of “UMEED”(contd.)
• Groups to specialize in Production, Trade and
Services according to comparative advantage of the
Group and Niche for the District.
• Groups to adhere to norms of social responsibility:
>by adopting one school, one BHU or one
Mohallah
>by committing to employment of local
inhabitants and use of local materials and
markets
>by committing to fair business practises.
Or are expelled from participation
Each Incubator starts with 10 groups of 10 young entrepreneurs creating 10 additional
jobs implies: 1000 additional employed per district – a total of
first instance in the PPAF districts
119,000 jobs in the
The Mechanism
• Groups formed on basis of advertised competition for
combination of innovative employment generating
business ideas based on districts needs and comparative
advantage and proposal for socially responsible activity
that the group will commit to undertake.
• Competition to be judged by committee including central
PPAF persons, Local University Business or Economics
Professor and District Chamber/Association Members
• HEC mandates Universities provide Incubators
• Groups to be given access to University provided
“Incubator” – use of office space, internet and meeting
facilities
The University Incubators
• Incubator to provide basic training in Business start up,
business plan writing, templates of business contracts and
information of other groups in other districts - what they are
demanding and what they are supplying
• Incubator run by the University jointly with PPAF/Partners
linked to SMEDA and NEVTA etc acts as clearing house of
information on prices of goods and services and skills and
relative availabilities etc.
• Incubator acts as a one stop Rural/District level Domestic
Commerce Mall covering Production, Services and Trade in all
areas including Agriculture as well as an Employment Bureau
• Government instructs all Departments to provide priority
facilitation to Young entrepreneurs
The Mechanism (contd.)
.
State Bank to require Commercial Banks to lend to Youth
Groups having feasible business plans against PPAF guarantees
• Youth Groups to pay for use of Incubator at cost as well as bank
interest and taxes etc as any other business
• Continued participation of groups in plan conditional on
1. Fair business practices
2. Buying Local employing local
3. Social and ethical responsibility
The Opportunities are ENORMOUS!
One Example: Potential Gains from Increases in Crop
Yield
Major Crops – Rs. 607 Billion Potential Gain
480
500
GAIN
432
CROP
Billion Rs.
400
300
259
231
200
100
146
134
123
106
88
162
85
69
41
102
20
0
Cotton
Sugar Cane
Production 2008-09
Rice
Maize
Source: Pakistan Agricultural Research Council Estimates
Billion Rs.
%
Cotton
143.2
163.6
Sugar Cane
65.4
160.0
Rice
64.8
94.1
Maize
64.4
316.7
Wheat
269.9
166.7
Wheat
Achievable (Progressive Farmers)
Potential (World Standard)
from reaching
achievable yields
Example Showed Potential Gains
from increased productivity only!
Gains from better sorting,
grading, packing and marketing
are several times more than the
gains from productivity
Existing Research Indentifies
Enormous Potential – In Crop Sector
• Input side
–
–
–
–
–
–
New production technology
High value crops
timely and quality seed
Timely and quality pesticide
Timely and quality fertilizer
Crop management services
• Output side
–
–
–
–
Creating bulk for market
Creating value by sorting, grading and certification
Packaging
processing
Existing Research Indentifies Potential
– In Livestock Sector
• Production side
– Animal husbandry practices
– Timely and quality vaccination
– Timely and quality insemination
– Sorting, grading and certification
– High value livestock (teddy goat, aquaculture,
etc)
• Processing
• Marketing
The “Umeed” Initiative Facilitates…..
Cooperation and partnerships between
public and private sectors and access to key
factors as financing, skills and markets.
The Initiative Provides:
• Development of business incubators, financial
mechanisms such as credit guarantees and other
SME support systems.
• Links Demand and Supply and backward and
advanced regions
• Quality Assurance and Business Confidence
The Initiative Ensures:
• Development of Viable Commercially sustainable
business models
• Ongoing M&E to ensure Replic-abilty and Scale ability
• Capacity Development
• Builds and strengthens backward and forward
linkages
• Promotes Venture Capital
• Social Responsibility
• Self Reliance, self respect and “Umeed” for our youth
Join “Umeed”
• Sign up by providing your name,
university name, department, email
and cell phone number to
network.pssp@gmail.com
Thank You so much