On 12th March, 2007 the PM launched the first ever Pakistan’s Competitiveness Report prepared by the Competitiveness Support Fund (CSF), a joint initiative of the Ministry of Finance and US Agency for International Development (USAID). The report has been launched at a time when the economy is at take-off stage, assessed by many independent economists and analysts and multi-lateral organisations. Notwithstanding the fact that some of the macroeconomic indicators are under stress, economy is stable and on the basis of comparatively better performance of agriculture and services sector, it is poised to achieve projected growth target of 7.0 per cent of GDP by the end of current fiscal year.

Competitiveness status and challenge

Government’s initiative to improve economy spread over past more than seven years, despite some visible limitations, has paid-off. Consistency in the economic policies and adherence to free market economy, and liberalisation of import-export regime, has opened the economy to global market forces and competition.

Around more than five years profound commitment to free market regime enforced through good offices of the IMF and WB, has been instrumental to earn national economy 66th and 91st ranking in the Business Competitiveness Index and Weft’s Global Competitiveness Index out of 125 countries respectively. The rankings are certainly low and could have been even lower, if public sector had continued to stay as the main role player of economic development.

The ongoing judicial crises have a profound and intrinsic relationship with competitiveness of economy in domestic as well as in international market. It is not an isolated issue, as many would like others to believe. The PM during launching ceremony of the report had categorically stated that, "competitiveness is the cornerstone of Pakistan’s strategy of economic growth". He further stated that Pakistan is to work closely with WEF (World Economic Forum) and the US Competitiveness Council to achieve higher standard of competitiveness.

What is competitiveness, according to which economies of different countries are indexed by the WEF or through its support? There are nine important points that account for it. They are: institutions of all sorts that a state has; infrastructure; macro and micro-economy; public health and education in particular primary education; higher education and training inclusive of research and development for new products; technical readiness with ability to respond to demands of domestic and global market; market efficiency inclusive of capability to dominate domestic market through open competition and to reach out foreign markets; business sophistication and innovation.

The criterion of indexation is clearly laid out. It is quite demanding in case any country is to adopt it for improving its competitiveness in global market. According to the report, economic competitiveness in Pakistan is the weakest in first four points out of the nine points stated above. They include state institutions, infrastructure, macroeconomic indicators and health and primary education. The latter five indicators are comparatively better but they too have a lot of scope for improvement. "Institutional deficit" has existed in the country since its creation. Army-led and civilian regimes managed economy as an isolated phenomenon related to macro-economic indicators only. They did make certain laudable gains on economic development front. But, the development strategies pursued by them proved abysmal and inadequate at the end of the day to address socio-economic and political issues that the country later faced as a result of their policies. In fact, their policies and strategies exacerbated them.

The net result of all this is an extremely weak institutional base in executive, legislative and judicial system of the country that hardly fits into Weft’s criteria of competitiveness. That is why Pakistan despite having high economic growth is lower in the ranking of Global Competitiveness and Business Competitiveness Indices. It underscores the importance of strengthening institutions related to social development and the state. In case Weft’s criteria is to be given any importance about which the PM was very emphatic at the time of launching of the report, visible efforts should be made to improve state institutions. Driving economy to higher pitch on one hand and keeping other state institutions hanging in the air is an exercise in futility and has been done repeatedly. It undid economic progress and left behind bitter legacy that needed to be avoided at this juncture of economic development.

The government is conscious about the deficiencies in infrastructure. It has been spending huge amounts to make up for the deficiency. Construction of Gwader deep-water seaport is likely to serve as gateway to do trading through hot water sea link between Afghanistan, Central Asian Republics and China. Pakistan Railways also need capital-intensive investment to become an effective means of transportation.

The greater stakes are emerging because some of the macroeconomic indicators are showing downward slide. Current account, fiscal and trade deficit and around 4.0 per cent growth in exports against a target of 12.0 per cent are some of the indicators that make macro-economy less robust than it was expected to be during the current fiscal year. Trade deficit has touched an alarming mark of $8.89 billion and export target of $18.6 billion is unlikely to be met. The exports are suffering because of inadequacy of infrastructure, high cost of electricity and doing business, highly concentrated export regime dependent on textile sector and limited foreign markets. It is facing tough competition in the international market from China, India and Bangladesh. The factors affecting exports are directly related to competitiveness of the economy. Even in domestic market, the Chinese products are capturing the market and pushing local industrial products to the periphery.

The picture about health and primary education is not very encouraging either. Budgetary allocations are extremely low, slightly more than 2.0 per cent of GDP. More disturbing point than this is the fact that whatever budgetary allocations are made, they are hardly utilised judiciously to achieve the targets fixed each year at the beginning of a fiscal year. Government’s efforts notwithstanding, Pakistan has a huge task of human resource development, vocational training, achieving high skill level for its work force and making them compatible with the international standards to achieve higher level of competency.

The stakes and the state

Stakes are high and could jeopardise a lot and beyond expectations. Our own experience in the past should be our best guide. It is quite understandable that neglect of decades of the factors that are now counted as key to economic competitiveness can’t be corrected in a short span of a few years. For each of the nine points that WEF has made as the bench marks to achieve higher competency, much more work is required to be done than is being put in at present by the government and the private sector. The redeeming point in this connection is that government has an open mind and is willing to address the challenge: (1) Exports that have already grown at slow pace during first eight months of current fiscal year could further slow down. It would further increase trade and current account deficit and (2) A government committed overwhelmingly to political conflict resolution is unlikely to have enough time at its disposal to address the deterrents to investment. There are many of them as have been highlighted in the Pakistan’s Competitiveness Report with specific reference to Karachi. They relate to distorted land and real estate market, property rights, pro-tenant laws and high taxes on property related transactions, shortage of water, electricity and inadequate other industry related infrastructure.

Conclusion