Framework for Economic Growth, Pakistan - Planning Commission

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International conference on “Framework for Economic Growth, Pakistan”debt markets, from mid-size financialinstitutions which are not banks rather nonbankingfinancial sector, merchant banks orinvestment banks we would not be able todevelop entrepreneurship in the country. Nonation in the history of mankind has grownby keeping their money in banks. Today wehave an environment where without anyeffort we can earn 10-14% interest rate onour savings and the economic growth rate is3 to 4 %. There is no incentive to take therisk to go into business. Unless interest ratecomes down and we have high growth ratewe will not be able to create a competitiveenvironment.Ease of access to credit is very important.Financial market sophistication and ease toaccess to credit is very poor in Pakistan.Lack of governance and transparency is alsovery important. Without transparency andproper government structure we would notbe able to create a competitive market. PIA,insurance sector, NIT, mutual funds etc. arestill controlled by the government. We needto privatize these sectors sooner or later.Table -1CountriesIntensity of LocalCompetitionPrevalence ofTrade BarriersGlobal Competitiveness(rank/125)Pakistan 87 106 101Indonesia 54 58 54India 30 96 49China 19 69 29Malaysia 38 88 24Source: Global Competitiveness Report 2009-2010As per Global Competitiveness Report2010-2011 Pakistan’s rank is 101 in theworld. In GCI rank (Table -1) Indonesia is at54, India’s rank is 49 whereas rank of Chinais 29, and Malaysia’s rank is 24. Pakistan isvery low in ‘Comparative CompetitivenessPosition’ in the region. In ‘Intensity of LocalCompetition” Pakistan’s position is 87 thwhich is lowest in the region. For“Prevalence of Trade Barriers” Pakistan’sposition is 106 th which is again lowestamongst countries compared.Openness will lead to competitive marketsand economic growth. We need to thinkabout trade in the region especially in theSAARC countries. Regional trade will leadto higher competition and growth andcompetition will help bringing efficiency inthe sectors. Consistency of policies is alsoimportant for sustainable growth. Due tolack of consistency of policies people arenot investing in the country. We as a nationare losing our competitive position.Competition will increase efficiency,increase choices, lower the prices andincrease innovation.Achieving higher growth was not easy taskin the past. Today people sitting in China areserving people in Japan. People sitting inBangalore are serving companies in Europeand USA. We have failed to capitalize theopportunity. Today the world is muchsmaller. Internet, e-commerce, technologicaladvancements are tools giving usopportunity to create competition and toachieve higher growth rate. Regional trade,macro economic and political stability,consistency in policies and sound legal andinstitutional infrastructure can leveragecompetitive advantage.30
International conference on “Framework for Economic Growth, Pakistan”Speaker: Philip AuserwaldProfessor, George Mason UniversityI appreciate the process led by the PlanningCommission. I am honored to be the part ofthis event.One of the things working in Pakistan todayis mobile firms. In telecom sector there are 5major providers in Pakistan with 100 millionsubscribers and lowest SMS and call rates inthe world. It is a very highly competitiveindustry which is providing the neededservice in the country and we can celebratethat. We discussed about the bankingindustry where service area is seriouslydeficient. Currently banks serve only 15 percent of Pakistan's population. Creditavailability to SME is inadequate. Only 7per cent of bank lending is to the ruralpopulation. House financing facilities arenot available through the banking service inPakistan. An almost identical case pertainsto housing finance, in particular the totaldenial of funding for low cost housing(construction, purchase or renovation). Ineach of the three product markets -agricultural credit, SME financing andhousing finance - there is neglect in thepolicies. I want to point out the dots betweenentrepreneurship, competition and growth.Given the number of banks in the country,banking should be the most competitivesector in the economy.I want you to think about the economy asone sector. The sector I am interested todiscuss an example is the forest sector.Forest sector has a number of large treeswhich form the canopy and all we see fromthe outside is just the large trees or thecanopy. In the forest there is also largenumber of underbrush we can’t see from thetop. In between the trees there is the growthsector. The growth sector of the forest is thesame as of the growth sector of theeconomy. It is those trees which are smallbut are growing and are not visible from thetop. There is the middle range which isdeficient in many countries and not meetingthe economic potential.Immortality is an ugly thing from a socialpoint of view as there is no place for new todevelop. But this is not the case with regardto the countries which have not achievedmaturity through competition. These are theimmature competitive economies. So Iwould focus on new and growing enterpriseswhich is the SME sector or the ‘MissingMiddle’ of the economy. The new andgrowing firms may have a small share of theGDP but both in poor and high incomeeconomies they have a substantial share bothin terms of GDP and employment. Exit ofthe firms create opportunities in theeconomy. In a forest some old trees die andgive place to some new tress to take place.Firms’ failure is an opportunity toreconfigure economy. Exit of the firms thatfail to utilize the resources of the firm isimportant for a new entry. So an enablingcompetition enables both exit and entry ofthe firms. The growth of economies is thegrowth of firms 1 . One of the importantfactors in the growth of the economy is the‘Missing Middle’. For doing business theexit and entry of firms both are important forthe economy. We need private sector to beengaged and provide them a favorablebusiness climate.Dr. Nadeem Ul Haque said in his speechthat growth is a very complex subject whichis more difficult than the rocket science. Iagree with his statement. We need private1 Schumpeter,1911; Shell ,1962, 1966; Lucas ,1978;Baumol, Litan, Schramm, 2007.31
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