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Industrial performance

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  • 1. Industrial Performance
  • 2. Significance of Industrial Sector• Rapidly growing industrial sector brings about economy-wide structural changes that ensure sustained GDP growth and promote employment.• In Pakistan also the industrial sector has a great potential to generate economic activity, boost exports, and create jobs.• We review the performance of industrial sector in international perspective to identify challenges that are needed to be addressed for improved industrial performance and reducing cost of doing business in Pakistan.
  • 3. •InsufficientDiversification -38% textile andfood• Concentration in‘fashion cluster’ isrisky
  • 4. Main Conclusions• With the exception of few textile segments, Industry in Pakistan has not been a growth engine as has been the case elsewhere• Industrial production in general and exports in particular are characterized by low technology intensity• Manufacturing sector has heavy domination of textile sector – limited diversification• Industry has failed to provide productive well-paid jobs to rapidly growing labor force• Thus the implication is that ‘industry has not played its role in inculcating a contemporary, forward looking and optimistic mind set among the young’
  • 5. Analysis• The principal lesson to be learnt is that Pakistans investment performance requires high sustained capital deepening. Capital deepening, in turn, implies accumulation of physical capital faster than labor growth. This in turn implies that high investment is necessary for growth.• Given the importance of investment, it is imperative to ask where it is headed • (continued)
  • 6. Analysis• Comparing Pakistans investment performance with Asian experience is that high sustained growth with its regional competitors is justified on two grounds:• First, similarities in income levels, geography and history make these countries Pakistans natural comparators; and• Second, like most South Asian economies, Pakistan has deregulated and liberalized its economy over the past two decades. Therefore, it is instructive to analyze how well Pakistan is faring compared to its regional competitors.
  • 7. investmentgap is defined as the differencebetween Pakistans rate of growth ofinvestment and the growth rate achieved by itscompetitors
  • 8. Concerns• There has been a secular decline in Pakistans public investment trajectory since the early nineties, which is also the case for the trajectories of India and Bangladesh.• Pakistans private investment trajectory departed significantly from its1980s trend. – In actual fact private investment was unable or unwilling to step up and fill the gap created by a declining public investment trend.
  • 9. There has been a secular decline in Pakistans public investmenttrajectory since the early nineties, which is also the case for thetrajectories of India and Bangladesh.
  • 10. Pakistans private investment trajectory departed significantly fromits1980s trend.
  • 11. private sector manufacturinginvestment was unable to takeadvantage of the greater spaceavailable to it as a result of a decliningpublic sector role in the manufacturingsector.
  • 12. Conclusion• The analysis suggests that Pakistan has been unable to exploit its investment potential over the last decade.• Therefore a trend change in investment is necessary in order to bridge its investment growth gap with its competitors.
  • 13. Cost of Downward Trend Shift• The costs of this downward trend shift are calculated by comparing real private figures for Pakistan with a projected potential investment trajectory.• Pakistan must push up its trend investment rate beyond the 1980s rate in order to return to its original investment growth trajectory.
  • 14. Cost of downward trend shift
  • 15. Why Stagnation?• Political Risk – Pakistan received extremely adverse risk rating on the issue of security and political stability relative to its competitors.• High Cost of Doing Business – Government risk • Legal and Regulatory Risk • Tax Policy Risk • Financial Risk• Low Labor Productivity (lack of required skills)• Power and Infrastructure Issues• Poor coordination between federal and provincial governments
  • 16. Source: World Economic Forum, GlobalCompetitiveness Report: 2004.
  • 17. Source: World Economic Forum, Global CompetitivenessReport: 2004.
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