The PM has once again called for a consensus on a ‘Charter of Economy’ to agree on a long-term plan to put the economy on track. Immediately, PDM also called to be made part of the ‘Charter of Economy’ consultations. They also want to be the stakeholders of the roadmap. Afterwards, PM also invited PTI to be part of hammering out a roadmap for salvaging the economy. It would be indeed good news for the people of Pakistan if political parties can agree on something relating to the welfare of the people of Pakistan.
To put the country’s economy on track, in the short term, the incumbent PM has visited friendly Gulf countries to look for investments in the service industry such as tourism, hospitality, and in SOEs. The government will generate revenues from the sale of assets in the aforementioned areas. However, there are a few shortcomings in inviting FDI, especially in the service sector. This sector does not add to the economy per se. The best example is Sri Lanka whose tourist-based economy received a battering during the COVID-19 epidemic as all the revenues from tourism dried up. Similarly, Sri Lanka spent its loans on building grand infrastructures which did not generate revenues to support the economy but required government subsidies for their upkeep.
Any robust economy is underpinned by manufacturing and innovation. Over the last few decades China, followed by India, has moved from a consumer economy to a manufacturing economy with China now making steady progress to move to an innovation economy. On the contrary, even after seventy-five years of existence, Pakistan is merely relying on traditional items such as textiles and few products from Sialkot, which are low-valued, and least technology-intensive items. Resultantly, the newcomers Bangladesh, and Thailand have overtaken Pakistan in these fields, and are generating revenues in billions far excess of Pakistan.
We still have to manufacture any product competitive at the international level. We cannot even assemble any product which is competitive at the international level. The most obvious example is the auto sector in which multinational firms entered in JVs with few local firms to assemble autos in the late 80s and early 90s. More than three decades later, we are still importing CKDs and SKDs, which is again a big drain on our foreign exchange resources. Further, autos assembled from CKDs and SKDs are not of sufficient quality to be exported. Thus, even the local customers are being sold inferior quality autos at astronomical prices.
Another example is consumer products such as fridges, TVs, and other electronic items, which have been around for at least a couple of decades. All the critical technologies in these consumer items are imported, mainly from China, again consuming foreign exchange, and yet again there is minimal export of these consumer products as they lack the requisite quality required at the international level.
Thus, the indigenisation of the auto and consumer sectors is long overdue and should be part of any charter of the economy if we have to move forward toward a manufacturing economy. The indigenisation of the manufacturing sector will not only save foreign exchange but also bring critical technology to Pakistan and help create thousands of more jobs, thus providing support to the economy in terms of greater revenue generation. Further, the manufacturing sector should only be given tax reliefs and subsidies against revenue generated through exports. In sum, any charter of the economy should focus on developing a manufacturing base in the country, with the first step as indigenisation of the existing manufacturing sector.