A strong local government (LG) is crucial for sustainable industrialisation. The role of devolution in strengthening democracy, improving the quality of governance and social service delivery is already recognised but the linkage of vibrant local bodies structures in providing a conducive environment for industrial growth has yet to be fully understood and leveraged for this purpose in Pakistan.

It is, therefore, not surprising that the issue has not been mentioned in the multiple business/development agendas debated over the past two decades. The centrality of effective local self-government structures for socio-economic progress has not been dealt with separately under United Nations Sustainable Development Goals either but seems to be embedded in Goals 9 and 11. The achievement of SDG-9 ‘Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation’ and SDG-11 ‘Sustainable cities and communities’ will be difficult in absence of vibrant local governments.

Since the revival of democracy in Pakistan in 2008 and more so since the passage of the 18th Constitutional Amendment and 7th National Finance Commission award in 2010 there has been a lot of talk on devolving political, administrative and fiscal responsibilities at sub-provincial tiers but there is some subtle resistance to local bodies in the political parties and their leadership, more so in Sindh.

It might have something to do with the historical baggage of the patronisation of local bodies by all past military dictators from General Ayub Khan in the 1960s to General Zia in the 1980s and General Musharraf in the 2000s.

The importance of linkages of vibrant local bodies to provide a conducive environment for industrial growth has largely been ignored

Timeline of LG System in Pakistan

Caught in the politics of devolution was also industrialisation in Pakistan. The industrial base of the country, rich in human and natural resources, continues to be too narrow. Instead of expanding, the sad fact is that it has slowly been shrinking. According to official numbers drawn from Pakistan Economic Surveys the share of manufacturing as a percentage of GDP has come down to 12.4 per cent in FY22 from 14pc in FY18.

Talking to this scribe, Muhammad Younus Dagha, former finance secretary and chairman, policy advisory board, Federation of Pakistan Chamber of Commerce and Industry (FPCCI), hammered the active positive correlation between vibrant local governments and industrial development. He referred to the publication “Making economic hubs thrive: a case for fiscal and administrative devolution in Sindh’, a collaborative study of the unit he heads and the economic research body, Social Policy and Development Centre in this regard.

The said report, the first such detailed systematic effort, takes stock of the situation, traces the historical background, documents progress or lack of it, critically analyses current laws, identifies gaps and makes recommendations for reforms with guidelines for the Government of Sindh and the federal government on the path ahead for sustainable industrial development.

Mr Dhaga said that in recommendations, a strong case is made for the adoption of pro-industrialisation approaches in the distribution of resources in the next Provincial Finance Award (PFC) which is long overdue and needs to be revived. The 4th PFC was held in 2007 and terminated in 2009.

“This study has proposed indicators that explicitly incorporate urban and rural needs and shares are simulated using an equal share, pro-basic needs and pro-industrialisation approaches,” reads the report. It also recommends changes in the divisible pool and criteria for vertical and horizontal distribution.

It advised holding local government elections regularly and further devolution of responsibilities to local bodies. The current Sindh Local Government Act 2013 is comparatively weaker than Sindh Local Government Ordinance 2001 and needs to be revisited for improvement.

He interpreted the neglect of Karachi, Sindh’s capital and the industrial hub, as a clear manifestation of the neglect of industrial development in Sindh. He regretted the situation as Karachi’s share in the provincial budget dipped despite a steep over 800pc increase in Sindh revenues in the last 14 years from Rs178 billion in 2008 to Rs1.680 trillion in 2022. The share of Karachi, however, has declined from 20pc to a little over 3pc over this period.

When reached over the phone, none of the senior officers or the political leadership in Sindh was either unwilling or not in a position to comment on the FPCCI report. “Please share the soft copy and give me time if you care for my opinion,” a senior officer said. The FPCCI report was forwarded but he did not revert till the filing deadline. The Chief Minister Murad Ali Shah’s office confirmed that the report has not reached him yet.

The Pakistan Business Council (PBC), a pan-industry advisory body, has also been decrying the lack of support to the manufacturing sector. It warned that premature deindustrialisation in Pakistan has been increasing joblessness and dependence on imports. The PBC blamed the trend on the government’s bias towards commercial imports whereas the industry is made to endure the burden of high tax rates, energy costs and expensive credit besides other business challenges in the country.

They have also been hammering for more effective economic diplomacy to expand foreign trade and clinch better deals. They might also have worked on local bodies but the revival of local government to arrest the shrinkage and accelerate industrialisation has not been highlighted.

Published in Dawn, The Business and Finance Weekly, August 22nd, 2022