Policymakers’ efforts to raise productivity for export-oriented economic growth have not achieved any meaningful success, as the country has remained primarily focused on producing low value-added goods in demand in developed economies.

In the process, we have built an import-oriented economy on the brink of default, prompting a call by relevant experts for productivity-led growth.

The economic woes have also induced some companies and segments of the private sector to take initiatives to boost productivity through on-job training of workers and by taking care of their well-being.

An across-the-board increase in productivity in the country — especially in industry and agriculture — is the only option to manage a turnaround in the economy. This was the considered view of the speakers at a workshop on ‘APO [Asian Productivity Organisation] vision 2025 — Inclusive, Innovation-Led Productivity in the Asia-Pacific,’ held in Islamabad recently.

Pakistan’s average productivity growth was a mere 1.5pc from 2010 to 2020, according to a study by Pakistan’s Institute of Development Economics (PIDE). The data from 1,321 listed and non-listed firms, divided into 61 sectors, was used to estimate productivity growth.

Creating more resilience in the economy means getting together more participants in the game, not just allowing a small number to hold power

According to the research report, high productivity growth sectors were services or tech, and those with medium to low and negative growth were manufacturing.

Current regulatory curbs on imports have disrupted the supply of raw materials to industries and led to factory closures. Trade and industry have criticised the State Bank policy rate hike to 17pc as anti-business and anti-growth.

While ruling out the possibility of negative growth during this fiscal year (as forecast by independent economists), the central bank has projected GDP growth of 2 per cent due to industrial closures.

Economies having a total factor productivity (TFP) growth rate of more than 3pc achieved a GDP growth rate of 8pc or more, whereas a TFP growth rate of less than 3pc was associated with a GDP growth rate between 3pc and 7pc.

The unanimous view that emerged from the APO workshop was as follows: research and development, technology, and skilled and innovative manpower are the most important tools to increase economic productivity. Many IT-enabled economic activities are widely dispersed and do not tend to concentrate people in cities and workers in factories as in the current growth model.

According to an economist, some aspects of the digital revolution could help solve the production puzzle and bridge the inequality gaps. And clean technologies will promote investment in left-behind communities and create jobs.

Based on the participation and results of their human resource (HR) best practice survey, Top Employers Institute recently certified Pakistan Tobacco Company and GSK Pakistan as ‘Top Employers’ in 2023. The survey covered a wide range of HR topics, including people strategy, work environment, talent acquisition, learning diversity, equity, inclusion, and well-being.

R&D, technology, and skilled and innovative manpower are the most important tools to increase economic productivity

Exceptional times bring out the best in people and organisations, and we have witnessed this in Top Employers Certification Programme, says its CEO David Plink. These employers show that they care about the development and well-being of their people. Similarly, a Bangladesh-style of international accord was recently signed by stakeholders for training workers in industrial units in skills and providing a safe working environment. The objective was to raise productivity and exports. The signatories included textile industry representatives, labour protection organisations and the Employers Association of Pakistan.

The regulatory system was the biggest problem — with issues such as unnecessary documentation, taxation and no objection certificates — that plague business, says PIDE Vice-Chancellor of Pakistan’s Institute of Development Economics. And no less important, he adds,’ the regulatory agencies do not contribute to productivity.’

The declining federal Public Sector Development Programme will further depress economic activities in the private sector. The federal development spending accounted for 20pc of the total revised allocation of Rs727 billion during July-December 2022, down from the usually scheduled 50pc of the earmarked amount for the first half of a fiscal year.

According to official estimates, the overall federal expenditure will surge past this year’s budget target by about Rs1 trillion due to about Rs900bn higher interest payments and an expected Rs472b revenue shortfall.

However, the recent SBP Amendment Bill has enhanced the loan disbursement by commercial banks against deposits from Khyber Pakhtunkhwa and Baluchistan from 1.35pc to 5pc. According to KP business representatives, this would help more industrialisation and trade in both provinces.

As is happening and what is needed, the focus should not be on global economic development, says an eminent analyst, but on development within nations and communities. And creating more resilience in the economy means getting together more participants in the game, not just allowing a small number to hold power.

US President Joe Biden has abandoned free market rules for an aggressive industrial policy which has unleashed vast subsidies amounting to $465bn for green energy, electric cars and semiconductors, reports The Economist. “These are laced with the requirement that production should be local,” says the article.

Published in Dawn, The Business and Finance Weekly, January 30th, 2023