BUSINESS excellence has been identified as one of the pre-requisites for sustainable economic growth. It is by increasing productivity and quality through creativity and innovation that daunting global challenges can be overcome.

To improve the level of productivity, the textile industry has invested $5 billion over last five years. And while the manufacturing sector has witnessed robust growth, the sector needs to be consolidated by resolving structural problems.

There is a dire need for linking growth with productivity as an essential factor for sustaining the competitiveness of the industries with comparative global advantage. This requires rise in productivity at a rate higher than that in the competing countries. During 1992-2006, the overall labour productivity grew at a modest rate of 1.7 per cent which is quite low as compared to India’s 5.25 per cent, Korea’s 4.86 per cent, Malaysia’s 4.36 per cent, China’s 4.15 per cent, Sri Lanka’s 2.54 per cent and Bangladesh’s 1.52 per cent.

However, the labour productivity growth of the manufacturing sector in Pakistan was 2.32 per cent, which is higher than that of Bangladesh’s 2.05 per cent and India’s 1.75 per cent, but lower than that of countries, such as Sri Lanka, Taiwan and Korea due to better application of training tools and capacity building of their labour force.

Labour output is only a partial measure of productivity. The total factors of production (TFP) i.e. capital, land and entrepreneurial ability is lower than our competitors. While during 1964-65 to 1969-70 and 1980-81 to 1990-91, the total factor productivity was 4.26 per cent and 5.38 per cent respectively, in the last decade the TFP declined to 1.7 per cent, and in the first half of the current decade was 2.15 per cent.

The factors responsible for low level of industrial production, impeding productivity and competitiveness can be summed up as: lack of industrial diversification, stagnant regulatory framework, weaker infrastructure, high tariff rates, inefficient information and communication technology, lack of research and development (R&D)facilities, lack of advancements in science and technology, limited technological choices, inadequate human resource development, absence of visionary approach and non-conducive business climate. As a result of these weaknesses, business and industry could not attain the required productivity to remain competitive in our local and foreign markets.

A typical businessman, on an average, loses 5.6 per cent of annual output due to power outages as compared with less than two per cent in China. In order to minimise loss of time caused by power failure, firms are often forced to use their own generators. The use of generators ties up capital of about 12 per cent of a firm’s fixed assets. The average waiting period for a business to obtain power connection is 45 days in Pakistan as against only 15 days in China. In addition to this, about 70 per cent of the national road network is in “fair to poor” condition.

The unsatisfactory state of the transportation network has imposed enormous costs on the business and the economy. According to a recent estimate, inefficiency in transport alone is reckoned to cost the economy Rs320 billion per year. Poor performance has also been witnessed in terms of human resource development. The budgetary allocations for education, health and research and development are negligibly low than those incurred by the competitors. Pakistan allocated only 1.6 per cent of GDP on education, 0.7 per cent on health and 0.2 per cent on R&D which has resulted in low levels of productivity in total factor productivity.

The government can play an important role in enabling the domestic firms to compete in the world market by facilitating technological upgradation based on three basic elements i.e. production, investment and innovation capability.

The country’s technological base needs to be strengthened by encouraging research and development at the firm level through incentives. More funds may be provided for quality studies in science and technology if the share of manufacturing sector is to be raised from 18 per cent in 2004-05 to 20.5 per cent in 2009-10 as envisaged under the industrial strategy.

To diversify the industrial base, it is necessary to encourage investment in new industries that are capable of exploring comparative advantage, exhibiting strong backward linkages for better growth prospects. The industrial diversification policies need to be designed in close consultation with the private sector. Targeted intervention by the government along with the sound public-private partnership can be fostering a wide range of new industries. Instead of focusing on textile manufacturing, the attention should also be given on other export-oriented industries such as leather, light engineering, customs-build fabrication, minerals, wooden furniture, processing of precious and semi-precious stones, agro-industries etc.

Efficient infrastructure is a pre-requisite for industrial development. High quality infrastructure reduces the transactions costs of doing business and improving productive efficiency. Abundant hydro-electricity potential remains un-tapped owing to inadequate allocation of resources to the development of hydro-power. As thermal power is costly, investment in the hydropower generation is essential for ensuring cheaper electricity to industries. Similarly, by improving the condition of roads, railway tracks and airports, productivity level can be increased to manufacture products on competitive rates.

Human resource development through education and health is considered to be a key determinant of productivity. Pakistan ranks at 136th position in Human Development Index -- below all the South Asian nations. More specifically, quality of scientific manpower produced in the educational institutions is poor and skills imparted in various poly-technical and vocational institutions are not demand-driven. The productivity of various industries is adversely affected due to lack of skilled workers and some of the industries are not set up because of lack of requisite skilled workers. In order to build a sound and diversified production structure in the industrial sector, high priority must be accorded to human resource development.

Due to non-linkage of academia with industry, the graduates are unaware of practical realities that they face when the step into the professional arena. To bridge this gap, there is a desperate need to establish linkage of academia with the industry.

Textiles with its 62 per cent share in total exports and eight per cent share in GDP is the single largest industrial sub-sector but needs technological up-gradation for innovation and creativity to improve value-addition and increase productivity and remain competitive in the global market.

There is an earnest need for strengthening the drivers of productivity such as investment, innovation, skills, enterprise and competition to obtain the desired level of competency. For attracting foreign direct investment (FDI), the government will have to ensure conducive and viable environment for industries, as mere liberalised investment policy cannot work alone. The skill, enterprise and competition can be derived through allocating sufficient budget for R&D activities and human resources development and by providing incentives to the private sector.

There is also the need for reinforcing the engineering industry so that it can provide primary material and components to strengthen the high- tech industry which will ensure the higher level of productivity.