Budget: a radical change

Wednesday / May 27 2015

Newspaper : The News

How is it that a country that has a population about a quarter that of Karachi and virtually no natural resources has per capita income that is about 18 times that of Pakistan?
The country in question is Singapore. The reason is that Singapore has established a strong knowledge economy with emphasis on high technology manufacturing as well as education. The National University of Singapore has been constantly ranked as being among the top 25 universities in the world.
Last year South Korean exports exceeded $570 billion while Singapore’s exports are a stupendous $518 billion against Pakistan’s paltry figure of less than $25 billion. The reason is that Pakistan is trapped in low value-added exports, while countries such as Korea and Singapore have focused on high technology manufacturing and exports.
Over two-thirds of the world’s manufacturing and trade today relates to medium and high tech products. Pakistan’s emphasis unfortunately continues to be on low technologies, with about 87 percent of our manufacturing being confined to low-tech goods. Indeed over 60 percent of Pakistan’s exports relate to the textile sector, which constitutes only about three percent of the total world trade.
The key area that Pakistan must focus on is that of engineering goods which amounts to 50 percent of the total manufacturing/world exports (around $6 trillion). This includes industrial machinery, ship-building, household appliances, computers, electronics, automobile manufacture and other such areas. High value-added chemicals and pharmaceuticals, agro-food industry and mining are other important sectors that we need to focus upon. Because of this lack of vision to invest in high technology manufacturing, Pakistan’s share in world trade has been constantly on the decline.
I will give two examples of how careful interventions can dramatically change the growth of the industrial sector, create employment, alleviate poverty and have a positive impact on socio-economic development. I was the federal minister of science and technology during 2000-2002. The information technology/telecommunications division was then also a part of that ministry. In 2001 there were only 300,000 mobile phones in Pakistan and the sector was not growing. I examined why this was so and it turned out that there were two key reasons.
First, customers were charged for receiving telephone calls on mobile phones. There was, therefore, reluctance in the general public to keep mobile phones as they would have to pay for receiving calls from others. Second, the rates of mobile phone calls were exorbitantly high. I decided to change the system and brought in a new ‘Calling Party Pays’ (CPP) regime making incoming calls on mobile phones completely free.
I then brought in UFone (a subsidiary of PTCL) as a competitor. The company had not been launched earlier because of key government functionaries being bribed by existing mobile phone companies. The launching of UFone with much lower rates created intense market competition, bringing down telephone call rates sharply. These steps led to a huge explosive growth in mobile phones and this became the hottest sector of the Pakistan economy mobile phones increasing from 0.3 million in 2001 to about 150 million at present.
The second policy intervention that was made was that concerning the IT industry. The IT infrastructure was rapidly expanded from 40 cities to over 2000 towns, cities and villages. The exports of software in 2001 were only $30 million. I established a number of good quality IT institutions and gave endowments of over Rs800 million to engineering universities for strengthening the IT institutions (for instance, a Rs180 million endowment was given to the National University for Science & Technology in Islamabad) so that quality manpower could be produced. I also decided to give a 15-year tax holiday to the software industry and services for IT related exports. The result has been the increase in exports from $30 million in 2001 to $ 1.5 billion presently. These two examples illustrate how some carefully thought-out interventions can result in huge economic growth and lead to employment creation and poverty alleviation.
With the forthcoming budget, the government needs to change track and focus on transitioning from a low value-added economy to a high value-added economy. This is only possible if we give the highest budgetary priorities to: (a) education; (b) science & technology; (c) innovation and entrepreneurship; and (d) effective and quick justice. Pakistan spends only about two percent on education, ranking us among the bottom nine countries of the world.
Science and technology in Pakistan is in a complete shambles with the lowest budgetary priorities and shabby science institutions. Innovation and entrepreneurship are not promoted as there are few technology parks, no serious venture capital fund and no incentives to the private sector to undertake R&D. The vision is myopic, with little visible beyond building roads or metro bus stations.
We need to build world-class R&D institutions and establish strong linkages with agriculture and industry, in order to emulate the Singapore and Korea growth models. The Higher Education Commission needs to be further strengthened so that 30,000 students can be sent abroad for MS and PhD in the next 10 years and some of our universities upgraded to ‘research universities’ so that they can be ranked among the top 100 of the world in the next 15 years.
Among key steps that the government should take are:
• A national technology and innovation policy should be formulated and foreign direct investment (FDI) linked to mandatory technology transfer.
• Private sector research and development should be incentivised with focus on hi-tech industry.
• The engineering sector should be given the highest national priority.
• A hi-tech manufacturing board should be established, chaired by the finance minister. Major incentives should be given to promote hi-tech industry.
• A strong collaboration should be developed with China for establishing industrial zones in high technology fields away from major cities.
• The budgetary allocation for science and technology should be increased to two percent of GDP, thereby allowing substantial strengthening of science and technology institutions in the country.
• The budget for education should be increased to five percent of GDP with one-third of the allocation going to the higher education sector.
• With the implementation of the above measures, we should target to enhance exports, particularly of high technology goods, from the present $25 billion to $150 billion annually over the next 10 years.
For all this to occur, we must have a visionary, honest and technologically competent government ruling Pakistan.