The Prime Minister of Pakistan has been scrambling to find funding from the ‘friendly’ countries, while negotiating terms for a bail-out package from the International Monetary Fund (IMF). Facing large fiscal deficits the country is in dire need of funding to plug the gaps in the short-run, while the focus in the longer term needs to be squarely on increasing the level of Exports. It is unfortunate that despite huge concessions to the Export sector the level of goods and services sent out from Pakistan have largely remained in a stagnant-to-declining state for the past many years. This is a manifestation of ill-conceived government policies, lack of innovation, poor infrastructure, low-skilled labour, low levels of competency and an unethical mindset that is honed in on making a quick buck with minimal effort. The ‘Made in Pakistan’ label carried weight some years back, but like the Pakistan International Airlines (PIA), it too has lost its luster. Though I must admit that the footballs supplied for the FIFA World Cup did restore some of that lost glory.
Recently, while trying to decide which Inverter Air-conditioner to install I came across an astonishing amount of information and misinformation on the state of the manufacturing units within this sector. There are a number of Brands available in the market, locally manufactured, locally assembled and imported. But there is a murkier and darker side to this story. A number of units are being sold as branded, while in fact these are ‘first copies’ or fakes fabricated within Pakistan, using components sourced from China and packaged as the real product. There are also originals in the market that are ‘imported’ but have been sourced at much lower prices mainly from Dubai and are usually units that were rejects at the assembly stage. Of course there are the genuine manufacturers such as Gree, Haier and Orient among others who are manufacturing their units in Pakistan. Unfortunately, these manufacturers face the problem of first copies of their units being available in the market at a lower price. It is a vicious environment and the hapless consumer is at the mercy of the numerous retailers who continue to tout the fakes as the real deal. All one can do is to purchase from the company appointed dealers only.
This unethical activity is not restricted to air-conditioners, but pervades the economy on a much larger scale across different industries. The successive Governments have failed to control the mafias running such unscrupulous operations and in the process have been deprived of billions of rupees in taxes and levies. The industrialists continue to suffer as they are unable to compete effectively against the fakes and in the process their capacity utilization is not optimum and again the government loses out in terms of the much needed tax revenues. While there is the ethical issue, the more serious element is the impact on the economy, where the regulated sector is being deprived of revenue while they have invested in the businesses and the unregulated sector is gaining without actually having invested in the businesses.
With the rising cost of imports due to devaluation and the imposition of regulatory duties, the natural progression is for the development of the local manufacturing industry to produce quality products at a lower cost within the country to benefit the consumer. Such projects require huge investments and for that an assurance is needed that the government policies would not change in the future and the illegal trade would be controlled. In the absence of such guarantees it is highly unlikely that anyone would invest their money to set up manufacturing units in Pakistan for import substitution. This unfortunately would lead to a flourishing ‘first copy’ industry that would flood the market with cheaper low quality goods while remaining within the unregulated sector. There is also a strong possibility that the Chinese manufacturers would enter the market with cheaper goods at the expense of the local manufacturers and Pakistan would gradually transition to a trading economy with low levels of innovation and with very basic manufacturing only.
Over the years those with money have tended to invest mainly in the real estate sector, the stock market or in trading. There has been very little innovation in terms of processes and products apart from some activity within the IT sector as the focus continues to remain on real estate, food, restaurants and clothing. As a result, the economy has failed to transition from a basically Factor-driven model to an Innovation-driven model. With a burgeoning population the resources are starting to come under strain, and with the limited growth opportunities and rising financial pressures there is the likelihood that the socially marginalized and poverty ridden segment would experience a high degree of unrest, which could be exploited by certain right-wing elements to create unrest within the country. A national security issue perpetuated by the flawed economic policies.
Pakistan needs to change gears and jump-start its manufacturing sector. For this to happen there is a dire need to control the illegal manufacture and trade of goods and the provision of incentives and concessions to genuine businesses. A culture of compliance and ethics is required where the investor feels secure and confident about the government and its policies. A just and objective tax regime to facilitate tax collection. A business environment that makes setting up and running businesses simpler and one that can attract foreign direct investment (FDI). Education and access to technology to create innovative value-added solutions. Harping about the corruption levels in Pakistan at national and international forums does not help the cause. The image of Pakistan needs to be changed and for that a positive mind-set is required and alongside that polices need to be formulated that facilitate doing business in and with Pakistan. The PTI government is on the verge of completing its 100 days and till now they have not managed to infuse that confidence amongst the would be investors. One can hope that they would focus on revitalizing the manufacturing sector and increasing the export potential of Pakistan. It is high time that Made in Pakistan gains the trust and respect of the national and international community once again.