Latest Draft of the New Growth Strategy

The latest draft of the New Growth Strategy has now been uploaded on the Planning Commission website:
http://pc.gov.pk/nda/index.htm

You can see the full document here:
http://pc.gov.pk/nda/PDFs/growth_editing_14-04-2011.pdf

We look forward to your comments and suggestions as we move this document into its final stages!

Thanks

Beyond PRSPs: National and Provincial Growth Strategies

PRSPs are overarching policy documents which cut across a range of mandates including but not limited to purely economic priorities. Key pillars of PRSP in Pakistan focused on macroeconomic stability, private sector development, human resource development, financial sector and SME related reforms, infrastructure development, devolution, and social safety nets. The PRSP is still being used in the Finance Division for monitoring of poverty-related expenditures. In an evaluation of PRSP-II following shortcomings have been identified: [1]

•  Parliament was never fully engaged by the government for consultation and input on PRSPs. There is no reference to the effect of the approval of the PRSP in the parliamentary debates.
• PRSP-I and II do not define any distribution mechanisms for growth. In fact the term land reforms (which is at the core of asset redistribution) finds no mention in these documents.
• Education and health related expenditures under PRSP had met a resource constraint (and cuts) starting 2009. PRSP had also ignored the important problem of health financing for poor.
• Local governments had no role in the delivery and management of health and education sector programs.
• No specific actions were envisaged towards legal and judicial reforms in the country.
• The post-18^th Amendment milieu will require a different socio-economic planning, implementation, monitoring and evaluation regime – which is currently not envisaged under PRSP.

The proposed growth strategy being formulated in Planning Commission takes stock of the shortcomings of Medium Term Development Framework 2005 – 10, PRSP-I & II, and prioritizes governance and institutional reform as a key pre-requisite before any other sectoral action plan is put forward by the government. The draft strategy recognizes that under the prevalent resource constraint, the aid – led public investment model of growth cannot continue any further. The starting point has to be capitalization of idle capacity in the public and private sector. In the former priority may be attached to be: 

a) restructuring loss generating public sector enterprises, 

b) elimination of untargeted subsidies, and 

c) rationalization of public investments. 

The second pillar of proposed growth strategy then focuses on governance for markets i.e. fostering competition across goods and factor markets, lowering barriers to entry and exit (particularly for small entrepreneurs), and exit of government from agricultural markets. The third pillar is about governance for inclusive cities i.e. revisiting zoning and building regulations, land market reforms, and property rights. The fourth pillar proposes governance for improved connectivity i.e. partial privatization of railways in order to revive the freight sector, revisit market dominance of public sector in road and aviation sector, and incentivizing use of ICT services across the board. Finally the last pillar – youth and community engagement ensures that this growth strategy evolves and remains inclusive overtime.

In order to account for 18^th Amendment, Planning Commission sees a new role for itself where it will continuously work with line ministries and provinces in order to have action-oriented tasks sequenced and prioritized. It is envisaged that in order to building strong consensus before moving towards concrete actions following will be the sequence of development planning documentation:

a.    Growth strategy document [Conceptual framework of a new strategy – May 2011]

b.   10^th Five Year Plan [Sectoral plans in collaboration with line ministries – June 2011]

c.    Provincial growth strategies [In collaboration with all provinces]

d.   Urban development strategies [For all cities having population 1 million and above]

  

---

[1] SDPD (2009) Poverty Reduction Strategy Papers in Pakistan: An Evaluation. Strenghtening Democracy through Parliamentary Development. http://sdpd.org.pk/

It's none of your business

They are capable of resuscitating a dying economy and of making third world countries first world powers. They can develop cities and rural areas, put an end to wars, and make societies and communities stronger. These are businesses. They come in all shapes, sizes and legal status and are the backbone of any economy. Sony, Toyota and Honda put Japan on the map while it is a common saying that no two countries with a McDonald’s have fought a war with each other since they each got McDonald’s. So if any country wants to do well locally and globally, businesses should be allowed to grow and to establish their own niche. For Pakistan, flourishing and well-established markets seem to be the only hope for the country stuck within an ever-expanding web of problems.

While Pakistan is not as bad as it seems when it comes to establishing businesses, it has not been as great as it can be. Doing Business 2011 ranks Pakistan at 83 among the 183 countries of the world, the highest among the South Asian countries. The question then becomes that despite the relatively better ranking in South Asia, why is Pakistan still not able to develop or grow like some of the lower ranked countries in the region? The answer is that while Pakistan is doing comparatively well for businesses, but given its current geo-political situation it hasn’t done well enough. Pakistan needs to step up its game to catch up with other countries in growth and development.

But to do this, Pakistan has to look towards the problems faced by local businesses. These are pretty standard revolving mostly around lengthy administrative procedures peppered with a heavy dose of corruption. While the Securities and Exchange Commission has set up a relatively fast system of e-Services to help businesses register, the other procedures takes the average time of setting up new businesses to 21 days. This compares poorly with Singapore where businesses take 3 days to set up. Similarly, registration of property involves only six procedures, but somehow takes 50 days due to the complicated execution and registration process for the deed. Bribes are also an additional cost with businesses having to pay approximately Rs 75,000 to acquire land and an average of Rs 25,432 to avoid tax auditing. In addition, while businesses in Pakistan pay the least taxes (as a percentage of their profits), due to extensive administrative barriers, they take 560 hours to file them, almost double the Indian average of 258 hours. With the notorious backlog of cases in Pakistani courts it is not surprising that contract enforcement in Pakistan takes 976 days while in Vietnam it only takes 295 days.

While dealing with corruption seems to be a hopeless case, Pakistan can emulate others in improving administration by setting up internet kiosks for businesses to register (like India); gathering support for tax-simplification programs through partnership with the press (like Yemen) and introducing time limits for legal commercial cases (like Algeria).

But Pakistan doesn’t even need to look too far to adopt better business practices. Doing Business 2010 reports that while Pakistan does relatively okay overall, some parts of it do better than others. While countrywide it takes an average of 21 days just to set up a business, a business in Islamabad can do so in 16. Similarly, in dealing with construction permits, registration of property, trading and enforcing contracts, Multan, Faisalabad, Karachi and Sukkur are the best in terms of either fewer days or fewer procedures. If the best practices of all the cities were used in all the major cities, back-of-the-envelope calculations show that an average businessman can save over $1,500. If one city in Pakistan can do it, it should not be difficult for the others to follow suit.

It seems that a little less (and smarter) regulation is what Pakistan needs right now, especially in case of businesses and markets. To boost our local markets and become competitive internationally, the government needs to let the markets function freely on their own. That is why the Planning Commission’s New Development Approach (NDA) is trying to better markets by implementing a policy of less regulation. Maybe it is time to try a new approach; maybe it is time to let Pakistani businesses take the helm and hopefully give the nation more development, a better future and its citizens something to smile about.

http://tribune.com.pk/story/115070/economic-backbone-its-none-of-your-business/

Published in The Express Tribune, February 7^th, 2011.

Need for Promoting Public-Private Partnership

(edit: few changes have been made to this articles after it was first published in The News. These changes include change of title and few textual changes.)

With increasing cost of construction, frequent occurrence of large-scale natural disasters, and ongoing fight against insurgents, it has become impossible for the government to continue financing infrastructure projects. This can be seen from the recent reductions in the budget of public sector development projects (PSDP). Historically, PSDP has been the main source of finance in addition to foreign loans. Much of the international aid, however, was directed towards social sector projects which were arguably of temporary relief.

To deal with these challenging circumstances, IMF has highlighted some key issues which need to be looked at when undertaking any infrastructure development project. These include: what investments offer the biggest boost to growth? How much investment is needed and by whom? How to finance this investment without taking on too much debt? Without looking at these issues, there remains a much higher probability that the project will get delayed to an extent that it no longer remains needed. If the project does get completed, long delays will push the cost to an extent that the cost-benefit analysis done when the project was conceived is no longer valid. Countries like Pakistan which are very much financially constrained must realise these issues and bring out policies aimed at utilising their full strength.

In answer to the first question, National Trade Corridor Management Unit (NTCMU) was established to come up with projects which help improve trade-related infrastructure facilities with the end goal of making Pakistan a regional trade hub. However, projects are still being approved in isolation with no broader vision of achieving sustainable growth. Ideally, a strategy should have been prepared by now and we should have moved on towards implementation stage.

Similarly, there is a need for improving PC-I with respect to involving private sector in development projects. The entire PC-I documents, expect the project to be fully financed from the PSDP. Instead, it should be made sure that first the project is floated to the private sector for take up with full ownership and if not successful, only then the government is approached for funding. Another section on ‘Public-Private Partnership (PPP) Option Analysis’ in the PC-I document, as suggested by the Infrastructure Management Unit (IMU), can be a good addition.

IMU (2007) has also done an extensive and useful study on constraints to private sector investment in infrastructure. But much needs to be done in removing these constraints. Some of the key constraints highlighted by the study are related to ‘procurement laws’ and ‘procurement processes’. Existing procurement laws do not include a requirement for the public body to consider infrastructure service delivery through the private sector. Procurement processes, on the other hand, are too centralised. All procurement decisions for a value as low as US $4-5 million are made at the highest level of the government. This is the case even for projects which are 100 per cent PPP and will not require any public expenditure.

Despite considerable realisation and wide consensus, Pakistan is still to come up with a detailed yet clear framework on PPP. This is mainly because the direction, content and the responsibility for the PPP framework still remains unsettled. Restriction on local governments against financing development projects through user charges or fees is also a major constraint to PPP at municipal level. Knowing that various amendments are being considered in local government law at provincial levels, these issues can be revisited with the approach of promoting private sector in infrastructure projects. Furthermore, land acquisition laws are currently in conflict with international norms. It is one of the major issues and has often resulted into delays and sometimes abandonment of the project.

National Highway Authority Act, which does not contain any requirement for PPP Option Analysis, also appears to discourage private sector participation. It does not empower assignment of toll receivables in favour of the private project company executing the project. Another issue is that of competition with public sector construction firms. It is argued by the private construction companies that lucrative projects are always given to public sector corporations in a non-transparent and discriminatory manner. Such attitude discourages growth of private sector firms and hence their ability to undertake projects which are spread thin over the time horizon. 

The 'New Growth Strategy' being drafted by the Planning Commission does highlight these challenges and proposes relevant reforms in this sphere. 

Pakistan's first (mis)planned city

For the relatively well-off people in Pakistan, Islamabad seems to be a great city to live in: Minimal traffic, scenic views, quiet lush green neighbourhoods, decent weather, some nice restaurants and a generally slow-paced but peaceful vibe. Beautiful, wide roads and new avenues cropping up have reduced travel times even further. But, what is the city like for the not so well-off? It is evident to most of us, that the city is only friendly to the automobile driving population. How about the non-automobile driving population – where do they live? Where do they work? If they want to start up a small business, where do they set up? If we look at just the basics – housing, schooling, business, and leisure – how does the city fare?

Let’s start by looking at the overall planning. The zoning laws of the city seem to be beset by an anti-commerce bias, as they disproportionately lean towards residential housing – specifically large houses for the elite. Coupled with the restriction on conversion (to commercial) of residential areas, a large number of offices, restaurants and small businesses are illegally operating through houses in these areas. Commercial areas are allocated just 5 percent in the schemes compared to 55 percent for residential houses. The maintenance of the current commercial areas has been severely neglected resulting in a deteriorated outlook – explaining one reason for the reluctance of these businesses to move to commercial areas. If maintenance standards exist, they lack efficient implementation. The more important reason, of course, is that businesses save time and money. That is a huge revenue loss for CDA and a loss of opportunities for the business not being situated in a commercial area.

Mixed-use areas are also conspicuously missing from the zoning laws. City productivity and employment generation needs the growth of entertainment, hotels, shopping areas and offices in large complexes. Moreover, mixed-use areas and city centres ideally contain high-rise buildings, as land prices are at a premium, making tall buildings economically favourable. Height restrictions imposed by the development authorities discourage high-rises, thus pushing up the cost per square foot. It is clear that the current commercial areas are not adequately catering to the needs of businesses and offices. Upcoming business ventures find it near to impossible to afford the exorbitant rental rates of commercial areas. Are these regulations then, restricting innovation, entrepreneurship and the resulting economic benefits?

In the case of housing, the focus on large single-family homes has resulted in a shortage of housing and has especially highlighted the absence of affordable multiple-family homes, flats and apartments. Furthermore, the lack of adequate rent control legislation makes it difficult to maintain flats and apartments. The real estate market in Islamabad is based on massive speculation, with properties often purchased, but not developed and resold for profit. A vacant land tax or property speculation tax could be implemented to counter speculative property purchasing. The lack of adequate property rights protection, on the other hand, is leading to increasing incidents of land grabbing in the suburban areas of Islamabad and giving rise to qabza groups.

Looking at the schooling system, schools are part of the 4 percent allocated to public buildings in the zoning laws. Public buildings include schools, mosques, community centres, hospitals, dispensaries, and post offices; yes all that in only 4 percent. Can we be surprised then, that some of the best private schools are operating through houses in residential areas? With the public schools standards deteriorating, the demand for private education is on the rise, but these schools have not been provided space. They continue to operate through illegal encroachments and cause massive traffic jams and parking problems. But when it comes to anti-encroachment drives, it is the rehriwalas (street vendors), the poor entrepreneurs, that bear the brunt.

What about the space for community, leisure and entertainment? Islamabad has no cinemas, theatres or space to facilitate people to come together and share ideas. There are also no public libraries of any significance. These places are essential for learning, bringing people together, increasing interactions and stimulating community discussions. What social or economic opportunities does the city provide to the youth? If we continue to stick to our mindset of ‘small is beautiful’, the opportunities will continue to dwindle.

These are just some ideas scratching only the surface of a problem that is not only limited to Islamabad. Urban planning and city development is an under-researched area in Pakistan’s economic and development spheres. The Planning Commission’s New Growth Strategy developed under the guidance of Dr Nadeemul Haque, for the first time in Pakistan’s growth strategy, includes cities as an essential ingredient to the country’s economic growth and development. It is time for communities to take a stance on what they want from their cities. Physical infrastructure is being built without first analysing the governance and ‘software’ issues.

This strategy attempts to identify laws and regulations that are preventing cities from realising their true potential and presses for deregulation. It will be the first step in bringing these issues to the forefront of the country’s policy spheres and get a dialogue started between the community, upcoming entrepreneurs, youth and policymakers towards a more inclusive and tolerant society.

Sana Shahid

Published in The Nation on February 4, 2011

Answering the critics: New Growth Strategy

Much of the response received by the Growth document of planning commission has so far remained very much encouraging. It will be alright for me to reveal that significant number of comments received from the civil society, youth, educationists, donor agencies etc. have been incorporated in the revised draft which will be shared in few weeks time. However, there still are some comments which can only be answered through increased interaction between the growth team lead by Dr. Nadeem Ul Haque and interested community.

Following are some of the criticisms which have been observed on different forums:

Whats so ‘New’ about it?

The word ‘new’ is often received with lots of skepticism. A clear distinction needs to be observed between growth theory and strategy. While the growth theory remains the same, overall strategy is significantly new when looked at in context of Pakistan. In economics, growth (output) is treated as a function of productivity, labour and capital. Throughout Pakistan’s history, productivity has been observed as an exogenous variable – something that will happen on its own. The ‘New Growth Strategy’ endogenizes productivity by looking at the microeconomic underpinnings of this macroeconomic problem. The result will be improved growth levels through enhanced productivity even if labour and capital do not change.

Expecting people’s welfare from Private Sector?

The strategy does not talk about complete withdrawal of government from market management. Instead it is to confine its role to market regulation: away from its current approach of acting as an active market player.

Formulating and implementing regulations is a sufficient tool to deal with cartels/monopolies. One needs not be a market player but require a strong regulatory framework in the form of regulatory bodies such as competition commission, PTA etc. 

Why do we still have cartels despite having numerous regulatory bodies? We often tend to hear this question in response to the idea of government withdrawing itself as a market player. Answer to this question lies in the strengthening of regulatory bodies and not in government re-entering the market. Our existing institutions not only lack the required strength but in some cases their own organizational structure is also contrary to promoting competition and fighting cartels. It is well established that privatization without regulation often leads to consumer exploitation. This is exactly what the role of government should be – ensuring that overall consumer welfare is not marginalized.  

Why talk about cities alone?

In almost all the conferences organized by the Planning Commission as a part of consultative process, one standard question was always raised. What about the rural areas? This takes us to another interesting question. What are cities? Out of many things, cities must also be seen as markets for rural areas. It is in the cities where much of the rural products are bought and sold. Therefore cities are the only place where major chunk of rural income is generated.

However, the Growth document is still not silent on rural development. Under the ‘Markets’ pillar, the document talks about agricultural markets in great detail. Similarly, constraints to infrastructure development at municipal level are also highlighted under ‘Connectivity’ theme.

‘Implementation’

Here comes the tricky bit! Ask this question and many policy makers would prefer to shy away. In my personal view, it’s not up to any policy maker to implement his/her policy unless the public wants it. This is especially true when you are a democratic country. Why is it that the judiciary gets restored despite significant pressure from the opposing group? The answer is simple. Our general public wanted it to happen.

What we here at Planning Commission intend to do is to get people to own this strategy. It is exactly this reason why this wide consultative process is being carried out. It is exactly this reason why we are doing our best to incorporate majority of the received comments. And it is exactly this reason why we are having this much more direct and interactive blog to reach people. Once people – like the respected reader – start owning the Growth document and wish for the proposed changes to take place, implementation will soon follow its own course. 

Innovation through new lens

Pakistan needs an annual growth of eight per cent to channel its massive youth bulge from becoming a liability into an opportunity and this must be done now. For such drastic change, we need to challenge entrenched orthodoxies because they have started to smother rather than stimulate progress. Such a status quo is blinding us to the promises of new global norms and competitive spaces, and to come out of this conventional stranglehold we need to inculcate a habit of questioning beliefs which have been taken for granted

We seem to be consistently missing bandwagons because we are always embroiled in one crisis or the other. The difference between them and us is our habit of making every crisis an occupation of national interest, “letting every opportunity go to waste”, while they with all their problems, even some greater than ours, never lose their sense of purpose.

To start with, our leadership should stop seeing this country as a collection of ethnicities in geographical confines rather it should consider them as a portfolio of competencies and strategic assets which could be leveraged in varying ways to generate new worth. We need innovation in our thinking, our way of looking and our dealings to maximise resource utilisation.

Youth bulge

Does anybody realise that this nation is going through a massive youth bulge as nearly 63 per cent of the population is under the age of 25, reminding us of the Baby Boom that made the United States a global power. Are we going to miss this boat too that almost every other nation exploited to enhance its stature, shall we utilise this asset in ways better than just blowing it off in extremist hands?

We all know that the future is gravitating irrevocably towards Asia. Look at China and India, they are breathing business. One thing that is unique with such miracles is the tendency to convert problems, some even unprecedented, into opportunities. But such a transformation comes through unparalleled innovation and not just in a traditional course.

Gupta’s Honey Bee Network and Yunus’s Grameen Bank are striking examples of how social causes can be blended into profitable business innovations to deliver Murthy’s ‘compassionate capitalism’.

Innovation requires neither genius nor inheritance and wealth, it is the unorthodox perspective of seeing through the common and spotting the unseen. And to achieve such a threshold, we need to turn the population, at least the ordinary 113 million youth, into extraordinary innovators, by inculcating a deep nationwide conviction that ‘innovation starts with me’.

It is time to imagine the future as imagination is more important than knowledge. Tomorrow is for smart nations that know how best to optimise their strengths, capitalise on existing knowledge and evaluate the circumstances to pre-conceive and chart their own future. We need to espouse the corporate theory of relationship capital to re-synapse people, ideas and assets across and beyond this country to make innovation essentials possible that unfurl more often by combining the same ingredients through new recipes. If we cannot become the world’s factory or the information technology hub, could we not wish to become an ‘idea hub’ of the world?

Muhammad Shafqat
Published in The Express Tribune, January 24th 2011