The sliding slope of Pak Rupee continues to worry investors and the position is being made worse by the Finance Minister getting personally involved by, a) speaking too much and b) speaking speculatively. As a traditional norm and a basic economic principle the senior policymaker should never directly comment on currency matters let alone in a speculative manner, since history tells us that every time he/she does, the market instead behaves negatively! Anyway, more on this at another time, but for now with investment at an historic low in Pakistan and a shaky Pak Rupee the real issue confronting the government is to somehow rediscover economic growth. If growth (both domestic and foreign) can be generated and employment opportunities be created the rest will by itself start falling into place. And in order to achieve this, the main issue that will need to be addressed by this government is of sustainable competitiveness. However, given the squeezed fiscal space of the government at present, the underlying challenge when tackling the competitiveness issue, will come from the constraint that it has to shore up national competitiveness at nil or a very low direct cost to the exchequer - meaning primarily with policy tools that involve either none or minimal monetary facilitation.

When we seek competitiveness what it truly means is that Pakistan in the race for becoming an attractive destination for investment – both for domestic and foreign investment – should be faring well. Countries strive very hard to compete on this benchmark and only recently we saw India take over China on the Index (released on figures till June 2013) for preferred global investment destinations. In response, the new Chinese leadership has taken some very bold initiatives of its own on renewed structural economic reforms at home. These basically imply freeing up the Chinese economy for investment. The new reforms in essence mean that nearly 60% of the total types and volume of enterprise investment in China will no longer require any authorization from the central Chinese authorities. The Chinese policymakers, after a long gap, felt the need to re-bolster China’s export competitiveness. And for this, what we see is that rather than resorting to protectionism they instead opted to go back to the basics: Establish more Free Trade Zones and this time round also provide them with enhanced financial liberalization, both for domestic and foreign investors. The world’s largest Shanghai free trade zone has already been announced and global investors are comparing it with the Chinese reform measures of the mid 70s and likening this step to the establishment of the Shenzhen special zone in 1979 that ultimately saw China’s accession to WTO in 2001.

A cursory look at the growth models of economies comparable to ours and we see that one of the main drivers of success is large-scale, export-oriented industrialization. Of course, low-end manufacturing isn’t the stuff of dreams, but almost all emerging economies at some point in their economic cycle have used it as a stepping stone to growth and development. Industrialization is a proven step toward economic growth. According to the University of Cambridge economist Ha-Joon Chang, few if any countries have achieved first-world economic status without it. To facilitate this process of low-end industrialization, weeding out corruption comes right at the top of the investor’s wish list – And yet it is another element that requires government’s will rather than its financial resources. Pakistanis have recently been grumbling about rampant corruption. Although some cosmetics now and again on freeing the private sector entrepreneurial juices from the often excessive, unproductive and corrupt oversight of the bureaucracy have been attempted, for most parts the red tape still exists. In fact the element of corruption and extortion by countless government departments from industry per se has had such a demoralizing effect that most investors refrain from investing big in Pakistan. As a general notion the formula for business success in Pakistan, ironically seems to be to specialize in small operations, produce wherever possible only for the export markets and stay small enough to avoid upsetting powerful interests. Anything requiring state’s support (skilled labor, infrastructure, etc) can take forever to arrive. And still, if there is a genuine entrepreneurial success story that can be cited, then invariably it seems to have happened despite the government, rather than with its help.      

Also, the return on capital for a small or medium sized venture undertaken in Pakistan when compared to a similar investment in India, Bangladesh or Sri Lanka is equally unsatisfactory. And in spite of these adverse comparisons for Pakistan on regional un-competitiveness, no one is talking about meaningful changes in the rigid cum outdated labor policies, which tend to be tools aiding bureaucratic corruption. A small business operation of blending chemicals in Faisalabad, while opting to remain anonymous, counted 52 different government departments that need to be dealt with when running a small sized manufacturing facility. Even if each department pays one visit a quarter to the industrial premises, it means that on average nearly every working day the owner has to attend to the visiting government officials instead of attending to his/her business. The compliance costs (official and unofficial) of such government oversight coupled with the weight of the marginal cost of opportunity can be horrendous. Further, the long promised special micro-reforms on facilitating online drug sales, to increasing the number of women in the work force by expanding child care, to properly corporatizing the country’s fragmented farming industry are policy decisions still to be realized due to either a lack of will cum focus or the sheer inability of the human resource in the government to frame and execute such finely detailed reforms.

Finally, the present tax policy is another area that seems to be going totally wrong. Instead of expanding the tax base, the emphasis tends to be on punishing the existing taxpayers – the ones already in the tax net - thereby sending the wrong signals vis-à-vis both, investment and encouraging the documented sector. What is required is to improve the prevalent tax policy: fewer loopholes, reciprocity, minimizing the contact between the taxpayer and the collector, lower rates on income and, down the road as the economy recovers, more revenue will automatically flow in and close the gaping budget deficits. Given the past failures of the Pakistani political Diaspora to take on sacred cows, to reign in the bureaucracy and to honestly clamp down on corruption, it is unlikely that even this time round any revolutionary changes will be adopted by the present policymakers. However, one does expect and hope that they will pay some attention to the above mentioned low cost micro level reforms in order to at least put the direction of the Pak economy right.

 The writer is an entrepreneur and  economic analyst.