Category: Blog

With a population of 110 million, Punjab, the largest province of Pakistan, is bigger than most countries in the world and contributes more than half of the country’s GDP. However, despite its impressive growth ambitions, Punjab still has a rather primitive industrial base, dominated by textiles, leather goods and other labor-intensive sectors. While the government has shown considerable interest in establishing new industrial estates or providing infrastructure, it has, historically, shied away from more substantive issues, such as changing the legal and regulatory structure, and providing or withholding incentives to spur industrial expansion. Arguably, controversies and political issues surrounding approval or withdrawal of support and subsidies have remained the key culprit behind this inaction.

However, with CPEC’s growing expansion, there is a realization within the government to prepare for upcoming opportunities and risks. With opening up of borders and the development of a new economic corridor, CPEC is likely to offer both unprecedented opportunities to explore new markets and industries, and, at the same time, pose unforeseen risks to local industry. Some domestic businesses might join hands with Chinese counterparts and figure out new partnerships, while others may crumble due to increased competition.

While businesses need to prepare themselves for this upcoming change, there is also a need to have a consistent strategy on the part of the state to develop a coherent response. Such a strategy has to emanate from an industrial policy.

The idea of having an industrial policy is not new to Punjab. The Punjab Growth Strategy clearly identifies the role of the government as a facilitator of private sector-led industrial development. The strategy lays out the role for the Department of Industries, Commerce and Investment in achieving growth through formation of an industrial policy that gives strategic direction and coordinates the efforts of various arms of Government. The Punjab Growth Strategy also calls for providing relevant data and information on constraints faced by businesses, provision of infrastructure, ensuring provision of skilled labor and enforcing quality standards.

Commendably, Punjab has recently embarked on the process of developing an industrial policy for the province, after the government stumbled upon a number of decisions regarding industrial cooperation under CPEC and felt the need for deeper and more systematic deliberation over various early investment proposals. Hence CPEC provides an unprecedented opportunity to think through all these political issues and compensate for the inaction so far. The industrial policy should then inform various actions of the government regarding CPEC and beyond.

Foundation for Punjab’s Industrial Policy

What can be an appropriate framework to develop Punjab’s industrial policy? The future industrial policy can either be horizontal, aiming to cater to a broad range of firms across various sectors, or vertical, prioritizing selected industries as potential ‘winners’. In both cases, the Government of Punjab will need to ensure it opts for the right sector-specific considerations. For instance, the policy must cater to these priorities:
• Avoid a knee-jerk approach – This means focusing on existing industries, which are economically vital for Punjab, and ensuring that they continue to grow. Any sudden shift in policy is likely to lose steam quickly due to political economy reasons and may lead to inadvertent consequences.
• Build on strengths – While it is always exciting to have very ambitious goals, they should not be unrealistic. Therefore, the policy must concentrate on allied industries, where Punjab’s competitive advantage can be developed due to complementary capabilities, aiming at creating better forward and backward linkages.
• Have a clear driving thrust – Despite multiple competing priorities and wide-ranging actions, the policy must have an underlying thread. Innovation can in fact be such a link, providing a clear sight of the goalpost. Therefore, the policy must support industrial diversification, nurturing new industries and capabilities, leading towards industrial (and export) sophistication.

Underlying Principles

Addressing these priorities can be a good start, but are there any underlying principles that must be adhered to? While an industrial policy must be informed through rigorous, context-specific diagnostics, economists do agree on some broad principles that can form the basis of a sound industrial policy. For instance, industrial policies should be targeted, even the horizontal ones, with well-defined objectives aiming to enhance productivity or innovation. Furthermore, any government intervention or support must only be provided to address a market failure such as coordination failures, information gaps and spillovers, etc. and must be provided for a limited period of time, with predetermined sunset clauses. This also means the need for having a sound exit strategy. Industrial policy interventions should always have clear performance benchmarks, which can help track their efficacy. Moreover, across-the-board fully funded subsidies should be avoided and instead substituted by interventions with contributions from private sector.

Policy Levers

Lastly, given the wide mandate of Pakistan’s federal government in areas of tariffs, taxes and duties, the provincial government must be cognizant of the limited choice of policy levers available to it to facilitate businesses and incentivize investments. Some of these levers include tax incentives to the extent of provincial taxes, such as Sales Tax on Services, Urban Immovable Property Tax, Stamp Duty, Professional Tax, etc.; providing industrial parks and export promotion zones or other forms of land leases; subsidizing skills development interventions; business facilitation and investment promotion; and regulatory reforms to have business friendly compliance regimes. Additionally, the government can also think of more innovative means such as putting in place challenge funds to address market failures or introducing venture funds, development funds, guarantees or special purpose vehicles to subsidize high risk finance. The provincial government should also not ignore the federal regulatory space and can assume a strong advocacy role to drive any desired changes at that level.

While the provincial government is in the process of developing an industrial policy, it must realize that any policy, no matter how robust it is, will only be as good as government’s implementation capability. Therefore, there is an urgent need to fix the relevant institutions and develop adequate capacity, which can make use of the policy framework and help lead Punjab towards greater industrialization.

Usman Naeem is a Country Economist at the International Growth Centre.

Hasaan Khawar is a senior international development and public policy professional and a CDPR fellow.

In a recent panel discussion at CDPR on the role of renewables in Pakistan’s energy mix, Dr. Nauman Zaffar, Professor at LUMS, and Mr. Salman Aizad, Director Renewables, Punjab Power Development Board, reviewed the benefits and limitations of renewable energy in Pakistan’s energy context, as well as how to overcome technical and regulatory challenges for integrating renewables into the national grid.

Why renewables?

Promising renewable energy sources include wind, solar, and hydroelectric power. Utilizing these indigenous sources will not only curb the import bill and reduce circular debt by reducing reliance on costly imported fossil fuels, but will also produce clean energy. As a signatory to the Paris Agreement, Pakistan has pledged to bring down carbon emissions.

Renewable energy in Pakistan is a relatively underdeveloped sector; however, in recent years, there has been some interest by environmentalist groups and from the authorities to explore renewable resources for energy production, especially in light of the power shortages affecting the country.

Persistent power shortfalls have imposed costs on the economy in terms of lost industrial capacity, as well as the accompanying decline in employment opportunities due to industrial slowdown. Supplementing peak loads with renewable electric power supply can pave the way towards sustainable growth.

Pakistan’s inclination towards using thermal and hydro-electric power generators (traditional power generation)

Though the dependence on oil-based generation has reduced, it has been replaced by a sharp tilt towards coal-fired power plants. Criticism against policy makers for utilizing a resource that is environmentally harmful merits mentioning that sustaining the energy mix of a country with coal is not unique to Pakistan.  Countries worldwide fulfill their power supply needs through coal in the initial stages of development, including China, which is now a global leader in green energy. India too, currently has a large share of coal in its total energy basket.

However, all energy technologies have their limitations and according to the government, the suitability of Pakistan’s energy mix must be reviewed in terms of what is cost-effective given the country’s hefty base load demand.

In traditional power generators, the energy source can be controlled because they can be harnessed at will in accordance with the instantaneous increase or decrease of the demand for electricity. Dr. Zaffar explained at length that since electricity cannot be stored and its supply flows continuously, whether the load is turned on or off, there are mechanisms in place to calculate the aggregate usage to match it with power generation in real time. This includes the generation of real power, i.e. power that reaches the consumer, and reactive power, i.e. power that flows back and forth between the generation center to help provision for instantaneous increase or decrease of electric supply in accordance with spikes and dips in electricity demand.

The clash between traditional power generators with renewable energy technology

Traditional grids require reactive and real power to operate in a stable manner, but renewable energy power plants do not produce reactive power or produce very little of it to enable instant electricity transmission to match the variability in the load. This poses a problem as renewable energy technology is not geared to produce the reactive power necessary for ramping up the supply of electricity into the national grid at the pace at which load increases. However, Dr. Zaffar stated that latest technology wind turbines and solar panels can overcome this problem to a certain extent.

The integration of renewables into the grid can cause even more instability because there can be huge variations in the urgent availability of the energy source itself. Moreover, Pakistan does not have expansive availability of high wind corridors, as most are concentrated in the south and found disparately in pockets. These corridors are mostly not economically viable for tapping into.

Potential for developing solar power plants is much more promising than wind. Pakistan is a solar rich country, and if effectively tapped into, solar energy can be sufficient to meet national demand. This was agreed by both experts.

The generation of persistently reliable quantity of wind and solar energy is dependent on the vagaries of the weather and for this reason, predictably generating a benchmark level of wind and solar energy is not ensured.  Currently wind power contributes 937MW to the national power mix and solar power contributes 430MW.

Some prominent initiatives in renewable energy in Punjab

LUMS is currently involved in a project to carry out rural electrification in Punjab through the establishment of a solar power micro grid for enhancing living standards of citizens who are completely disconnected from the grid.  This project entails the sale of power directly to consumers to ensure optimal energy efficiency. This will be achieved through small upfront investments that can be scaled up to create a power network covering a large consumer base in the long run. This is different from the Punjab Chief Minister’s Ujala Programme of 2011 in terms of optimizing energy utilization by the end consumer. The Ujala Programme was carried out by the energy department tasked to provide home solutions through solar energy to students during their exams when load shedding was its peak.  It was provisioned to carry the load of fans, LED lights and mobile phone charging. Mr. Aizad highlighted that this initiative was followed by the solarisation of 50 government offices in Punjab to bring awareness of successful utilization of renewable power.

Furthermore, a project to solarize 20,000 schools across Punjab is underway with the aim to provide net metering options for feeding excess electricity back to the national grid.

Pakistan is developing wind power plants in Jhimpir, Gharo, Keti Bandar and Bin Qasim in Sindh. Rujhan wind corridor has been approved as well, its tariff and technological approvals are being negotiated with the Federal departments. More than 15 licenses have been handed out for wind power generation in Sindh, each producing 50 MW and are in various stages of completion.

Integrating renewable energy into the energy mix – way forward

Additional power generation through renewable energy technologies have not adequately been able to supplement the existing energy mix due to certain regulatory and technical bottlenecks.

First and foremost, it is crucial to carry out a holistic assessment of the impact of using specific energy sources on the cost to the economy, environment and health in terms of dollar figures. Dr. Zaffar stressed that to this end, all energy decisions need to be based on evidence by identifying and assigning weights to relevant parameters to conduct a regression analysis for deciding an optimal energy mix.

The type of energy technology that is set up has a cost associated with it. A quantitative assessment of each type explains that the government has decided to use thermal power plants to carry the base load in the short term instead of renewables because the cost to the economy of not having sufficient energy is higher than the associated costs of thermal plants.

In conclusion, Mr. Aizad summarized that to encourage the transition towards renewable energy technologies, generation centers should be located near the load centers to overcome the issue of weak transmission lines. Strengthening transmission lines and improving power evacuation capacity would reassure otherwise reluctant power purchasers to buy renewable energy.

Sharmin Arif is the Communications Assistant at the Consortium for Development Policy Research.

Pakistan’s trade with Taliban-controlled Afghanistan during the late 90s and the early 2000s was negligible. Since the deployment of NATO forces in Afghanistan, Pakistan’s exports to its neighbor spiked, peaking in 2011 at 2.6 billion dollars. Unfortunately, since then exports have registered a consistent decline, falling to 1.37 billion dollars in 2016.

The recent decline can partly be explained by the drawdown of NATO forces from the region, and partly by Pakistan’s own policies with regards to its neighbor. A look at Afghanistan’s trade with its regional partners in the figure below provides evidence for this trend:

The graph shows that as Afghanistan’s imports from the Central Asian Republics (CARs) decreased from their peak in 2009, imports from Pakistan and Iran started increasing. Then after 2012, imports from Pakistan also started decreasing, while those from Iran continued to rise. Afghanistan’s imports from China have gone up in that period as well. The increase from other regional trading partners has occurred despite the fact that, Pakistan’s trade route is the most direct and cheapest to Afghanistan. Furthermore, a large segment of Pakistan’s population shares a common language with Afghanistan, and most of the traders and transporters going to Afghanistan belong to bordering tribes who carry shared cultural practices and a deep understanding of the regional market. A recent study conducted by Salamat Ali in the context of Pakistan, shows that having a common language with a trading partner helps promote trade with that country.

The key message here is that despite these favorable circumstances, Pakistan’s exports to Afghanistan have started declining. The bulk of this fall was in export of petroleum products. In 2011 Pakistan’s petroleum products exports to Afghanistan stood at over USD 760 million. In 2015 these figures fell to USD 54 million. On the other hand Iran’s petroleum products exports to Afghanistan that year stood at USD 102 million but then rose to USD 821 million by 2015. While Pakistan continues to be a major source of edibles for Afghanistan, there are a number of other commodities that can be exported. However, that space is largely filled by Iran or China at the moment. For example, goods produced in Pakistan such as construction materials including cement, plastics, iron and steel are increasingly imported from Iran while textiles are being imported from China.

On the Afghan side, Pakistan continues to be Afghanistan’s largest export destination, but is increasingly facing stiff competition from India. The graph below shows Afghanistan’s exports to partners in the region:

The graph above shows that although Pakistan remains the main destination for Afghan exports, its share has fallen from about 50 percent to 40 percent from 2008 to 2015. On the other hand, India’s share in Afghan exports stood at about 25 percent in 2008 and has gone on to rise to about 35 percent by 2015.

Overall Afghanistan’s pattern of trade summarized above suggests that Pakistan is losing out on key export opportunities with its neighbor, and that Afghanistan as a whole is becoming less dependent on Pakistan for trade. Pakistan has long seen Afghanistan through the prism of national security and that alone has dictated relations between the two countries. This has often meant that Pakistan’s first response to increased tensions with Afghanistan has been to close the border with little regard for the damage it does to economic relations. Similarly, there is a very strict and excessive checking regime for goods entering and leaving Pakistan from Afghanistan or for transit trade purposes at the Karachi port. This has made Pakistan an unreliable trading partner. This is especially problematic since the main commodities being exported from both sides of the border are perishable goods mostly being transported by an unrefrigerated trucking fleet. This has not only taken a toll on goods being exported directly from Pakistan but even on transit trade coming through Pakistan. According to transporters in Pakistan, Iran is increasingly being used as a preferred option for transit trade to Afghanistan as well.

In recent months, some encouraging steps have taken place in the shape of improved customs facilities at Pak-Afghan borders in Torkham and Chamman. However, in order to reverse the trend and expand its exports, Pakistan needs a paradigm shift in how it perceives its neighbor. Increasing commerce, which will benefit producers and consumers in both countries, can lay the groundwork for stable bilateral relations, and help in increased cooperation on other issues as well.

Ghazan Jamal is a Country Economist at the International Growth Centre (IGC).

The lack of women’s participation in Pakistan’s economy is both a gender equity and a developmental concern. Estimates have suggested that if women’s economic participation is at par with men, the country’s GDP can increase by 30 percent. Improving women’s economic participation is critical to fulfilling the global agenda of inclusiveness and women empowerment – now a Sustainable Development Goal. The right to equal economic opportunity is also enshrined in Pakistan’s constitution. However, only 22 percent of working-age women are currently employed in the labour force.

To discuss the constraints that keep women away from the workplace, and brainstorm solutions to empower them, the Consortium for Development Policy Research (CDPR) brought together a panel of experts, each working in their own capacity to remove barriers to women’s economic empowerment.

Policy environment

Pakistan is a legislation and commitment rich country, having signed an array of gender-related conventions and treaties, including CEDAW and UDHR. However, Nida Usman, a lawyer and founder of the Women in Law initiative, points out that a selective enforcement of policies, presence of obsolete laws and lack of specific legislation that actively prohibits gender discrimination has resulted in the absence of an overarching legal framework to support women’s economic participation.

So far the government has been unable to ensure equal pay, while the provision of maternity benefits remains ambiguous. Even though the constitution guarantees maternity leave, Punjab’s maternity law (which offers a 12-week leave compared to 36 weeks in India) is only applicable after 4 months of employment. Unlike in India, Pakistan has no provision for flexible work arrangements, and a considerably shorter 7-day paternity leave (compared to 15 days in India) helps reinforce adverse gender stereotypes.

Similarly, finance and banking laws also make it harder for women to access credit, a key resource for economic empowerment. While microfinance is targeted mainly at women, the amount offered is too low to allow setting-up of sustainable businesses. To apply for a larger, more sizeable loan women often need unrelated male guarantors.

Where suitable legislation does exist, implementation remains a challenge. For example, the Punjab Fair Representation of Women Act 2014 requires that a third of all representative of boards of statutory organizations, public sector companies, and special committees are women. Without an adequate enabling environment that offers men and women equal opportunities to work, government is struggling to enforce this. Men are often unwilling to share this space with women. Where women do take up such posts they lack the tools to participate effectively.

Why are women not willing to work

While there is a complex web of constraints, the policy talk focused on a few key ones

1. Patriarchal mind-sets

Pervasive discrimination and regressive social norms remain prominent barriers to achieving gender parity within the economic space. Nida Usman elaborated that anachronistic attitudes are most pronounced amongst the middle strata of the society and that the relationship between the choice to work and income is not linear.

Social norms about appropriate behaviour for women and the enforcement of these norms by family and society dictates their ability to seek employment. Women belonging to the poorest segment of the population often have to work, while the those amongst the educated elite class choose to work. Hence, the constraints to women entering the workforce are experienced most within the urban middle-income segment.

2. Access to mobility

Getting to work remains a major challenge for most Pakistani women. In fact, when women can’t leave their homes, it is difficult to find a job in the first place. Female economic participation can double if women are able to find a suitable job, especially as home-based work offers limited returns to education.

Kate Vyborny, researcher from Duke University and currently at the Centre for Economic Research Pakistan, presented findings of an IGC funded study that is looking at the impact of women’s mobility on their labour market integration. Transport options can influence women’s options for work. Women also need to feel and be safe in public spaces – getting to and from stops. Kate finds that in a fourth of the thousand households surveyed women used buses without women-only compartments. Women-only buses operate only on select routes. Industries relying heavily on women or wanting a diverse workforce are more inclined to offer women-only transport.

The research scope is further extended by introducing a job-matching service to find that a fourth of the recruitments happen by word of mouth. Since women don’t have access to the same kind of social network as men, they are further disadvantaged in finding the right job.

3. Burden of unpaid care and domestic work

Family and responsibility for household work also constrain women’s mobility and time. Accounting for both unpaid care and paid work, Pakistani women work up to 10 times more than men. According to the last Time Use Survey covering around 8,000 households not only do women spend more time than men on housework, unemployed men do not end up taking a greater burden of these activities. Excessive workload impedes their access to skills development and financial services, eventually disabling them from participating effectively in economic spaces.

Addressing constraints

Recent policy initiatives by the Punjab Government have attempted to address these binding constraints. The Strategic Reforms Unit (SRU) at the Chief Minister’s office is actively pursuing solutions to open up the labor market for women. The Unit reports directly to the political leadership and works with multiple partners that include politicians, law makers and the media. Fatima Khalid, a junior associate at SRU, discussed the on-going and future initiatives of the Punjab government aimed at enhancing public space for women, such as the Women on Wheels (WoW) initiative.

The campaign – a motorbike subsidy scheme – was launched in collaboration with the transport department and the respective city traffic police in five cities across Punjab. This initiative has a dual objective – to enable women’s participation in the economic space, and to promote social change. It aims to provide over 3,000 customised motorbikes at a subsidised rate through transparent balloting. The campaign has thus far been a success despite the patriarchal notions that discourage the acceptability of women riding motorbikes. The SRU has so far trained over 3500 women.

The province is also taking steps towards combating gender-based violence, which is often linked to recalibration of gender roles and power dynamics.  To this end, the Punjab Government is setting up district-level Violence Against Women Centers (VAWC) across the province to ensure implementation of the recently promulgated VAW legislation. These centers will be overlooked by a proposed Women Protection Authority. At the same time the government is also including a gender sensitization component to the high-school curriculum in grades 9 and 10.

Looking ahead

While we continue to celebrate recent gains in advancing women’s economic empowerment, we must not lose sight of the challenges that remain. Efforts to encourage more women in the workspace should also focus on creating an environment that allows for practical enforcement of gender-responsive policies.

Gender stereotypes operate into the policy sphere and influence the design of gender-specific laws. However, equality before the law and gender sensitization in the design of programs is essential in creating the right policy environment. Governments therefore need to formulate policies that consistently facilitate a transformation of deep-rooted social norms

Kate’s research findings provide a substantive policymaking direction. Government should continue the expansion of high quality transport to suburban and peri-urban areas in and around major cities, which still lack mobility solutions. More specifically, to improve women’s mobility and at the same time encourage a more efficient use of resources, introducing women only compartments (as opposed to entire buses) is more sustainable. Other interventions such as announcement of fixed schedules and provision of secure bus stops can allow women to pre-plan their travels.

Finally, the strength of these and other emancipatory policies has to be supported by a concerted focus on implementation mechanisms. Without clear roadmaps for responsibilities, effective allocation of resources, and ownership by public officials, the goal of increased empowerment will remain unfulfilled.

Hina Shaikh is a Country Economist at the International Growth Centre (IGC).