IDR 2018: Pakistan's Declining Manufactured Exports
Pakistan's manufacturing sector is performing poorly relative to Bangladesh and India, according to the United Nations Industrial Development Organization 2018 report. UNIDO data shows that Pakistan's per capita manufacturing value added is not only lower than its neighbors' but it's also growing more slowly since 2010. In fact, Pakistan's manufactured exports per capita have declined in the last decade.
Industrial Development Report 2018:
United Nations Industrial Development Organization, also called UNIDO, is a UN agency whose charter is to "promote and accelerate inclusive and sustainable industrial development (ISID) in Member States". It publishes an annual industrial development report that is "an established source of reference on industrial development. Previous editions have been examining the driving forces of industrialization and the positive factors that can lead to social inclusiveness and environmental sustainability. They have examined crucial components of the production side of industrialization, such as capacity building, energy efficiency, employment creation and technological change, to mention just a few."
Here are key data points from IDR 2018 on selected countries, including Pakistan:
Pakistan MVA per capita 2010 $134 2015 $146
Pakistan Manufactured Exports per capita 2010 $102 2015 $94
Bangladesh MVA per capita 2010 $122 2015 $182
Bangladesh Manufactured Exports per capita 2010 $121 2015 $152
India MVA per capita 2010 $228 2015 $298
India Manufactured Exports per capita 2010 $152 2015 $186
China MVA per capita 2010 $1,432 2015 $2,048
China Manufactured Exports per capita 2010 $1,132 2015 $1,601
Pakistan's Export Performance:
Related Links:
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South Asia Investor Review
Can Pakistan Avoid Recurring Balance of Payment Crisis?
Pakistan Economy Hobbled By Underinvestment
Pakistan's IT Exports Surging
Can Indian Economy Survive Without Western Capital Inflows?
Pakistan-China-Russia Vs India-Japan-US
Chinese Yuan to Replace US $ as Reserve Currency?
Remittances From Overseas Pakistanis
Can Imran Khan Lead Pakistan to the Next Level?
China to Expand Manufacturing in Special Economic Zones
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| South Asia Manufacturing. Source: UNIDO IDR 2018 |
Industrial Development Report 2018:
United Nations Industrial Development Organization, also called UNIDO, is a UN agency whose charter is to "promote and accelerate inclusive and sustainable industrial development (ISID) in Member States". It publishes an annual industrial development report that is "an established source of reference on industrial development. Previous editions have been examining the driving forces of industrialization and the positive factors that can lead to social inclusiveness and environmental sustainability. They have examined crucial components of the production side of industrialization, such as capacity building, energy efficiency, employment creation and technological change, to mention just a few."
Here are key data points from IDR 2018 on selected countries, including Pakistan:
Pakistan MVA per capita 2010 $134 2015 $146
Pakistan Manufactured Exports per capita 2010 $102 2015 $94
Bangladesh MVA per capita 2010 $122 2015 $182
Bangladesh Manufactured Exports per capita 2010 $121 2015 $152
India MVA per capita 2010 $228 2015 $298
India Manufactured Exports per capita 2010 $152 2015 $186
China MVA per capita 2010 $1,432 2015 $2,048
China Manufactured Exports per capita 2010 $1,132 2015 $1,601
Pakistan's Export Performance:
The bulk of Pakistan's exports consist of low value commodities like chadar, chawal and chamra (textiles, rice and leather). These exports have declined from about 15% to about 8% of GDP since 2003. Pakistan's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable. What must Pakistan do to improve it? What can Pakistan do to avoid recurring balance of payments crises? How can Pakistan diversify and grow its exports to reduce the gaping trade gap? How can Pakistan's closest ally China help? Can China invest in export oriented industries and open up its huge market for exports from Pakistan? Let's explore answers to these question.
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East Asia's Experience:
East Asian nations have greatly benefited from major investments made by the United States and Europe in export-oriented industries and increased access to western markets over the last several decades. Asian Tigers started with textiles and then switched to manufacturing higher value added consumer electronics and high tech products. Access to North American and European markets boosted their export earnings and helped them accumulate large foreign exchange reserves that freed them from dependence on the IMF and other international financial institutions. China, too, has been a major beneficiary of these western policies. All have significantly enhanced their living standards.
Chinese Investment and Trade:
Pakistan needs similar investments in export-oriented industries and greater access to major markets. Given the end of the Cold War and changing US alliances, it seems unlikely that the United States would help Pakistan deal with the difficulties it faces today.
China sees Pakistan as a close strategic ally. It is investing heavily in the Belt and Road Initiative (BRI) which includes China-Pakistan Economic Corridor (CPEC). A recent opinion piece by Yao Jing, the Chinese Ambassador in Pakistan, published in the state-owned China Daily, appears to suggest that China is prepared to offer such help. Here are two key excerpts from the opinion piece titled "A community of shared future with Pakistan":
1. China will actively promote investment in Pakistan. The Chinese government will firmly promote industrial cooperation, expand China's direct investment in Pakistan, and encourage Chinese enterprises to actively participate in the construction of special economic zones. Its focus of cooperation will be upgrading Pakistan's manufacturing capacity and expanding export-oriented industries.
2. China will also actively expand its imports from Pakistan. In November, China will hold the first China International Import Expo in Shanghai, where, as one of the "Chief Guest" countries, Pakistan has been invited to send a large delegation of exporters and set up exhibitions at both the national and export levels. It is hoped that Pakistan will make full use of this opportunity to promote its superior products to China. The Chinese side will also promote cooperation between the customs and quarantine authorities of both countries to facilitate the further opening-up of China's agricultural product market to Pakistan. China will, under the framework of free trade cooperation between the two countries, provide a larger market share for Pakistani goods, and strengthen cooperation and facilitate local trade between Gilgit-Baltistan and China's Xinjiang Uygur autonomous region. And China will take further visa facilitation measures to encourage more Pakistani businesspeople to visit China.
Pakistan's Role:
Pakistan needs to take the Chinese Ambassador Yao Jing's offer to increase Chinese investments and open up China's market for imports from Pakistan. Pakistan's new government led by Prime Minister Imran Khan should take immediate steps to pursue the Chinese offer. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen to develop a comprehensive plan to attract investments in export-oriented industries and diversify and grow exports to China and other countries. Pakistan must make full use of its vast network of overseas diplomatic missions to promote investment and trade.
Summary:
Pakistan's manufacturing sector is performing poorly relative to Bangladesh and India, according to the United Nations Industrial Development Organization 2018 report. UNIDO data shows that Pakistan's per capita manufacturing value added is not only lower than its neighbors' but it's also growing more slowly since 2010. In fact, Pakistan's manufactured exports per capita have declined in the last decade. Pakistan's exports have declined from about 15% of GDP to about 8% since 2003. The nation's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable. Chinese Ambassador Yao Jing has offered a helping hand to increase Chinese investment and trade in Pakistan. Pakistan's new government led by Prime Minister Imran Khan should take the Chinese Ambassador's plan seriously. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen on a comprehensive plan to attract investments in export-oriented industries and diversify and grow exports to China and other countries.
Pakistan's manufacturing sector is performing poorly relative to Bangladesh and India, according to the United Nations Industrial Development Organization 2018 report. UNIDO data shows that Pakistan's per capita manufacturing value added is not only lower than its neighbors' but it's also growing more slowly since 2010. In fact, Pakistan's manufactured exports per capita have declined in the last decade. Pakistan's exports have declined from about 15% of GDP to about 8% since 2003. The nation's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable. Chinese Ambassador Yao Jing has offered a helping hand to increase Chinese investment and trade in Pakistan. Pakistan's new government led by Prime Minister Imran Khan should take the Chinese Ambassador's plan seriously. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen on a comprehensive plan to attract investments in export-oriented industries and diversify and grow exports to China and other countries.
Related Links:
Haq's Musings
South Asia Investor Review
Can Pakistan Avoid Recurring Balance of Payment Crisis?
Pakistan Economy Hobbled By Underinvestment
Pakistan's IT Exports Surging
Can Indian Economy Survive Without Western Capital Inflows?
Pakistan-China-Russia Vs India-Japan-US
Chinese Yuan to Replace US $ as Reserve Currency?
Remittances From Overseas Pakistanis
Can Imran Khan Lead Pakistan to the Next Level?
China to Expand Manufacturing in Special Economic Zones
Comments
The Drug Regulatory Authority of Pakistan (Drap) has assured the pharma industry that in order to further facilitate exports, the authority will establish a separate desk where all concerns of exporters regarding issuance of necessary documentation will be addressed.
Pharma exports are currently earning $230 million with potential to expand up to $2billion.
A meeting was held on Thursday under the chairmanship of Federal Minister for Health Services Aamir Mehmood Kiani with pharmaceutical exporters. The purpose of this meeting was to discuss mechanisms to boost volume of pharmaceutical and alternative medicine exports.
The federal minister in response to concerns of the pharma industry, being represented by the Pakistan Pharmaceutical Manufacturing Association and top 20 pharma exporters of Pakistan, emphasised on the need of harmonisation and facilitation of pharma export by engaging customs and the Trade and Development Authority of Pakistan (TDAP) for resolution of their grievances.
He said the sector has huge potential and needs harvesting to benefit the country by earning money abroad through improved exports of pharmaceutical and alternative medicine. It was also apprised the industry could expand its volume of exports as the 6th largest sector contributing to the overall exports of Pakistan.
Kiani advised stakeholders to submit a working paper on how export volume can be improved. Following which, CEO DRAP, Dr Sheikh Akhter Hussain apprised the federal minister that DRAP has already taken initiative to facilitate local manufacturers who are exporting to other countries.
Deli China and JW SEZ Group have joined hands for establishing a $200 million modern glass manufacturing complex in Pakistan for the production of premium, export-quality glass products.
In this regard, the groundbreaking ceremony was held at the Prime Minister’s Office where prominent businessmen, government officials and a Chinese delegation were present.
Commenting on the initiative, Prime Minister Imran Khan said initiatives like ‘Make in Pakistan’ were immensely important for the economic development of the country.
“We need to promote such initiatives and the government will fully support such projects which are aimed at producing jobs and boosting the economy,” he said. “This investment is an indication of foreign investors’ confidence in the market of Pakistan.”
Pakistan, China may sign deal for investment in agriculture
The two sides have established Deli-JW Glassware Company Limited for the project. Pak-China Investment Company is facilitating Chinese investment in Pakistan and is also assisting in financing the project.
The project will utilise natural resources in Pakistan and use latest technology to convert into glassware, float glass and other kinds of glass products.
The project will be set up in the Industrial City M-3, Faisalabad whereas the unit for the processing of key raw material will be set up in Risalpur, Khyber-Pakhtunkhwa.
Pakistan needs to improve competitiveness to attract FDI
The main glass manufacturing complex will comprise glassware manufacturing units, float glass units and other value-added glass products. The groundbreaking for phase-I of the project was held on Thursday and it will start production by the end of 2019.
The Islamic Republic of Pakistan has promised to strengthen its strategic partnership with the Nigerian Air Force (NAF) in equipment and spares acquisition to further enhance professionalism.
A statement by the NAF Spokesman, Air Commodore Ibikunle Daramola, said the Pakistan High Commissioner to Nigeria, retired Maj.-Gen. Waqar Kingravi, made the pledge when he visited the Chief of Air Staff (CAS), Air Marshal Sadique Abubakar on Friday in Abuja.
NIGERIA NEWS gathered that Kingravi said Pakistan would also partner with the NAF on research and development, training and other relevant areas to further enhance professionalism.
He said he was at NAF Headquaters to assure the CAS of the commitment of the Pakistan Government to strengthening the existing cordial relationship between Nigeria and Pakistan.
The commissioner said the relations between the two counties had spanned several decades and yielded several mutually beneficial military collaborations.
Kingravi noted that having once headed the Army Aviation Corp of the Pakistan Army, he was familiar with peculiar requirements of air operations.
He added that he would pay particular attention to ensure that the ties between the air forces of the two countries were taken to even greater heights.
Kingravi also commiserated with the NAF on the tragic air mishap that occurred on Sept. 28, which led to the death of Sqn.Ldr. Bello Baba-Ari.
In a remark, Abubakar said that the relationship between the Pakistan Air Force (PAF) and NAF was extremely cordial and had continued to grow over the past few years.
He noted that the story of the successes recorded in the counter insurgency operations in the North–East, could not be written without mentioning the support rendered by the Pakistan government.
Abubakar recounted several occasions when the PAF had gone beyond the usual to assist the NAF.
He assured Kingravi that the NAF would continue to provide the necessary support and cooperation to enable him succeed.
The CAS called for closer coordination in order to fast-track the process for the acquisition of the JF-17 multirole fighter aircraft from Pakistan.
He also appealed to the High Commissioner to liaise with PAF to develop a special programme for the conduct of basic fighter training for NAF pilots.
Over 55 executives and CEOs of leading Chinese companies on Friday called on Pakistan Prime Minister Imran Khan and pledged to invest USD 5 billion in the cash-strapped nation over the next five years, according to an official statement.
The visiting Chinese business delegation represented various sectors including construction, machinery, glass, automobile, electrical, power, transportation, information technology and technological research among others.
"Chinese business executives expressed confidence in the business friendly policies of the government and committed to invest USD 5 billion over a period of five years in various small and medium size industrial sectors," the statement said.
Pakistan has so far received billions in financial aid packages from friendly countries like Saudi Arabia, China and the UAE during the current fiscal year.
During the meeting, Khan welcomed the Chinese delegation and stated that China has always been a trusted partner of Pakistan.
The sagacity, wisdom and vision of the Chinese leadership for peace & development, good governance and poverty alleviation is highly impressive and worth emulating, said Khan.
He added that the interest of Chinese companies towards investment and relocating business and industrial units to Pakistan reflected the trust of the Chinese side in the growing economy of Pakistan.
He said the Chinese side have a strong desire to translate Pak-China equation into a win-win economic partnership.
Our Government is facilitating investors and reducing impediments in ease of doing business'. Partnership with Chinese companies and their investment will reap multiple benefits for both the countries including employment generation, transfer of technology and economic growth," he said.
Talking about China-Pakistan Economic Corridor (CPEC), Khan reiterated that ambitious project will prove to be a game-changer with respect to enhancing trade activities and further cementing Pak-China relations.
The CPEC, which connects Gwadar Port in Balochistan with China's Xinjiang province, is the flagship project of Chinese President Xi Jinping's ambitious Belt and Road Initiative (BRI).
"Fast-track implementation of the CPEC projects is our priority for which a special unit is overseeing implementation of various projects in Planning Division," he said.
China's Ambassador Yao Jing said that Chinese investors have observed fundamental improvement of policies and facilitation of foreign investors in Pakistan.
"Chinese government will extend all possible support towards realising the vision of a strong, stable and prosperous Naya Pakistan, Yao said.
Appreciating economic vision of Prime Minister Imran Khan, he said the premier has directed all the concerned departments to remove hurdles in the way of development of SEZs and establish them on priority basis.
Fortunately, he said almost hundred percent plots in M-3 Industrial Estate have already been sold out while hundreds of units have become operational and were playing their role in providing exportable surplus in addition to accommodating thousands of workers.
Mian Kashif said that the industrial city would house more than 400 textile, steel, pharmaceutical, engineering, chemical, food processing, plastic and agriculture appliances units in addition to providing jobs to 250 thousand workers.
He claimed that the city was also expected to attract Rs400 billion local and foreign direct investment which would help Pakistan to stabilise its economy. He further said that Faisalabad was strategically located in the heart of Pakistan with two motorways passing from its eastern and western sides.
He said that this city has a unique privilege to contribute 60 percent towards textile exports and 45 percent towards total exports of the country.
He further said that it was not only restricted to textile which was its iconic identification but hundreds of SMEs hailing from chemicals, steel, food processing and others were also playing their role in the overall economy of Pakistan.
FIEDMC Chairman further said investors from China, Turkey, Korea and Britain have pumped $ 1.10 billion and their confidence in Pakistan have been restored as they are also bringing more investors from their respective country to invest in SEZs.
He said these investors expressed their eagerness to explore the possibility of investment in diverse sectors of Pakistan especially in ceramics, chemicals, steel, food processing and automobiles.
He said Prime Minister Imran Khan clearly directed them to focus on developing such industry in SEZs which is based on export and import substitution to restrict the import bill.
He said the good thing is that a number of Chinese industries have started pumping investment in SEZs and apparently the reason behind this is the production cost in China has increased which is making Pakistan one of the beneficiaries of on-going US China trade war.
He emphasised that consistent policies were imperative to attract foreign investment into the country, which could lead the economy towards sustainable growth.
He said industries operating in the FIEDMC will have an immediate access to high-quality infrastructure, un-interrupted power supply, public facilities and support services along with simpler ease of doing business.
Chief Operating Officer Muhammad Aamer Saleemi also briefed the delegation and said FIEDMC in collaboration with Industrial Police Liaison Committee has established police post at M-3 Industrial City and the industrial community will work under safe environment.
“The whole industrial estate will be monitored by high resolution surveillance cameras and 24 hours police patrolling will be provided in the estate,” adding he said this would make FIEDMC the safest industrial estate in the country.
He said CPEC will attract $40 billion worth of investment which will directly raise investment-to-GDP ratio by 2.8 percentage points besides some indirect investment addition.
“The investment in hard currency will also support exchange rate stability in the country and stabilise balance of payments situation in the country,” he added.
Razzak was chairing an internal review meeting to discuss the finalization of Strategic Trade Policy Framework (STPF), at Commerce Division, said a press release.
Advisor to the Prime Minister on Commerce, Abdul Razak Dawood informed that in pursuance of the diversification policy, the export of microwave ovens from Pakistan has been confirmed for the first time and these are going to be exported by Dawlance, a Turkish investment in Pakistan.
The advisor on Friday stated that, with the support from the Government, other engineering products will soon follow suit and get exported to the rest of the world.
In this regard, duties on import of components of televisions have been reduced to promote local manufacturing of television sets, which has a potential for export as well in the coming years.
He said that Pakistan is rapidly diversifying its exports into high quality and globally competitive engineering products.
He was chairing an internal review meeting to discuss the finalization of Strategic Trade Policy Framework (STPF), at Commerce Division, said a press release.
The Advisor Commerce stated that one of the objectives of the STPF is to achieve diversification of our export in products other than the traditional ones.
He explained that through promotion of exports in new sectors, particularly the engineering and pharmaceuticals sectors, “we are going to reduce our reliance on five traditional export sectors.
He added that this has also been supported in the Budget 2020-21, with reduction of import duties on raw materials and the tariff rationalization measures.
Currently, the draft STPF is being reviewed by the stakeholders and their views are being incorporated in the final draft, which will be placed before the Economic Coordination Committee (ECC) of the Cabinet shortly.
Talking about the emerging sectors for export opportunities, Razak Dawood underscored that Pakistan’s engineering products, especially home appliances, are now producing internationally competitive quality products.
The Advisor was optimistic that the results of the first-ever Mobile Phone Manufacturing Policy recently announced by the Government would soon become visible in the coming months in the form of increase in exports of locally manufactured mobile devices from Pakistan.
Pakistan could fetch $300 to 400 million from exports of home appliances if the government focuses on non-traditional export sector and diversify exportable products, an industry official said on Thursday.
Chief Executive Officer Umar Ahsan said the company is committed to transfer technology to Pakistan to increase value-added exports from the country.
“Automatic washing machines can be exported from Pakistan. There is a potential to fetch $300 to $400 million in export revenue from products manufactured in the company’s (Dawlance) supply chain,” Ahsan said, talking to media. Overall exports could increase $10 to $15 billion per annum with diversification of exports and through focusing on non-traditional items. “But, first of all this requires a level-playing field to all the new sectors of the economy,” he added.
Ahsan accompanied Can Dinçer, chief commercial officer of Acrelik, Turkish parent company of Dawlance. Dinçer said the company has invested over $300 million in Pakistan since acquisition of Dawlance in 2016.
“We have re-invested $60 million in Pakistan whatever we earned here and now (are) eyeing to increase our shares in exports,” he said. “We are asking the government to focus on diversifying exports related to engineering goods instead of relying on few products, such textile, surgical and other products.”
Dinçer said the company’s plan is to introduce competitive pricing model in all categories to better response to the needs of the changing demands while using the distribution channels effectively in 2020.
“Since 2016, we have gained a very strong foothold in one of the world’s most promising markets, Pakistan and further built on the strengths of Dawlance,” he said. “We are very proud to see that Dawlance and Arçelik grow together as part of a larger and global organisation.”
Dawlance set up new production lines to manufacture automatic washing machine and water dispensers in the country. It also began exporting water-dispensers to Europe. It has three factories and is expanding its sales and service network, which comprises of 1,800 plus dealers across Pakistan.
The company recently inaugurated an experience store in Peshawar, offering complete range of products to consumers. It plans to establish more experience stores in other cities. Ahsan said China is the company’s main competitor because of the economy of scale. Cost of production needs to be reduced to increase Pakistan’s share in world’s exports.
On taxation, he said the Federal Board of Revenue abolished 10 percent depreciation out of total investment and the company made it part of its calculations. “We took investment decision in view 10 percent depreciation allowance,” he said. “We asked the FBR to provide this facility.”
Ahsan said the company has so far upgraded skills of 300 workers to meet quality and standard requirements for the manufactured products.
Balance-of-Payments Constrained?
Policies and Implications
for Development and Growth
Jesus Felipe, J. S. L. McCombie, and Kaukab Naqvi
No. 160 | May 2009
https://www.adb.org/sites/default/files/publication/28250/economics-wp160.pdf
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The basic premise of the BOP-constrained growth model is that in the long run, no
country can grow faster than the rate consistent with balance on the current account,
unless it can finance evergrowing deficits. Indeed, if imports grow faster than exports, the
current account deficit has to be financed by borrowing from abroad, i.e., by the growth
of capital inflows.6 But this cannot continue indefinitely. The seminal paper is Thirlwall
(1979).
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This paper examines the extent to which Pakistan’s growth has been, or is
likely to be, limited or constrained by its balance-of-payments (BOP). The
paper begins by briefly considering the BOP-constrained growth model in
the context of demand and supply-oriented approaches to economic growth.
Evidence presented suggests that Pakistan’s maximum growth rate consistent
with equilibrium on the basic balance is approximately 5% per annum. This is
below the long-term target rate of a growth of gross domestic product of 7–8%
per annum. This BOP-constrained growth approach provides some important
policy prescriptions for Pakistan’s development policy. Real exchange rate
depreciations will not lead to an improvement of the current account. Pakistan
must lift constraints that impede higher growth of exports. In particular, it must
shift its export structure to products with a higher income elasticity of demand
and sophistication.
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Pakistan’s output growth rate since the 1960s has averaged 5.3% per annum, and
2.5% in terms of productivity growth. While these figures are respectable by world
standards, they are not so impressive compared with those of the East Asian economies
when they were at a similar stage of development in the late 1960s. In the 1950s and
1960s Pakistan started transforming from a poor agricultural economy into a rapidly
industrializing one; yet it never subsequently achieved growth rates similar to those of
the Asian tigers or, more recently, the People’s Republic of China (PRC). The country’s
Poverty Reduction Strategy (April 2007) has targeted a growth rate of gross domestic
product (GDP) of 7–7.5% per annum for the next decade. The question that naturally
arises is whether this is feasible or whether it is a hopelessly overoptimistic target. If
the former, what are the necessary policy measures that should be taken to ensure this
outcome? If the latter, what impedes higher growth?
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In particular, there are concerns about the changing composition of output and the rise
of substantial deficits on the current and fiscal accounts. In 2001–2003, export growth
made a significant contribution to GDP growth. But in 2004–2007, when the growth rate
was higher, consumption, investment, and government expenditure were the largest
contributors. From the supply side, the service sector was the largest contributor to GDP
growth (Felipe and Lim 2008). Exports plus net factor income from abroad has fallen as
a percentage of GDP while the rapid growth has sucked in imports. This is reminiscent of
the early periods of high growth in the 1980s and 1990s when there were also significant
deficits in the current account. In fiscal year 2007–2008, the current account deficit
rose to 8.4% of GDP. This has led to a serious BOP crisis. As a consequence, rating
agencies Standard and Poor’s and Moody’s downgraded Pakistan. This will have serious
consequences for overseas borrowing.2
@MuneebASikander
1/2 Pak Flood hit rural economy
Work produces things of value and transforms physical world in ways to make life better and survival possible.
But without organised and purposeful productive action, i.e., work, not possible for most people asis at the base of economic order
https://twitter.com/MuneebASikander/status/1572606162939289601?s=20&t=hDUZH4AawwsjZEdasU77jw
----------------
2/2 Flood hit rural areas
Agrarian to agriculture/livestock based or limited workshop industry. Limited Agri TFP + 15.4 million at poverty risk
1. Need for agri TFP improvement
2., Need to diversify economic base by Proto-industrialization,
https://www.stlouisfed.org/publications/regional-economist/second-quarter-2021/how-jump-start-industrialization-sub-saharan-africa
https://twitter.com/MuneebASikander/status/1572606221076819970?s=20&t=hDUZH4AawwsjZEdasU77jw
How to Jump-Start Industrialization in Sub-Saharan Africa
May 27, 2021
By Yi Wen , Iris Arbogast
https://www.stlouisfed.org/publications/regional-economist/second-quarter-2021/how-jump-start-industrialization-sub-saharan-africa
KEY TAKEAWAYS
Most sub-Saharan nations have such low per capita incomes that it would take decades of double-digit growth to attain U.S. living standards.
Nations that industrialize successfully often begin with small-scale efforts and progress to mass-producing heavy industrial goods.
African countries could follow this development pattern with government-provided infrastructure and other support.
When considering income disparities across nations, the differences often can be striking, particularly for nations in the sub-Saharan region of Africa. Per capita income in many poor countries like these is 30 to 50 times smaller than in the U.S. In sub-Saharan Africa, 38 of 48 countries had gross national income (GNI) per capita levels below $2,300 in 2019, while GNI per capita was $65,850 in the U.S., according to data from the World Bank’s World Development Indicators database.
Generations of economists have studied economic development and given policy suggestions to officials in poor countries in Africa and elsewhere, but the disparities remain. To catch up to U.S. living standards, they would need to grow at about 11% per year for 40 to 50 years—an almost impossible standard that only China has come close to achieving in recent history.
The New Stage Theory of Development
The commonality between successful Asian countries’ industrialization (such as China’s rapid rise in the past 40 years) and successful European nations’ industrialization (such as the British Industrial Revolution in the 18th* and 19th centuries) is that these economies all went through three key stages during their industrialization, according to the New Stage Theory of Development (NST):1
Proto-industrialization, which features massive numbers of workshops in rural areas with small-scale production of basic consumer goods for long-distance trade
A first industrial revolution, which features mass production of labor-intensive, light consumer goods for domestic and international markets
A second industrial revolution, which features mass production of capital-intensive, heavy industrial goods
The first stage is very important but has been largely ignored by development economists. During this initial stage, rural farmers or poor households in urban areas use their free time to manufacture simple products and engage in long-distance trade. This raises their income and nurtures the formation of an increasingly unified market and primitive production networks, while developing entrepreneurship and labor skills. 2
During the second stage, large-scale factory systems become prevalent for light industries such as textiles, processed food, toys and furniture. This mass-production stage is labor-intensive, export oriented and benefits from poor countries’ comparative advantage in cheap labor. Mass production in the second stage is profitable only because proto-industrialization has created a large enough market and distribution networks for consumer goods.
Finally, the expansion of light industry in the second stage facilitates the formation of a large enough market for heavy industrial goods—such as means of transportation, energy, steel and heavy equipment. This is not only because the income of workers needs to be high enough to purchase big-ticket items such as automobiles, but because mass production of heavy industrial goods is profitable only after the second stage creates a mass-production chain to support their demand. 3
May 27, 2021
By Yi Wen , Iris Arbogast
https://www.stlouisfed.org/publications/regional-economist/second-quarter-2021/how-jump-start-industrialization-sub-saharan-africa
In some newly emerging Asian economies, such as Vietnam and Bangladesh, about 30% of rural households were participating in nonfarm wage employment in the early- to mid-2000s (29% in 2002 in Vietnam and 35% in 2005 in Bangladesh). Rates of nonfarm wage employment in poor African countries, such as Ethiopia, Ghana, Malawi and Nigeria, remain between 5% and 18%.
In 2019, the GNI per capita in Bangladesh and Vietnam was $1,940 and $2,590, respectively. GNI per capita was $850 in Ethiopia, $2,220 in Ghana, $380 in Malawi and $2,030 in Nigeria. Although GNI per capita in Nigeria and Ghana is relatively high for the region, these economies are more dependent on income from oil and other natural resources than Bangladesh and Vietnam, according to data from the World Bank’s Development Indicators.
On the other hand, when China engaged in full-fledged proto-industrialization in the 1980s and kick-started its first industrial revolution around the early 1990s, the number of village workers as a fraction of the total rural labor force increased greatly. These workers went from 9% of the labor force in 1978 to 23% by 1988, and then increased to 30% by 2000.5
The Chinese experience in recent decades and the British industrial revolution in the 17th and 18th centuries imply that proto-industries must reach 40% to 50% of total agricultural value added—or about 25% to 30% of total rural labor force in their employment share—to spark a full-fledged first industrial revolution, or to render mass production of light consumer goods profitable and internationally competitive. 6
Based on this criterion, Vietnam and Bangladesh should possess the market conditions for supporting mass-production technologies in light industries like textiles. Indeed, these two countries are currently the largest clothing exporters after China, according to data from the World Trade Organization. But countries such as Ethiopia, Ghana, Malawi and Nigeria do not appear ready to support mass-production technologies in light industries, since their textile and clothing exports are very low.
Policy Implications for Africa
Based on the New Stage Theory of Development, we have a few policy suggestions for countries where rural manufacturing is not yet prevalent. Policymakers should provide every means possible to enhance proto-industrialization, which will help their countries embark on a healthy path of economic development.
The goal is to absorb as many rural households as possible into small-scale manufacturing workshops to increase their income and create a primitive supply chain and a disciplined labor force. This is one of the critical steps for nurturing a mass market to support full-fledged mass-production in light industries.
Governments should provide the necessary infrastructure and social capital to allow farmers to organize themselves into firms and send their goods to distant markets. Part of the income earned could be used to support government initiatives such as building local roads and canals, which reduce transportation costs and are a better use of resources than large projects like high-speed trains—which are better suited to the second industrial revolution stage.
Successfully creating proto-industrial supply chains, commercial distribution networks and competition between proto-industrial firms would eventually help give rise to large firms that mass produce light industrial goods such as textiles. A nation can also be more likely to attract large foreign firms that outsource their labor-intensive manufacturing industries by using subsidization policies such as providing ports, roads and free land as incentives.
* This article has been updated to correct the start of British industrialization.
https://www.unido.org/publications/international-yearbook-industrial-statistics
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Business Recorder
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Indus Motor Company, the assembler of Toyota-brand vehicles in Pakistan, said on Tuesday that it has become the first company in the four-wheeler segment to start exports after it signed an agreement with Toyota Egypt.
https://www.brecorder.com/news/40252013/pakistans-indus-motor-company-starts-exports-to-toyota-egypt-ceo
Agreement signed, Ali Asghar Jamali says 'too early' to deem it turning point for struggling auto sector
“We have already sent our first shipment this month,” Chief Executive Ali Asghar Jamali told Business Recorder.
A press release issued by the company also stated that the first consignment of semi-processed raw material to be shipped to Toyota Egypt will mark the “beginning of era from the export point of view by any original equipment manufacturer (OEM) in Pakistan and plans are in place to continue in this direction”.
Jamali said that while significant, it is “too early” to deem it a turning point for the struggling industry.
His remarks come as Pakistan’s auto sector, highly dependent on imports to meet its assembling needs, remains under pressure due to constraints on issuance of Letters of Credit (LCs). The hindrance comes on the back of Pakistan’s low foreign exchange reserves that triggered import restrictions.
While the State Bank of Pakistan (SBP) has lifted restrictions, it will take some time before normalcy returns.
At the same time, a fast-depreciating rupee pushed up prices of automobiles while runaway inflation also took Pakistan’s key interest rate to a record high, discouraging buyers from financing. In response, almost all auto sector’s players have been announcing plant shutdowns with regular monotony.
“This is a baby step at the moment,” said Jamali. “Currently, we have raw material constraints in the country. It would stop us from exporting huge quantities. But I am hopeful.”
The CEO said the company will only be exporting a certain part to Egypt.
“If their confidence is built, we may be asked to export more parts.
“Even if we manage to export one part to many markets, it would increase our export numbers.
“We hope that other manufacturers would also get confidence and find avenues to export as well,” he added.
A statement from the company, meanwhile, said the partnership with Toyota Egypt “is the first step to meet requirements set under the Auto Industry Development and Export Policy (AIDEP) 2021-2026”.