PILLAR V:: PRIVATE SECTOR & ENTREPRENEURSHIP LED GROWTH
1.Rank in the top 50 countries on the World Bank's Ease of Doing Business
2.Increase Diaspora investment (via remittances) in private sector from USD 14 billion to USD 40 billion.
3.Ministry of Planning, Development & Reform, Government of Pakistan 15 Create at least 5 global Pakistani brands (having more than 50% sales coming from consumers outside Pakistan), and make 'Made in Pakistan' a symbol of quality.
"Pakistan Vision 2025 seeks a Pakistan that is a highly attractive destination for the private sector where private investment and entrepreneurship plays a lead role in the country's development. It aims at sustained engagement of the private sector and enables efficient deployment of private resources and skills to achieve the visualized objectives".
In the past, the private sector has been constrained from playing an active role in the country's development due to a variety of factors such as the energy deficit, red tapism, lack of security, poor policies and the lack of an enabling environment. In addition to these problems, low skilled labour, slow and costly judicial procedures (contract enforcement), factor market (land, labour and capital) rigidities, intrusive regulations and inadequacies in the system of land purchase and registration have reduced private sector effectiveness.
This is reflected in Pakistan being ranked 110th out of 170 countries in terms of ease of doing business. The most problematic dimensions associated with doing business in Pakistan are corruption, policy instability, crowding out of the private sector due to excessive public sector borrowing, inadequate infrastructure, and the working of the bureaucracy. Additionally, pervasive environment of state intervention, subsidies, protection and SRO's have led to rent seeking behavior thereby compromising competitiveness and economic efficiency.
Domestic private investment dropped from 14% of GDP in 2007-2008 to an estimated 10.9% of GDP in 2012-2013.Private sector investment and growth in recent years has been mainly concentrated in the services sector, especially the telecommunications and financial sectors. Over the years Pakistan's manufacturing base has remained narrow. Investment has been limited to capacity enhancement and up-grading of facilities (mostly textiles and food), while lacking in R&D, innovation and value addition.
A key goal of the Vision is to see Pakistan ranked in the top 50 countries for Ease of Doing Business by the year 2025. In this regard, the following initiatives are being designed.
Unstable growth and high poverty in Pakistan is partly a result of institutions that favor the status quo and restrict merit-based selection, competition, efficiency and innovation. Poverty has contributed to crime, militancy and unrest in the country. Strong institutions are essential to nation building.
A regulatory framework will be put in place that is conducive for private sector growth, with welldefined industrial and competition policies, which are investment and business friendly. Separate commercial courts or specialized commercial chambers in existing courts will be setup. Alternate dispute resolution (ADR) mechanisms, such as arbitration and mediation, will ensure expeditious disposal and entail lower costs. Administrative procedures regarding approval and official clearances will be streamlined. Laws and regulations will be simplified, updated, modernized, made more transparent, and their discretionary application discouraged. Legal frameworks for protecting intellectual property rights (IPR) will be implemented to create an incentive to invest in innovation. An integrated accountability framework will be developed to enforce relevant industry standards. Pakistan standards and Quality Control Authority will be strengthened to provide the base for such a framework.
In addition to reforming the civil service and federal government organizations, an institutional framework will be put in place to mobilize the energies of the private sector, provincial and district level administration and support institutions such as industry associations, universities and research institutes. The framework will strengthen corporate governance, auditing, investor protection and contract enforcement. The central message of the institutional reform framework will be to provide a business friendly, secure, transparent, and level playing field for private sector development together with policy and regulatory regimes that incentivize investment, efficiency, innovation, and productivity enhancement. These efforts will be made successful through strong political commitment, consensus building and coordination across ministries and between the federal and provincial governments.
Removing Infrastructure Bottlenecks
Infrastructure is a major constraint on Pakistan's economic growth and competitiveness. It covers transportation, communication, water and energy. We estimate that inefficiency in the transport system imposes a cost to the economy of 4-6% of GDP. Besides that electricity shortage causes an annual loss of 7% in GDP and 2% reduction in real GDP growth. To deal with the infrastructure problems, the supply-demand gap in electricity will be minimized in the short-term. Investments made for long-term energy supply will focus on projects that are reliable and cost effective. We aim to improve the energy mix with a larger share of coal, hydel and renewable energy sources. Pakistan Vision 2025 aims to build necessary logistics facilities to support GDP growth. This will include additional high quality storage facilities, and transportation. Railways will be revived as a socially and financially viable organization, road density in rural and urban areas will be increased, ports and airports will be equipped with modern cargo handling techniques and operational capacity will be expanded according to the requirement of the growing economy.
Pakistan's economic history is one of high volatility in growth rates. This "stop-go" growth has been a feature of Pakistan's history from the 1950s to the present day. The uneven economic performance has been caused by instability in Pakistan's economic policies.
As outlined in the Macro-Economic framework, the Vision is committed to keep inflation stable and in single digits. Stable and healthy public finances will be achieved and maintained. Budge deficits will be rationalized. Cost effective and efficient measures would be taken in hand to keep government expenses and public sector resource needs, within sustainable levels, so the private sector investment is neither pre-empted nor 'crowded out'.
A policy environment will be created that enables the financial markets to naturally bring down real interest rates, consistent with sound macroeconomic management and financial supervision. The capacity of the Securities and Exchange Commission to regulate the non-bank financial sector, and the State Bank of Pakistan's capacity to ensure transparent and effective monetary policy, will be enhanced. Efforts will be made to maintain a stable exchange rate.
An efficient, globally competitive private sector is envisioned to be in the lead for realization of Pakistan Vision 2025. To that end, the Government sees itself primarily as a facilitator, enabler and regulator of private initiative and enterprise, rather than an overarching direct producer of goods and services itself. A number of Public Sector Enterprises (PSEs) are burdening the national exchequer as a result of ongoing major losses rather than generating profits. Moreover, there remain serious issues in service delivery, which is hampering economic growth. Pakistan Vision 2025 envisages converting public sector running deficit institutions into profit making entities through a combination of restructuring, partial and outright privatization. Cash-bleeding public sector enterprises which have been incurring annual losses of over Rs.400 Billion will be restructured / privatized.
Public Private Partnership (PPP)
Public private partnerships will be promoted through a comprehensive policy regime. The enhanced private sector participation would be used for better infrastructure development and improving connectivity to facilitate private sector growth. A Bureau of Infrastructure Development (BID) will be established to coordinate and oversee private sector participation in infrastructure development and provide a one stop shop facility for project approval, processing and financing.
The PPP space would also open up a number of investment opportunities, creating more fiscal space for the government. This area would be promoted through special focus on existing institutions like Board of Investment, Privatization Commission and Infrastructure Development Project Facility. A Pakistan Business and Economic Council, chaired by the Prime Minister and with equal membership of public and private sector, will be established to act as a high-level forum for guiding the overall direction of economy. Business associations, chambers of commerce, strategic working groups and industry associations will be catalysts for change. Private institutions will help guide Government policy, monitor results and mobilize broad public understanding and support for economic programs.
A Pakistan Business and Economic Council, chaired by the Prime Minister and with equal membership of public and private sector, will be established to act as a high-level forum for guiding the overall direction of economy. Business associations, chambers of commerce, strategic working groups and industry associations will be catalysts for change. Private institutions will help guide Government policy, monitor results and mobilize broad public understanding and support for economic programs.
Coordination and synchronization between fiscal, monetary, investment, commercial and industrial policy will be enhanced to facilitate investment flows and increase competiveness f the economy. Venture capital sector will be developed and Impact Investment promoted.
Pakistan's diplomatic missions abroad will be a major vehicle for attracting foreign investment. They will play a proactive role in marketing Pakistan as a land of opportunity, highlighting its comparative and competitive advantages as well as projecting a positive image of the country. Furthermore, missions will also mobilize the Pakistani Diaspora to undertake productive investment in Pakistan. Special Economic Zones, Export Processing Zones, Industrial Parks, and other specialized infrastructure will be created to encourage investment and improve returns.
New Governance Paradigm
According to SMEDA's 2013 survey, SMEs accounted for 14.9 million jobs (25% of total), working in 1.73 million enterprises, GDP of PKR 9.4 trillion (40 % of total) and export earnings of USD18.2 billion (72 % of total). SMEs also represent the most nimble and scalable part of our economy that also sits in the sweet spot of our core national goals: inclusive and indigenous growth.
We also anticipate that following the recommendations contained in recent SMEDA reports, and related studies that have already been completed, this sector can and will see unprecedented growth in: jobs (to 25 million), new entrepreneurial enterprises (reaching 2 million), GDP (to PKR 16 trillion) and exports (USD54billion). Needless to say, these targets represent a very promising opportunity for our strategic growth targets for Vision 2025.
Road-maps to meet these targets are being formalized within "program charters" – through in-depth labs/ workshops arranged for each of 10-15 most promising SME sectors – defining roles, responsibilities, and shared KPIs between all relevant stakeholders (including key private sector representatives, related federal and provincial ministries, industry regulators, banks, insurance companies, sector subject-matter specialists and vocational and other skills development institutions).
In order to gain the best potential from this engine for inclusive and indigenous growth and prosperity, a massive focus on training and skills development– to be delivered to people who will benefit most and where it is most needed – will also be ensured as a strategic priority.
Vision 2025 seeks to provide SMEs a level playing field, and a fair competitive environment. The Federal government would work with provincial governments as well as domestic and international development institutions to ameliorate the problems faced by SMEs and help them in accessing capital through small business loans. Micro-businesses will be encouraged, thus promoting entrepreneurship and innovation. The rural non-farm sector will also be revitalized by formulating job schemes or business support loans to mitigate pressure on the urban areas. Village community centers will be established to harness potential of community mobilization and promoting ideas.