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Strengthening CPEC nexus with drivers of growth
Last Updated: 2020-12-11 16:11 | CE.cn
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by Haroon Sharif

Pakistan's economic growth trajectory remains on a gradual declining path with an average growth between 3-4% over the past thirty years or so.

This means that the structure of Pakistan’s economy has not changed to catch up with other emerging economies through enhanced productivity and competitiveness.

Past two years have been particularly difficult when growth rapidly declined and Pakistan had to go to IMF, China and other countries for a financial bailout to deal with its unsustainable current account deficit.

The efforts of the government must be appreciated on stablisation front where twin deficits have been brought down through financial discipline.

Looking ahead, the growth projections remain below 2% in the next two years – way lower than many Asian economies.

A slow economic period coupled with political instability may pose serious challenges in terms of country’s strategic geo-political positioning, sustaining the pace of CPEC implementation and more importantly creating opportunities for the young population entering the job market.

The biggest challenge for the government is to minimize the risk of job losses due to economic slowdown and the aftermath of COVID-19 lockdowns. Unfortunately, the second wave of pandemic has started hitting the economy again.

According to a research conducted by Pakistan Institute of Development Economics (PIDE), almost 18 million people are expected to lose their jobs in Pakistan due to COVID-19 pandemic.

The major vulnerable sectors are agriculture and services sector where more than half of these jobs are at stake. Daily wage and contract employees are among the most vulnerable to lose their livelihood.

Although there is huge focus on revival of construction sector for job creation, construction is the least affected sector in terms of potential job losses.

Similarly, the impact of job losses in large scale manufacturing and transport sectors is much lower when compared with agriculture and retail sectors.

Insofar as CPEC implementation is concerned, it is time to divert efforts from infrastructure development to value added agriculture sector investments for not only protecting the vulnerable labour force but to look at productivity enhancement through use of emerging technologies.

China and Pakistan’s partnership in the agriculture sector could lead to a major contribution towards regional food security.

The real binding constraint to Pakistan’s growth is lack of export competitiveness and productivity.

According to the Asian Productivity Organization’s Productivity Databook 2019, productivity in Pakistan is lower than other countries in the region.

It grew at the annual rate of 1.4 per cent in Pakistan from 2000 to 2017 as opposed to 3.9pc in Bangladesh, 5.8pc in India and 8.5pc in China.

The contribution of industrial and agriculture sectors declined from 21pc and 19pc in 2017-18 to 20.3pc and 18.5pc in 2018-19.

Exports have also been stagnant for want of innovation, value addition, research and a high cost of doing business.

Among several factors, shrinking share of primary sectors in GDP, lack of investment in professional skills, low level of participation of women in the labour market, resistance to developing competitive exports and continued patronage to unproductive sectors are among the key contributors to low productivity in Pakistan.

The challenge for industrial cooperation under CPEC is to tackle the issue of productivity and competitiveness through technology, evidence based polices and scaling up the skill mix of future labour force.

For this, Pakistan's reliance on the international financial institutions’ will have to be reduced and incentives will have to be created for indigenous private sector led institutions.

Large Chinese companies like Huawei can play a critical role by setting up technology based joint ventures in the food sector to demonstrate quick returns through value addition.

Both countries need to take a serious look at the mutual benefits of technology partnerships to exploit the potential of Pakistan’s comparative advantage in agriculture, information technology and access to markets in the Middle east, west and central Asia.

While fighting the unprecedented impact of ongoing pandemic, the world is also struggling to adjust with rapid shifts towards multiple centers of economic gravity.

Pakistan and China partnership is being tested in this time of great transition and the fears of a continued economic slowdown must be addressed as a priority.

A stable and prosperous Pakistan will guarantee stronger ownership of CPEC and meeting the goals of shared prosperity.

For this, both countries need to take a hard look at focusing on key drivers of growth rather than spreading CPEC thin in multiple sectors.

Infrastructure development remains a critical driver for long term growth but it must be combined with sustainable job creation and competitiveness.

It is a historical time for both countries to invest in institutional structures which could open up space for ideas, innovation and structural policy shifts.

Private sector’s role will have to be mainstreamed to deal with populist politics and strengthening CPEC nexus with sustained development.

While both China and Pakistan are committed to maintaining the pace of CPEC implementation for shared prosperity, it will be extremely beneficial for both countries to invite economic stakes from other regional countries.

Haroon Sharif, the writer is a senior economic policy thought leader and served as Minister of State and Chairman of the Board of Investment in Pakistan. 

(Editor:Wang Su)

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Strengthening CPEC nexus with drivers of growth
Source:CE.cn | 2020-12-11 16:11
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