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Copy of THE PROCESS OF INDUSTRIALIZATION IN PAKISTAN II (1977-2004)

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Muhammad Ali

on 3 March 2013

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Transcript of Copy of THE PROCESS OF INDUSTRIALIZATION IN PAKISTAN II (1977-2004)

THE PROCESS OF INDUSTRIALISATION
IN PAKISTAN II 1977 2004 INTRODUCTION During Zia's Tenure, Pakistan Experienced Return of High Growth
Rates Increased Role of Private
Sector POST - ZIA PERIOD Distinct Politically and Economically A Return to Democracy
(1988-1999) Continuity in
Policy Structural Adjustment Programmes Pakistan’s Economic Programme since 1988 has totally capitulated to the requirements of IMF and World Bank.
THE NATURE AND EXTENT OF GROWTH The Bright Side Less Rosy Side Growth in GDP at 6.5%.
Expansion in Total Private Sector
Investment. Growth in Medium and Large Scale Investment. In Fifth (1978-83) and Sixth Five Plan (1983-88), actual growth rates exceeded the targeted growth rates. Low Productivity Growth compared to 1960’s. Consumer goods had negative Total Factor Productivity (TFP), wearing apparel industry being a exception.
In fact , low contribution of TFP growth to overall growth during this period, even less than that of developing country average. Contribution of capital stock to growth was inordinately high. Little growth in employment in almost all industries between1975 and 1986. Employment in Manufacturing Sector fell despite Growth. DENATIONALISATION Need to restore private sector confidence and motivation. A policy of denationalizing agro-based industries ushered in Incentives provided to the private sector for more investment to flow in other manufacturing sectors. FIVE YEAR PLAN The Fifth Five Year Plan gave priority to producer and investment goods industries with industry based on indigenous raw material. THE PUBLIC/PRIVATE SECTOR DIVIDE It was expected that the first step of Zia’s government would be a large scale denationalization.
But this did not happen, the process of privatization was very slow.
The private sector was encouraged by removal of controls. Thus, during the 2nd half of Zia’s regime, the growth of the private sector was faster.
DEREGULATION AND LIBERALISATION Sixth Five-Year Plan Departure from Government’s earlier
policies on industry. Emphasis shifted from purely sectoral investment planning, to one which also incorporated incentives and institutional reforms to enhance the efficiency of the industrial sector. Export-led industrialization was mentioned as a policy goal for the first time.
Emphasis on moving manufactured exports towards higher value added. The fixed peg of the Rupee to the Dollar was removed, devaluing the Rupee. ZIA'S REGIMES - SUCCESS AND HIGH GROWTH Causes of Growth High Domestic Demand for Goods and Services. Remittances form Gulf Income form Illegal Trade High Investment Demand Resource Inflow from Abroad - USA SUCCESS FACTORS High Growth Rates Good relations with the US
Islamisation
Investor Confidence
Boosted Denationalisation Laws passed restricting future Nationalization PROBLEMS High dependence on Foreign Inflows.
Import substitution and export enhancement left unfulfilled.
High output but no improvement in efficiency.
The growth was mainly a result of external conditions
Failure of implementation of the policies
Effective rates of protection hindering efficiency and innovation
High drug trafficking and smuggling. THE AGE OF STRUCTURAL ADJUSTMENT: 1988 ONWARDS Adoption of SAP had a significant influence on the Industrial Sector: Major emphasis of Structural adjustment program was on enhancement of growth by encouraging the Private Sector. SAP - Access to an extended fund facility from IMF as well as sectoral loans from the World Bank in exchange for many structural adjustments in the economy. GENERAL PLAN OUTLOOK IMF/World Bank’s induced Conditionality (1988-91) outlined the following industrial policy for the Government:
De-Regulation.
Reducing the level of protection accorded to different Industries.
Reducing the list of restricted import items & those subject to quantitative restrictions. Other Direct Impact Criticisms and Consequences Increase in level of Indirect Taxation. Withdrawal of Subsidies on Gas, Electricity, Telephones and Fertilizers. Increase in producer prices of crops and Petroleum Products. Reduction in Public Sector Development Spending. Restriction on Government Borrowing and concessional credit to Private Sector. Multi-lateral financial institutions: The use of concessional and targeted financing distorts capital allocation and causes financial repression. Level of exports determined by competitiveness, quality, tariff policy, and exchange rate policy. Interest rate subsidies cannot compensate for lack of competitiveness, poor quality, - only creates further distortions. ASSESSING THE IMPACT ON THE INDUSTRIAL SECTOR Analysis of the Industrial Sector is found through evidence and not the data directly (CMI data is only till 1991). Fixed and Public Investments are declining because of the heavy reliance on the Private Sector. A major contributing factor in this decline is because of the sructural adjustment programme which was initiated in 1988. For Example The increase in borrowing coupled with the increase in interest rates and changing the structure to a liberalized market determined reform. The cost of utilities like gas and electricity also increased and tariff rates decreased which led to increased competition from foreign investors. This constituted into a trickle down effect and damaged the industrial sector of Pakistan. THE EMERGENCE OF A NEW BREED OF ENTREPRENEURS UNDER ZIA Transformation in the Country’s Industrial Elite, as a result of: Separation of East Pakistan Nationalisation Policies of
Bhutto Similarities Between the Nature of Industrialists of 1960's and 1980's Differences Between the Nature of Industrialists of 1960's and 1980's The industrial elite had good rapport with the top level of bureaucracy who in turn, turned a blind eye to the elite’s illicit practices. Loans provided through state-owned financial houses. Concessions from Government in the from of lower taxes and duties, bonus schemes and overvaluation of rupee. Both generations backed up their industrial and personal assets by floating insurance companies and banks. Both generations were almost of the same product mix: the textile industry. The newer generation adopted aggressive marketing and advertising strategies as compared to the old giants. There was more conspicuous spending and prevailing luxurious lifestyle in the 80’s industrial elite as compared to the older industrial giants. New labor laws increased cost for employers so they started to hire on contractual basis. Thank You
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