A 'niche-based' strategy

By Shahid Javed Burki

In the article published in this space on February 17, I proposed that policymakers in Islamabad could follow a new and somewhat novel strategy for bringing about a marked increase in the country's rate of economic growth. Such a policy, I suggested, could help Pakistan to leapfrog from a position at the back of the row of developing Asian economies to the one close to the front.

Such a strategy would exploit systematically and in an intelligent way three extraordinary advantages Pakistan possesses in terms of its physical and human endowments - an enviable geographical situation, an agricultural sector with great but still to be utilized potential, and a young population that also happens to be very large - soon to be the fourth or fifth largest in the world. I discussed the advantage bestowed by geography in the article cited above.

I suggested that, with the right kind of investments in physical infrastructure and human development, Pakistan could occupy a strategic and profitable place at the cross-roads of two highways of regional commerce.

One of these highways would connect China with the Pakistani ports on the Arabian Sea, then onto the Middle East, and the other would link India with Afghanistan and Central Asia.

Today, I will write about the interaction between agriculture and population for lending dynamism to Pakistani economy. The beauty of such a strategy is that it would help turn Pakistan's two impressive endowments - a large population and a potentially rich agricultural sector - into impressive economic assets. This would happen by recognizing that an intelligent use of well trained and educated workforce could increase enormously the productivity of agriculture.

Pakistani planners don't often recognize that they could use the country's rich agricultural base on which to build the structure of a modern economy. Pakistan's agriculture has enormous potential not only because of the fertility of the soil but also because the land the country's diligent farmers cultivate is irrigated by one of the world's great river systems - the Indus and its tributaries.

Thanks in part to the ingenuity of the engineers who developed the system from the time of the Mughals, the British and the early days of Pakistan, the country now has the largest contiguous irrigated area in the world.

Water in the system is available throughout the year and in sufficient quantities to grow high value crops. Pakistan's irrigated area is much larger than that of the Colorado and California systems and the system in the Indian states of Punjab, Haryana and Rajasthan.

Unfortunately, a combination of government policy and poor base of knowledge of the millions of farmers who till the soil in this system, agricultural productivity remains low.

The government could have laid down the policy framework to guide the farming community towards producing higher productivity crops. It could have set up institutes of agricultural research and technology to help the farmers move towards new patterns of production.

It could have helped to create a system of finance to provide credit and management know-how to the farming community. It could have created an infrastructure to move the agricultural surplus from the farmers to the market place.

And it could have developed markets abroad for the country's surplus agricultural products. None of this was done systematically. But all is not lost and the extraordinary potential of the agricultural sector could still be realized.

The government of Pervez Musharraf - in fact, the president himself - has recognized that Pakistan has a great deal to do to preserve and further develop its large water resource.

This will need not only the construction of new reservoirs - something that the president has repeatedly emphasized in his many public pronouncements - but also to improve the quality of the large system that already exists.

It has been known for many years that a significant amount of water is wasted because of the poorly aligned and porous primary, secondary, and tertiary canals that carry water from the four major rivers that flow through the country - the Indus, the Jhelum, the Chenab and the Ravi - to the millions of acres of land still thirsty for water.

A large labour-intensive public works programme could be launched aimed at cleaning the tens of thousands of miles of irrigation channels that bring water to the land under cultivation.

Labour intensive works could also be undertaken to line the canals with bricks and mortar in the sections where leakages occur. Surplus rural labour could also be used to build farm to market roads.

Such a programme could be entrusted to the newly created local bodies. It could be financed jointly by the state and the farming communities that would benefit enormously from this type of investment. That way the burden on the national exchequer would be reduced.

This is, however, not the only way Pakistan could put to good use its large and young population. Unfortunately Pakistan, one of the world's most populous countries, has not taken advantage of the window of demographic opportunity that has opened up in recent years.

The reason for this is not any lack of imagination on the part of the country's entrepreneurs. The problem has been the government which, in the politically chaotic period of 1988-99, created so much uncertainty among the managers of Pakistan's fledgling private industry that they understandably opted for a wait-and-see approach.

That should now end. Pakistan's private sector should now begin to direct its attention towards the opportunities that are coming its way as a result of the massive restructuring of the global economy brought about, in part, by the fundamental demographic change that is afoot in most parts of the developed world. I have covered this subject before in this space pointing out the opportunities created for the poor but populous countries by what I have described as "demographic asymmetry."

This asymmetry has been caused by the rapidly declining rates of fertility in developed countries while the populations in much of the developing world continue to increase.

My suggestion is that the authorities in Islamabad - those who look after finance, planning, commerce and investment - should carefully note the opportunities created for Pakistan by this development and by the way the global economy is changing. Such an examination should identify the niches in the global economy Pakistan could occupy for itself.

In that context I should mention that sometimes casual observations can help to point a way towards economic progress. Some years ago when I worked as the World Bank's Vice President of Operations in Latin America, I had the opportunity to get to know the region well.

As a part of my job I paid visits to many countries from Mexico and Central America in the north and Argentina and Chile in the south. On one of these visits - to El Salvador in Central America - I met a group of entrepreneurs who had developed an extraordinarily powerful industry based on meeting America's growing demand for seafood.

This group of El Salvadorians had decided that there was considerable value to be added if prawns - a favourite seafood in America - was not exported in raw form. Profit margins would be considerably higher if prawns already cooked on skewers were dispatched directly to the supermarkets and restaurants.

This turned out to be an amazingly successful business plan. It was also labour intensive and provided well paid jobs to thousands of people. And it created a unique set of opportunities for the country's transport sector.

How could Pakistan get into this kind of business? One answer to this question is based on another personal observation. Last summer my wife and I drove close to a thousand miles in northern England and Scotland.

We were struck by the fact that even in small towns the only thing that was palpably foreign and ethnic were "balti ghosht" restaurants. Given the cost of labour in Britain and given the presence of a dynamic expatriate community from Pakistan settled in that country and already engaged in various businesses, a new line of activity could be developed.

It is not inconceivable to imagine that the fare served in these mostly "take-out" ethnic restaurants could be prepared and flown from Pakistan. Admittedly, Pakistan is a long way from the United Kingdom. But distance has not stopped flower growers in Ecuador from supplying florists in Miami and points beyond.

Even with air freight included in the business plan, it would still be attractive for entrepreneurs in Pakistan and Britain to construct a supply chain starting with kitchens in Pakistan and ending either in the shelves of grocery stores or on the tables in Britain's ethnic restaurants. This is an example of one of the many niches Pakistani exporters could develop.

There are significant changes in lifestyles in the post-industrial societies that are opening new but not easily recognized niches in the economies of the western world.

That is why more and more opportunities are available for the countries that have the labour force prepared to do the kind of work shunned by the workers in the West. It is for this reason that I believe there is profit in building a supply chain originating in Pakistan's kitchens with their preparations carted by planes to consumers in the West.

These supply chains could incorporate specially equipped trucks and aeroplanes to ferry the produce from Pakistan to various points of distribution in Britain and other countries.

These distribution points could serve grocery stores and restaurants scattered around the country. This is exactly what the prawn exporters are doing in El Salvador to serve the lucrative American market.

This is just one example of the way one part of the Pakistani production system could successfully exploit adding value to an important part of the agricultural economy (livestock, fruits and vegetables) by using the talent available (chefs, meal planners, food-packers) to transform raw material into finished products (cooked meals) and transport them by the cargo planes of domestic airlines (not just PIA but also privately owned carriers) for distribution to a chain of restaurants and take-out stores that have become such an important part of the post-modern British lifestyle.

There are several other examples where such a strategy could bear fruit. Let me mention one other possibility. The abundant availability of raw material (cotton fabrics) and talent (fashion designers) in Pakistan could create a niche in America and western Europe.

We can notice the impact oriental fashions are having on western consumption. Take a look at the display windows of such large stores as Harrods, Selfridges, Marks and Spencer, Macys and you would recognize instantly that South Asian designers are having a major impact on what the young in the West are now wearing. Pakistan now has a fledgling fashion industry in cities such as Karachi, Lahore and Islamabad. This could go international with some help from the government.

What is the government's role in getting such a "niche-based" strategy to work? Building the kind of complex supply chains I have described above requires skilled people.

The government could help by setting up specialized institutions to train people in food product marketing, clothing design, air transport of delicate cargo. It could provide tax incentives to invite venture capitalists to invest in these new industries.

It could improve financial regulations to help the banking industry and capital markets to promote the development of a host of new enterprises serving new markets.

It could encourage the airline industry to develop the capacity to deliver perishable products quickly and reliably from production centres in Pakistan to centres of consumption in America and Europe. What is required is a vision supported by a strategy to turn Pakistan's large and young population into skilled entrepreneurs catering to the rapidly changing global market place.

[taken from http://www.dawn.com/2004/03/09/op.htm]

Date/Time Page Created: 12/01/2004

Date/Time Last Modified: 12/1/2004 8:30:12 AM

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