Infrastructure quality in urban areas influences worker productivity
Challenges to urban centres that inhibit their potential should be fully addressed
PHOTO: REUTERS
KARACHI:
Recent heavy rains that lashed Karachi exposed not only several deficiencies in the infrastructure of the city but also highlighted incompetency in the management of those responsible to maintain and uplift the infrastructure.
Although the population of Karachi in the latest census was estimated at 14.9 million, unofficial sources and demographic experts claim that the city plays host to more than 22 million residents.
Regardless of the discrepancy, Karachi is not only the largest city in Pakistan with major seaports but also its commercial and industrial hub. It contributes a significant proportion to the national gross domestic product (GDP) and attracts rural migrants from all over the country.
Recent challenges that brought the city to a standstill have major implications for the national economy.
According to the World Bank Development Indicators, Pakistan had 36.7% of its population living in urban areas in 2018. The average for South Asian countries is 34% and for countries classified as lower-middle-income is 40.5%.
Furthermore, the urban population growth rate in Pakistan, at 2.7%, is higher than the average for South Asia, at 2.5%, and for lower-middle-income countries, at 2.6%. Interestingly, Bangladesh reported a high urbanisation growth rate of 3.2% in 2018. It is now as urbanised as Pakistan.
In 2002, less than a quarter of its population lived in urban areas while more than one-third of the total population in Pakistan lived in urban areas.
The influx of rural migrants is a contributing factor to the higher urban population growth rate as the rural population growth in Pakistan and national population growth, reported at 1.7% and 2% respectively in 2018, are both less than the urban population growth rate.
High levels of urban population growth in developing countries are often associated with transitions in the economy from an agricultural-based society producing crops and livestock to mass production through industry and services. In essence, the migrants are likely to change their economic activities from being agricultural producers to workers in urban industrial and services sectors.
According to the World Bank report titled “Transforming Karachi into a Livable and Competitive Megacity: A City Diagnostic and Transformation Strategy” published in 2018, Karachi generated 11.4% of national GDP and accounted for 5.5% of total domestic employment in 2012.
The city’s gross value addition (GVA) per worker was one of the highest in the country as its large size allows it to benefit from various spillover effects across not only different industries but different economic activities. For instance, several industries benefit from the expansion of other industries while auxiliary services may evolve around certain industries. However, labour productivity, as measured in terms of GVA per worker, grew at a negligible rate of 0.47% per annum between 2000 and 2012.
The report recognised significant infrastructure gaps in Karachi, which may have exacerbated congestion in the city as its population rapidly increased over the years.
Comparison with South
Asian average
The dynamics in the rural economy and in the urban economy are vastly different. The urban economy is mostly dependent on either manufacturing industries or the services sector, with the agriculture sector being almost negligible.
Rural migrants are often likely to find employment in the formal manufacturing sector or the informal services sector. However, with the current drive to document the economy and to increase tax collection, employment opportunities in urban areas may have been dampened.
The percentage share in GDP of the agriculture sector in Pakistan was 22.6% and employment in agriculture was 41.7% of the total employment in 2018.
The former is greater than the South Asian average but the latter is smaller, indicating that worker productivity in agriculture in Pakistan is likely to be greater than the average for the South Asian region. This suggests that the agriculture sector in Pakistan has the potential to absorb more workers.
On the other hand, employment in the industry in Pakistan is 23.6% of total employment while its share in GDP is 18.2%. The former is similar to the South Asian average but the latter is approximately 30% lower, suggesting that worker productivity in the industry is much lower than that observed on average in the South Asian region.
Similarly, the employment in services is 34.7% and its share in GDP is 53.5%. Therefore, non-agricultural economic activities contribute the majority of the GDP and employment in Pakistan. With industrial and services sectors mainly concentrated in urban areas, the quality of infrastructure in urban areas does influence worker productivity and overall national GDP growth.
Import expansion
Furthermore, Pakistan reported remarkably high levels of import growth since 2016. Annual growth in imports of goods and services exceeded 16% between 2016 and 2018.
Although current restrictions on imports are likely to reduce their growth, the composition of imports suggests that the surge in imports has an urban bias. Pakistan mostly imported fuel for power generation and transport purposes, transportation equipment and power generating equipment.
Imports of fertilisers, other agricultural inputs, and fuel for agricultural production were a smaller proportion of total imports into Pakistan.
Although Pakistan’s major exports are considered agro-based as they require inputs from the agriculture sector, such as textile products and leather products, manufacturing activities that transform raw material into finished products and account for a significant proportion of value addition take place in and around urban areas.
Even though rice, as a product at HS six-digit level, reports the highest export value, other products ranked in the top-10 exports include apparels and made-up textile articles. These are likely to involve certain level of manufacturing activities to convert from agro-based raw material. This is likely to take place in industrial zones in and around urban areas.
The government must make significant efforts to boost agricultural productivity and ensure income is distributed amongst poorest farmers to not only reduce rural to urban migration but also promote local production of important agricultural resources.
However, it is imperative that all stakeholders, regardless of party affiliation, ensure that the challenges to the urban areas that inhibit their potential are fully addressed. Deficiencies otherwise will impact the national economy.
The writer is the Assistant Professor of Economics and Research Fellow at CBER, IBA
Published in The Express Tribune, August 19th, 2019.
Recent heavy rains that lashed Karachi exposed not only several deficiencies in the infrastructure of the city but also highlighted incompetency in the management of those responsible to maintain and uplift the infrastructure.
Although the population of Karachi in the latest census was estimated at 14.9 million, unofficial sources and demographic experts claim that the city plays host to more than 22 million residents.
Regardless of the discrepancy, Karachi is not only the largest city in Pakistan with major seaports but also its commercial and industrial hub. It contributes a significant proportion to the national gross domestic product (GDP) and attracts rural migrants from all over the country.
Recent challenges that brought the city to a standstill have major implications for the national economy.
According to the World Bank Development Indicators, Pakistan had 36.7% of its population living in urban areas in 2018. The average for South Asian countries is 34% and for countries classified as lower-middle-income is 40.5%.
Furthermore, the urban population growth rate in Pakistan, at 2.7%, is higher than the average for South Asia, at 2.5%, and for lower-middle-income countries, at 2.6%. Interestingly, Bangladesh reported a high urbanisation growth rate of 3.2% in 2018. It is now as urbanised as Pakistan.
In 2002, less than a quarter of its population lived in urban areas while more than one-third of the total population in Pakistan lived in urban areas.
The influx of rural migrants is a contributing factor to the higher urban population growth rate as the rural population growth in Pakistan and national population growth, reported at 1.7% and 2% respectively in 2018, are both less than the urban population growth rate.
High levels of urban population growth in developing countries are often associated with transitions in the economy from an agricultural-based society producing crops and livestock to mass production through industry and services. In essence, the migrants are likely to change their economic activities from being agricultural producers to workers in urban industrial and services sectors.
According to the World Bank report titled “Transforming Karachi into a Livable and Competitive Megacity: A City Diagnostic and Transformation Strategy” published in 2018, Karachi generated 11.4% of national GDP and accounted for 5.5% of total domestic employment in 2012.
The city’s gross value addition (GVA) per worker was one of the highest in the country as its large size allows it to benefit from various spillover effects across not only different industries but different economic activities. For instance, several industries benefit from the expansion of other industries while auxiliary services may evolve around certain industries. However, labour productivity, as measured in terms of GVA per worker, grew at a negligible rate of 0.47% per annum between 2000 and 2012.
The report recognised significant infrastructure gaps in Karachi, which may have exacerbated congestion in the city as its population rapidly increased over the years.
Comparison with South
Asian average
The dynamics in the rural economy and in the urban economy are vastly different. The urban economy is mostly dependent on either manufacturing industries or the services sector, with the agriculture sector being almost negligible.
Rural migrants are often likely to find employment in the formal manufacturing sector or the informal services sector. However, with the current drive to document the economy and to increase tax collection, employment opportunities in urban areas may have been dampened.
The percentage share in GDP of the agriculture sector in Pakistan was 22.6% and employment in agriculture was 41.7% of the total employment in 2018.
The former is greater than the South Asian average but the latter is smaller, indicating that worker productivity in agriculture in Pakistan is likely to be greater than the average for the South Asian region. This suggests that the agriculture sector in Pakistan has the potential to absorb more workers.
On the other hand, employment in the industry in Pakistan is 23.6% of total employment while its share in GDP is 18.2%. The former is similar to the South Asian average but the latter is approximately 30% lower, suggesting that worker productivity in the industry is much lower than that observed on average in the South Asian region.
Similarly, the employment in services is 34.7% and its share in GDP is 53.5%. Therefore, non-agricultural economic activities contribute the majority of the GDP and employment in Pakistan. With industrial and services sectors mainly concentrated in urban areas, the quality of infrastructure in urban areas does influence worker productivity and overall national GDP growth.
Import expansion
Furthermore, Pakistan reported remarkably high levels of import growth since 2016. Annual growth in imports of goods and services exceeded 16% between 2016 and 2018.
Although current restrictions on imports are likely to reduce their growth, the composition of imports suggests that the surge in imports has an urban bias. Pakistan mostly imported fuel for power generation and transport purposes, transportation equipment and power generating equipment.
Imports of fertilisers, other agricultural inputs, and fuel for agricultural production were a smaller proportion of total imports into Pakistan.
Although Pakistan’s major exports are considered agro-based as they require inputs from the agriculture sector, such as textile products and leather products, manufacturing activities that transform raw material into finished products and account for a significant proportion of value addition take place in and around urban areas.
Even though rice, as a product at HS six-digit level, reports the highest export value, other products ranked in the top-10 exports include apparels and made-up textile articles. These are likely to involve certain level of manufacturing activities to convert from agro-based raw material. This is likely to take place in industrial zones in and around urban areas.
The government must make significant efforts to boost agricultural productivity and ensure income is distributed amongst poorest farmers to not only reduce rural to urban migration but also promote local production of important agricultural resources.
However, it is imperative that all stakeholders, regardless of party affiliation, ensure that the challenges to the urban areas that inhibit their potential are fully addressed. Deficiencies otherwise will impact the national economy.
The writer is the Assistant Professor of Economics and Research Fellow at CBER, IBA
Published in The Express Tribune, August 19th, 2019.