Charter of the Future: tapping Pakistan’s potential

It will help achieve 7% economic growth without sparking twin-deficit crisis

ISLAMABAD: How do we unleash the potential of people of Pakistan? Some of us do take pride in our location. However, we consider the people of our country the real asset.

We have a young, ambitious and large population - and this, above everything else, is the greatest asset. No number of factories, bridges, roads, corridors, foreign investment and ports can propel our economy and culture forward like the investment in youth.

We want to propose the Charter of the Future to achieve economic growth of 7% without encountering a twin-deficit crisis. Here are five pillars of the Charter of the Future:

Dense and mixed-use cities

Think of agglomeration as beehives to make a lot of honey - you need a lot of bees. Or think of agglomeration as the human mind - while individual neurons are meaningless sparks, billions of them result in human consciousness.

If we want our nation to evolve faster, we must develop our cities as agglomeration of diverse talent, ideas and firms.

China’s industrial/export development model was led by city governments. One of the key performance indicators of the city governments was to facilitate the number and size of businesses.

Here in Pakistan, the city governments are mostly busy in demolishing or hindering businesses. We need to change this mindset and the incentive system of our city governments.

City management functionaries need to be held accountable for businesses, investment and job creation. They need to carry out urban regeneration to convert state land in cities into commercial, industrial and public places.

Cities are supposed to connect people, places and ideas. Our archaic urban planning approach has been relying on rigid tools like master planning for separating commercial and residential places in the core of cities.

We have exclusive and elite residential enclaves in the core of cities. This practice needs to be abandoned to move towards dense and mixed-use urban centres.

Global value chains

Whether it is trade or capital, Pakistan is clearly not part of the global value chain. This has led to not only lost opportunities, but a very narrow and limited approach to how we engage the world.

We have to bravely embrace an international approach to all our affairs, which means simplifying visas and entry into Pakistan, allowing the world to work and study in Pakistan effortlessly, enabling Pakistanis to study, live and work abroad, reducing taxes on trade and investment, allowing Pakistani capital to move freely and building new linkages with countries around the world.

We cannot isolate ourselves from the world and succeed. The Chinese tried it a few centuries ago and paid the price. We should learn from the new China that is building roads to the world, not the old China that burnt its boats.

Pakistan’s first step towards the global value chain integration should be a drastic reform of its tariff structure, which is currently aimed at import substitution and revenue generation.

The National Tariff Policy 2019 has already laid out key principles for tariff reforms. The implementation of the tariff policy can be helpful.

The share of engineering goods in global trade has increased enormously. Pakistan’s exports are still dominated by the textile sector. Pakistan’s export basket has still high concentration of products made of cotton.

There is a need to move towards polyester (man-made) fibre to attract high prices in the global market. Pakistan needs to remove the protectionist regime in auto components in order to become a trading hub for the engineering components.

Lastly, regulatory reforms in banking, taxation and movement of foreign exchange are needed to enhance exports of the IT sector.

Taxation not extortion

We keep crying about the low tax-to-GDP ratio. The first priority of the government should be to improve the efficiency of spending. What if the same $50 billion could achieve better value for money?

What about taxes? The current tax regime punishes transactions and rewards hoarding. Pakistan’s high sales tax rate of 17%, the withholding tax regime and turnover tax of 1.5% are the biggest hurdles in the way of expanding the economy.

Taxes should be applied to income not on transaction. Revenue authorities have failed to modernise themselves in order to collect income/capital gains tax and are relying on withholding taxes.

Tax is the function of economic expansion. The goal for the economy should be to reach 25% investment-to-GDP ratio from the current level of 15%. This will improve tax collection and job creation.

Cities need to allow high-rise buildings and they should earn taxes and revenues from value creation in urban properties.

Empower not control

The current approach to governance is focused on control not empowerment. To legitimise the regulatory power, we create a system of incentives and subsidies that creates groups of people with vested interests in defending the status quo.

Every institution we create becomes a roadblock to the very goal it is meant to facilitate. The Engineering Development Board is a hurdle in the way of the engineering sector, the Board of Investment is an obstacle to the ambitions of investors and so on. Regulators are making profits instead of promoting markets.

Every government department or agency should be empowered to undertake its work and then it should undergo an independent performance evaluation in order to assess the performance against intended output, outcome and impact.

Thinking state

Currently, the state of Pakistan has a very little thinking capacity. The reason is low investment in research and secondly the perverse incentives which encourage firefighting. Most of the public-sector research centres have already become bureaucracies.

We need to think of an innovative model instead of creating rent-seeking public-sector organisations. Training, promotion and posting systems of public servants are archaic and inefficient. There is a need to allocate resources for research under each ministry/organisation and then an innovative design is needed to align the research with the economic, technological and societal challenges.

Shahjahan Chaudhary is the Director of National Incubation Centre, Karachi and Naveed Iftikhar is a public policy adviser, researcher and teacher having interest in cities, governance and entrepreneurship

Published in The Express Tribune, December 23^rd, 2019.

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