Punjab’s economic importance

Published: May 13, 2012
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The writer is a former vice-president of the World Bank and a former caretaker finance minister of Pakistan

The writer is a former vice-president of the World Bank and a former caretaker finance minister of Pakistan

Much of what happens to the Pakistani economy in the future will be determined by what happens in its provinces. Islamabad is too distant from the citizenry to address their immediate problems and to design a better economic future for them. One reason that Islamabad dominated policymaking in Pakistan was the long rule by the military. The military believes in a highly centralised command and control system of management. That may work for facing an external enemy. But it is not the right way to manage a country that has close to 200 million people who are also extremely diverse in their ethnic composition, the languages they use and their state of economic and social development. They need to have governments that are physically closer to them. That is why provincial, economic and social development must receive serious attention.

Under the Eighteenth Amendment of the Constitution, provinces have been given a much greater say in their development. How they should make use of the opportunities now being offered in order to improve the lives of their citizens will depend not only on the quality of governance that democracy produces for them but also on their demographic and economic situation. In a country as large as Pakistan, the provinces have different economic potentials that need to be understood by policymakers.

According to recent estimates, Punjab’s population is approaching the 100 million mark. The current size of the population is more than five times what it was in 1947 when the province became a part of Pakistan. Punjab then had a population of 18 million of which only two million lived in urban areas. Its urban population is now just a bit less than 50 million, three times the size of the province’s total population at the time of Pakistan’s birth.

This demographic transition has had several consequences but the most important consequence for the province’s future is the median age of its population, which is 22 years. This means that about 50 million of the people are at or below that age. By providing its youth with education and appropriate skills, the province could ensure a better economic future for itself. Ignoring the development of this cohort would mean political and social instability. Any program for provincial betterment must, therefore, focus on educating the young and providing them with modern skills.

Over the last 65 years, Punjab’s economy has done better than the average for Pakistan. For the final quarter of the 20th century, the provincial product grew at a rate of 0.1 per cent more than the national average; 5.1 per cent a year compared to five per cent for Pakistan as a whole. The annual report launched a few weeks ago by the Lahore-based Institute of Public Policy has an interesting finding about the relative rates of economic growth for Pakistan taken as whole and for the province of Punjab. The province does much better than the country when the economy is moving at a sluggish pace. For instance, in the relatively sluggish 1990s, when the national product increased at a rate of 4.4 per cent a year, Punjab’s gross income increased at a rate of 4.8 per cent. It was the reverse in the more rapid growth period of the 1980s. Then, the Punjab economy expanded at a rate 0.1 per cent a year less than the national average; six per cent versus 6.1 per cent. The reason for this behaviour of the provincial economy is the smaller share in manufacturing which is usually the sector that does better when the economy is growing rapidly. Its share in agriculture is larger than the national average. Agriculture has fewer ups and downs in growth rates.

There is an important change taking place in the structure of Punjab’s agriculture sector. The share of crops in the provincial product has declined in recent years, from 52.9 per cent in 1999-2000 to 46.8 per cent in 2010-11 due to a significant increase in the share of livestock in the agricultural economy. The share increased by as much as 7.5 percentage points; from 44.2 per cent to 51.7 per cent in the same period. One reason for this is that province is running out of land available for the production of such land-intensive crops as sugar cane and cotton while animals can be managed in fairly constricted space.

The structure of the manufacturing sector in the province is also different from that in the rest of Pakistan. While Punjab’s share in large scale manufacturing has declined by more than a percentage point in the last one decade, from 40.3 per cent in 1999-2000 to 39.2 per cent, the share of small scale manufacturing has increased to 70 per cent. It is in this part of the manufacturing sector that Punjab has a clear comparative advantage.

The structure of the provincial economy and the recent changes within it make it clear that the province must adopt a growth strategy that will be significantly different from the one that would make sense for other parts of Pakistan. What the design of such a policy should be will be taken up in a later article. Next week, however, I will look at the differences among the various regions of the province. These differences must also inform the making of economic public policy.

Published in The Express Tribune, May 14th, 2012.

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Reader Comments (13)

  • Meekal Ahmed
    May 14, 2012 - 12:46AM

    Interesting, Burki sahib.

    I am surprised you say agriculture has fewer ups and downs. I would have thought that there is more year-to-year volitility in agriculture than in other sectors of economic activity if for no other reason than the weather.

    I am sure the share of small-scale manufacturing has increased in the other provinces as well. We all know this sector is the back-bone of manufacturing output, employment and exports in Pakistan.

    Even in a country such as the USA, it is the small-to-medium scale enterprises that create most of the jobs — giving lie to Republican claims that there should be more tax cuts for the super-rich since they are the “job creators”.

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  • May 14, 2012 - 12:51AM

    How come two million people in Punjab live in urban areas. Appears that Lahore and Faisalabad have more than that. Punjab has been systematically targeted and LSM specially in textile has been worst hit. Even SSM has not been spared during long hours of power outages. The data in this regard is not collected in a scientific way – only a fix multiplier is used for small scale manufacturing. So real picture can be different. Without serious industrial policy design, Punjab will suffer more. Rural areas/crop sector of Punjab suffered owing to increasing cost of inputs. Small scale farmer <6 hector is worst hit owing to inflationary pressures.

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  • May 14, 2012 - 1:02AM

    In my previous message, my reading about population was incorrect rest is fine.

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  • Max
    May 14, 2012 - 1:20AM

    Mr. Burki,
    I am not sure what to make of statistics manipulation by the IPP. I will be little careful in interpreting the data given the growth that has been barely above the national average, and some years below the national average. So it is cyclical which is understandable. We also need to look at the growth of population. The picture that you very eloquently present is not that good rather very depressing. This is the sector where Pakistan has to work very hard. Such an enormous growth of population particularly of the younger cohort is alarming. It is the major source of un-goverability, and religious radicalism etc.
    The growth is small scale manufacturing is impressive but it is mostly in just few sectors i.e., textile including carpet weaving, construction hardware, agricultural/food processing, sports and surgical goods beside domestic consumable goods. It need to be broadened. Second it is mostly in and around Gujranwala-Sialkot or Lyallpur and to some extent around Multan-Bahawalpur. There is a need to broaden it and make it to move smaller towns rather villages.
    Having said this we also need to keep in mind that both the province and the nation need to have an extensive taxation system that is free of patron-client relationship between the investor and the bureaucracy.
    Also what went wrong with large-scale manufacturing? Whom should we blame, the government policy, greed of the bourgeoisie, or current social environment?

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  • ANON
    May 14, 2012 - 2:16AM

    Tell this to PPP who are hellbent on destroying Punjab’s economy. For them Punjab is equal to PML-N. So no gas and electricity for Punjab.Recommend

  • Irfan
    May 14, 2012 - 4:37AM

    Looking Forward to it doc..

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  • Falcon
    May 14, 2012 - 10:28AM

    @Meekal Ahmed:
    In my humble opinion, there are multiple factors affecting agricultural volatility; business cycles and weather being two of those with former affecting the demand side and weather affecting the supply side. However, I assume that since the demand is consistent, any fluctuations in supply unless addressed through imports will lead to surge in domestic prices providing similar profits and therefore low volatility in general. However, past trends in weather and its affects on agricultural sector in Pakistan might not be extrapolatable in the future because more climactic volatility is expected in the region in the coming decades.

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  • rafiq
    May 14, 2012 - 10:56AM

    i thnk businessman in punjab should invest more in energy sector there is lot of potential there cause only big problem at moment for punjab is energy if this solve we can compete with india and china in textile sector and create million of jobs and exports could go further

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  • May 14, 2012 - 11:11AM

    A major reason for huge budget deficits in Pakistan is the lack of fiscal effort by the provinces. With some of the largest segments of economic activity such as agriculture, real estate, and services in the provincial domain, the provincial tax receipts total an abysmal 0.7 percent of GDP. Punjab being the largest province with more than half the population needs to take the lead here to improve the fiscal situation.

    http://www.riazhaq.com/2011/05/pakistans-tax-evasion-fosters-foreign.html

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  • Meekal Ahmed
    May 14, 2012 - 6:52PM

    @Riaz Haq:

    I agree. But they won’t.

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  • let there be peace
    May 14, 2012 - 9:05PM

    Is there any comparison available between Pakistani Punjab province and Indian Punjab state or with combined Indian Punjab+Haryana+Himachal Pradesh states (someone said they were all part of same Punjab province before partition).
    I hope some analyst writes a well researched article. If not, I suggest at least @Riaz Haq sahib to do it on his blog, since he is very fond of selective comparisons between India and Pakistan.
    (BTW is it true what one Indian commentator claimed, that the part of Punjab that Pakistan got in partition was richest part of Undivided India?)

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  • Amjad
    May 15, 2012 - 6:55AM

    @let there be peace: I know that there are problems in the Indian Punjab with drug abuse and other issues but I think that the economy there is also doing well compared to most of India. Punjabis tend to be hard working people on both sides of the border and you’ll notice that unlike many other South Asians in the West, few Punjabis ever seem to go on welfare or state khayrat- they prefer to work.

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  • May 16, 2012 - 5:20AM

    @Amjad: I agree. Poverty rate in Indian Punjab is about 10 percentage points below India’s national average. Overall, the latest World Bank data shows that India’s poverty rate of 27.5%, based on India’s current poverty line of $1.03 per person per day, is more than 10 percentage points higher than Pakistan’s 17.2%. Assam (urban), Punjab and Himachal Pradesh are the only three Indian states with similar or lower poverty rates than Pakistan’s.

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