Published Date: Feb 18, 2019
Boosting Sindh economy!
How can Sindh grow its economy, create jobs and increase the flow of taxes to its kitty? That was one of the subjects of discussion at a recent roundtable jointly organised by the Sustainable Development Policy Institute (SDPI) and Institute of Business Administration (IBA).
On the whole, the proposed solutions revolved around the role of government to set fair policies and regulation, leaving production activities in agriculture, manufacturing and services to the private sector, as was argued by IBA’s Executive Director, Dr. Farrukh Iqbal.
Others demanded the government to actively engage the private sector; for example, by virtue of giving private sector the leadership of organisations like Trade Development Authority of Pakistan (TDAP) and Small and Medium Enterprise Development Authority (SMEDA).
Without attempting to give an exhaustive list of suggestions to Sindh government and to the National Network of Economic Think Tanks of which the SDPI and the IBA are part of, BR Research offers the following specific proposals.
Reforms, whether taxation related (such as GST on services) or whether in terms of sectoral policies and regulations cannot bear full crop of fruits without a solid understanding of Sindh’s economy. To achieve that understanding, it is paramount that Sindh invests in district-wise social and economic database.
One cannot help recall the lament of late Tashfeen Khalid, former chairman Sindh Revenue Board, about the lack of data of service sector establishments in Sindh. In a recent interview with BR Research, Shabbar Zaidi, Chairman A.F. Ferguson & Co, also echoed similar sentiments when he pointed out to the state’s ignorance of the number of shops and hotels in Karachi’s Saddar area. Filling such information gap is critical for Sindh’s success.
Another fundamental reform that Sindh has to work on is proper market-based valuation at the time of recording of urban property transactions within the province. The most recent State of Economy report by the central bank shows that plots in Karachi gave a return of 129 percent during 2013-2018 whereas KSE-100 gave return of 100 percent and equity funds 131 percent. Plots in Lahore yielded a return of about 55 percent during the same period.
The point being that investments in plots and real estate in Sindh is a classic dead capital that is giving unfair competition to investments in productive sectors. Assuming that most people want to invest in the province they live in, when the recording of urban property transactions at market value will substantially reduce real estate speculation, the move will eventually channel a decent size of real estate sector savings (whether earned through ill-gotten means or not) to more productive sectors within the province of Sindh.
The move may also slow the speculative growth in price of industrial land, which unnecessary inflates the capex for industrial projects, although other measures also need to be taken to ensure that cost of industrial land doesn’t go out of proportion.
In terms of economic sectors Sindh has a host of options to work with. These include farming value added, livestock, the sea economy, housing sector and labour exports. While there is no doubt about the potential of livestock sector, in terms of exports it is a 10 to 15-year dream given high prevalence of foot and mouth disease in Pakistan’s livestock sector, amongst other problems. Instead, the development of sea economy offers more potential.
Pakistan’s sea economy hasn’t been a big sector ever, save for the presence of some shipping giants before nationalisation. A myriad of reasons account for that, details of which have been discussed before (See BR Research ‘Fishing peanuts’ August 16, 2018 & ‘Seafood economy: can PTI bell the cat?’ August 27, 2018). But that doesn’t necessarily mean that sea economy – from sea sports to sea food – cannot be kick started. Given the service sector nature in the case of former, and shorter lifecycle in the case of former, sea economy offers quicker realisation of potential.
Housing of course is a nationwide issue; Sindh doesn’t have a monopoly on that problem. But in the long run, possible production of fly ash cement from the coal-fired power plants (e.g. by Hubco or mine-mouth power plants in Thar) can potentially offer great dividends to Sindh, by way of being closer to the production centres. Initial channel checks suggest that fly ash cement is currently cheaper than ordinary portland cement and also used in much less quantities than the OPC. But that has to be explored in detail!
Lastly, Sindh’s ratio in labour exports is poor. According to Economic Survey FY18, Sindh’s share in overseas workers was about 10 percent, whereas the province’s share in total population is around 25 percent. Sindh’s economic managers need to address this gap; not through quotas but by strengthening the market of vocational training and labour exports.
Since devolution, Pakistan’s future economic growth rests in greater part with the provinces. In light of this, and the just-started negotiations on inter-governmental fiscal transfers, the National Network of Economic Think Tanks needs to explore how the federal government can incentivise provincial government to foster economic activity in the sectors that lie squarely in provincial domain.