News: Lacking competitiveness
Name of the Newspaper: Pak Tribune
Date of publication: Thursday, March 15, 2007
Website: http://www.paktribune.com/business/newsdetail.php?nid=1995

EEDITORIAL: The report on "The State of Pakistan's Competitiveness 2007," prepared by the Competitiveness Support Fund (CSF) and launched by Prime Minister Shaukat Aziz on 12th March, has more or less reaffirmed the facts which were already known. Pakistan.

According to the CSF report, is a poor performer and its global competitive index (GCI) is presently at 91 out of 125 countries, but it can improve to the rank to 60 by 2010 provided the government takes necessary steps to raise the level of competitiveness of the country.

Pakistan's ranking placed it ahead of Bangladesh (99th), but behind Malaysia (26th), India (43rd), Indonesia (50th), China (54th) and Sri Lanka (79th). For the country to spring forward, the authorities should implement reforms in the macro and micro economic business environment while the private sector must improve its business strategies and operations, comply with global standards and reposition their industries and companies in world markets.

It is also necessary to prepare a new generation of business managers and entrepreneurs. Pakistan is poorer than India in a number of areas including market access, business sophistication and technology application while it is better than India in government efficiency having less red-tapism and influence of the powerful in policy making.

In specific terms, the CSF report says, India showed better performance in willingness to delegate authority, staff training, reliance on professional management, incentive compensation, research and development, technology transfer, quality of management schools and capacity for innovation.

The areas where Pakistan outperformed India included hiring and firing practices, time required to start business, real effective exchange rate, quality of electricity supply and government surplus/deficit.

With regard to macro-economy, the CSF report is of the view that Pakistan's current account and trade deficits are "unsustainable" in the long-run and will require adjustments in monetary and exchange rate policies. High growth of domestic demand has led to a significant increase in the current account and trade deficits which are currently being financed through one-off investment flows.

The report warns that continued vigilance, discipline and careful management are required to lower the twin deficits. It also says that despite recent improvements in the poverty picture, nearly one quarter of Pakistan's population continued to live below the poverty line, and reducing this figure constituted the foremost challenge for the authorities. Weaknesses related to the private sector included corporate governance, modern management and motivation of the workforce.

Going by the comments at the launching ceremony, the report seems to have been well received by the top functionaries of the government. The Prime Minister remarked that the CSF report was a wakeup call for the government as well as the private sector and they should go hand in glove to rise to the challenges confronting the economy.

The competitiveness of an economy is the cornerstone of economic growth which generates employment and reduces poverty. All arms of the government and the private sector would have to be involved to improve Pakistan's ranking in the GCI.

The Prime Minister's Advisor on Finance added that CSF offered practical initiatives to reposition Pakistan's economy regionally and globally and set it on more competitive footing. The results of such efforts would be higher productivity, increased innovation and an economy that is integrated into the global value chains.

We feel that the CSF report, a joint venture of the Ministry of Finance and the United States Agency for International Development (USAID), is a highly commendable effort to pinpoint the basic weaknesses of the economy and highlight the reasons for poor performance of the country.

For instance, the reasons for sharply deteriorating trends in trade and current account deficits in the recent past really needed to be investigated and the authors of the report deserve high marks for doing a good job. Lack of competitiveness, as expected, also appears to be the main problem of the external sector and Pakistan's ranking at 91 is really dismal.

To upgrade this rank to 60 in the next three years or so would require a lot of efforts and resolve both by the government and the private sector. Obviously, this would involve hard choices as there are no easy solutions and quick fixes. It also needs to be remembered that the competitiveness is closely linked to the health of the economy which should have the capacity to adjust quickly to the changing environment.

The CSF report has highlighted the fact that the present position in certain areas is unsustainable. Such a statement needs to be given serious attention. Along-with the improvement in incentive structure and policy environment which is the responsibility of the government, the private sector has also been urged to improve its working by taking a number of steps to make a difference.

While the suggestions emanating from the report appear to be very well founded and objective, the response from the government side, particularly by the Prime Minister, was also encouraging. It would be a real contribution if observations of the report are properly heeded and the statement of the Prime Minister is translated into action by a change in policy thrust of the government.

It would be preferable if we could fix specific benchmarks in areas where the country is most backward and then make consistent efforts to overcome the deficiencies. Also, it is unfortunate that overall working and performance of the private sector is much below the international and regional standards. In a free market economy, it is supposed to be a more dynamic sector, serving as the engine of growth.

As is obvious from the CSF report, the professionalism and innovative capacity of the private sector needs to be improved a great deal in Pakistan by adopting various techniques successfully employed by other countries. Only competitive economies with the right mix of policies would be able to survive and flourish in the changing global economic environment.