Last week this column talked about the country lagging behind in the technology revolution in the production and manufacturing processes being achieved around the globe. It talked about how the recent growth in large-scale manufacturing in Pakistan – a good proxy for industrial growth – is driven by consumerism and construction and might taper off as the growth initiatives are largely CPEC related. The solutions that were recommended included taking full advantage of the country’s abundant labour force, improving production efficiencies, processes, facilitating trade and market access etc.
The central bank in its latest quarterly report (1QFY18) has detailed a how the country can achieve industrial growth in this CPEC-led age. It points out that the China Pakistan Economic Corridor (CPEC) provides the industrial sector of Pakistan with an opportunity to modernise and become more efficient and competitive. The country can address growth constraints through various energy projects, infrastructure improvement and development of Special Economic Zones (SEZs).
But the nature of growth will depend on how the industrial transformation currently in China creates opportunities for Pakistan. The industrial transformation and modernisation aims to turn China into competitive manufacturing powerhouse, focusing on new and upgrading manufacturing processes, technological enhancement, and concentrated research and innovation efforts. This is where SBP highlights that the opportunity lies for Pakistan.
As China moves up the industrial transformation ladder, Pakistan could gain from the transfer of technology and the spillovers from China in key areas: (a) As China move towards cleaner energy, the coal plants and related machinery in the energy sector can be transferred to Pakistan that are a step up for the country in terms of modernisation and technological advancement. (b) Some assembling and fixing like smart phone and laptop assembling may relocate to Pakistan as China increases its focus on the high-end manufacturing. (c) Some infrastructure related industries in China like steel might find better utilization of their excess capacities in Pakistan under CPEC. Similarly, some allied industries like fertilizer, petrochemical, plastic might also find home in Pakistan. (d) And besides the inflow in the auto and spare part sector, there might be some lower-end machinery transfer into Pakistan like that in food processing sector as China moves up the global supply chain process.
While all these opportunities also exist for other developing countries, Pakistan stands at a higher chance to benefit from this transfer of technology due to its close proximity as well as CPEC being part of the greater vision: One Belt One Road (OBOR) initiative. SBP however, has pointed some lacunas that can minimise the return from these opportunities- all of which were also highlighted by the column last week (read: Lagging behind in a tech world, published on Friday, 19 January 2018).
Lack of skilled labour force necessitates the need for adequate skill development policy and vocational training programs. Institutional framework, governance and coordination between provincial and federal government for consistent and comprehensive support, and competitive environment are crucial. Trade openness and facilitation where the existing tariff structure of the economy needs a liberalisation are necessary to benefit fully from the opportunities provided by CPEC, according to the SBP. And finally what this column has also highlighted, the sustainable resource base that includes water availability needs to be addressed as increased industrial activity, urbanization, coal power projects, coupled would further add pressures on the already vulnerable supply of water.