Stagnant Growth: Analyzing the Lack of Progress in the Market
Published on: January 20, 2024.
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Low Productivity Hindering Pakistan’s GDP Growth and Global Market Penetration
Productivity plays a crucial role in a country’s economic growth and its ability to compete globally. Unfortunately, Pakistan’s low productivity has been a major obstacle in achieving higher GDP growth and penetrating global markets with its products. Several factors contribute to this issue, including underpaid labor and expensive capital.
In Pakistan, laborers are often denied a living wage, which directly affects their productivity. Workers who struggle to support themselves and their families are unable to perform at the same level as those who are adequately compensated. In countries with high productivity, workers’ wages increase in line with inflation, ensuring their purchasing power remains intact. However, in Pakistan, wages have failed to keep up with inflation over the past 15 years, leading to a decline in productivity.
Another factor that hampers productivity is the mentality among Pakistani enterprises to pay low wages and employ a larger workforce. This approach may seem cost-effective, but it ultimately results in lower productivity. For example, in the apparel sector, the duplication of tasks such as inspecting finished apparel by both workers and supervisors leads to wasted time and increased costs.
Input costs also play a significant role in productivity. Pakistan faces higher power and gas rates compared to its regional competitors, which adds to the overall cost of production. Additionally, the cost of other inputs has risen sharply in Pakistan due to its higher inflation rate compared to competing economies. These higher input costs further impact productivity and hinder Pakistan’s ability to compete globally.
From 2010 to 2020, Pakistan’s average productivity growth was only 1.5 percent, which falls short of the necessary level for achieving sustainable GDP growth of 7-8 percent. A study conducted by the Pakistan Institute of Development Economics (PIDE) found that sectors with high-productivity growth in the country are primarily services-based or tech-based. Conversely, sectors with medium to low or negative productivity growth are predominantly in manufacturing.
One possible explanation for higher productivity growth in the services sector is greater competition. In contrast, the manufacturing sector in Pakistan is hindered by the operation of cartels and the protection of manufacturers, which discourages competition and efficiency improvement. Protectionism reduces the incentive to innovate and hampers productivity growth.
The PIDE study also highlighted that export-designated sectors and subsidized sectors have low to negative productivity growth. This indicates that Pakistani exports are not competitive compared to its rivals. High productivity is a crucial element for global competitiveness, and without it, Pakistan struggles to compete on the international stage.
Improving productivity and GDP growth in Pakistan requires addressing macroeconomic fundamentals, implementing structural reforms, strengthening institutions, promoting good governance, and fostering private sector dynamism. The provision of preferential treatment to certain sectors and firms prevents healthy competition, discourages efficiency improvement, and stifles private sector development.
To overcome these challenges, Pakistan needs to focus on enhancing productivity through fair wages, reducing input costs, promoting competition, and providing a conducive business environment. By investing in productivity-enhancing measures, Pakistan can boost its economic growth and expand its presence in global markets.
Source: [The News](https://www.thenews.com.pk)
