How countries develop overtime? How do nations move from the third world to first world? What stages are involved? One of the models to explain such transition of societies is “Rostow’s Five Stages of Growth”. Walt Rostow – an American economist and political theorist was the man behind this model. He explains the complete transition in five phases/stages. First is ‘traditional society‘. This is an agricultural economy of mainly subsistence farming, little of which is traded. The size of the capital stock is limited and of low quality resulting in very low labor productivity and little surplus output left to sell in domestic and overseas markets.
Second, ‘pre-conditions for take-off’; agriculture becomes more mechanized and more output is traded. Savings and investment grow although they are still a small percentage of national income (GDP). Some external funding is required – for example in the form of overseas aid or perhaps remittance incomes from migrant workers living overseas
Third, ‘take-off’; manufacturing industry assumes greater importance, although the number of industries remains small. Political and social institutions start to develop – external finance may still be required. Savings and investment grow. Agriculture assumes lesser importance in relative terms. There is often a dual economy apparent with rising productivity and wealth in manufacturing and other industries contrasted with stubbornly low productivity and real incomes in rural agriculture.
Fourth is ‘drive to maturity’; industry becomes more diverse. Growth should spread to different parts of the country as the state of technology improves – the economy moves from being dependent on factor inputs for growth towards making better use of innovation to bring about increases in real per capita incomes.
Fifth stage is called ‘age of mass consumption’; output levels grow, enabling increased consumer expenditure. There is a shift towards tertiary sector activity and the growth is sustained by the expansion of a middle class of consumers.
Many ask; how could a new government be expected to give results within its first 100 days in power? The answer is not that simple. However, even effective policies, made with concerted energy, focus and patience bear fruit with time. In the first hundred days, only a broader long term “direction” could be set.
The bold and proactive policies that the PTI government is pursuing, and the road-map they project for the future, are signaling good days ahead for the country. The country is now also catching the attention of foreign investors, helping Pakistan not to put all its eggs in one basket, or relying on one major investing partner, such as China.
Hence, there may be some shortcomings in the government’s approach towards economy, but currently, the problem at the core is not whether the Ministry of Finance or the people running it are competent or incompetent. The actual problem is the paradigm shift in Pakistan’s foreign policy, from a frontline state to a major Chinese partner in the latter’s Belt and Road Initiative, in form of the China Pakistan Economic Corridor (CPEC). Except Zulfiqar Ali Bhutto’s economic policies, all well performing economic policies of Pakistan in the past were fueled and funded by the US, its allies and their sponsored institutions, such as the IMF and the World Bank.
Pakistan, with its lingering problems, is destined to experience some shocks, especially because of its paradigm shift under PM Imran Khan. Pakistan is in an economic-war-like situation, where a more vigorous approach is required. Otherwise, easy solution to the oncoming economic difficulties is to abandon CPEC and return to the US camp and its “glucose drips”.
Furthermore, as far as the government is concerned, it appears to be doing everything at its disposal in bringing the economy back on its track. What people are misunderstanding is that the government is following market mechanisms and does not intend to artificially control the economy. That is why the exchange rate is surging, prices going up and interest rates are also on the rise. All of this is because supply and demand sides around these matters demand so. If market forces are allowed to adjust on their own, the economy will be stable in the long run and hence lesser chances of fluctuations in the future.
Pakistan’s economy is about to take off – characterized by dynamic economic growth, and premised on a sharp stimulus (or multiple stimuli) that is/are any or all of economic, political and technological change
On a positive note, the pouring in of investments and growing interest in Pakistan from across the globe in recent months shows the world’s confidence in the new government. For instance, beverage giants PepsiCo and Coca-Cola pledged to invest $1.4 billion in the country in the next five years, according to the government’s statements.
Likewise, a Turkish fast-moving consumer goods company (FMCG) – Hayat Kimya – has planned an investment of around $330 million in Pakistan. The company will introduce latest machinery to make high-performance products in Pakistan. Hayat Pakistan is fully prepared to capture a market worth $200 million.
On the automobile industry front, JW and Forland have collaborated to produce cargo trucks and special purpose vehicles in Pakistan. The $150 million project has been launched with the ultimate goal of making Pakistan a regional hub for manufacturing auto parts and automobiles. With the launch of the project, there will be technology transfer from China to Pakistan. “Progress only starts after the technology is transferred,” said Prime Minister Khan at the ceremony inaugurating the joint venture. He said that vocational schools will be established, where the technicians will be able to acquire skills. “We will produce cars which can eventually be exported,” Khan added. Similarly, Suzuki Motor Corporation (SMC) is also planning to invest $450 million by setting up another production plant in Karachi. It is noteworthy that this is not the first-time vehicles will be produced in Pakistan, but it is the first-time vehicles will be produced for commercial use. These initiatives would not only help in creating more jobs but also provide an opportunity to boost exports in the automobile sector.
One of the key underlying factors behind these investments is Pakistan jumping 11 places on the World Bank’s Ease of Doing Business Index now sitting on the 136th spot, its highest in 15 years. Pakistan carried out three reforms during the past year in the areas of starting a business, registering property and resolving insolvency, according to the World Bank’s annual flagship report titled “Ease of Doing Business 2019”. Besides, the country showed some progress on the indicators of getting electricity, securing construction permits, getting credit, paying taxes and trading across borders.
The fundamental concern that still remains in the local investors’ mind is whether Pakistan will be able to translate all these ventures into turning its economy around?
The answer is not simple and straightforward. However, Pakistan, under the PTI government, can achieve this turnaround if there is an increased focus on improving skills and create a future-ready workforce with an understanding of digital media and knowledge of entrepreneurship.
In conclusion, it can be well deduced that Pakistan’s economy is about to take off – characterized by dynamic economic growth, and premised on a sharp stimulus (or multiple stimuli) that is/are any or all of economic, political and technological change.
The author is a Research Fellow/Program Officer at Center for Research and Security Studies (CRSS), Islamabad. He can be reached @saddampide
Published in Daily Times, December 13th 2018.
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