Harnessing the demographic dividend

By Nazish Afraz

 

The writer is an economist and a teaching fellow at the Lahore University of Management Sciences. She can be reached at nazishafraz@lums.edu.pk

Courtesy Dawn Newspaper

According to Pakistan’s Vision 2025, 1.5 million young people will enter the Pakistani job market every year till 2040 – that is 1.5 million new jobs that have to be created each year just to keep unemployment stable at current rates. This surge in youth can yield a ‘demographic dividend’ by spurring economic growth, but only if high value jobs are available to them. Pakistan cannot, in fact, afford to not have these jobs available, otherwise an already strained economy risks becoming inundated with growing numbers of demoralised and unemployed young people.

The ninth Sustainable Development Goal (SDG) is perhaps the most important one for addressing this youth bulge. It aims to “build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation”. This goal recognises firstly, that sustainable human development improvements cannot come without economic growth, particularly in manufacturing. Every job in manufacturing creates 2.2 jobs in other sectors and is therefore critical in generating employment. Secondly, it places the signatory countries’ sights on a goal that is beyond physical manufacturing and assembly, to the higher value addition processes of innovation, research and design.

The much-lauded China-Pakistan Economic Corridor (CPEC) initiative, for example, promises to improve road infrastructure through the length of the country, making it easier to connect local producers to domestic, regional and global value chains.

Sustainable industrialisation is dependent on both the other parts of the goal: infrastructure and innovation. On infrastructure, while there is a long way to go, Pakistan is headed in the right direction. Fostering innovation, however, is the bigger challenge and seems more elusive for now. Successive governments have already made investments in infrastructure. Adding to this are the prospects of the investments in the pipeline. The much-lauded China-Pakistan Economic Corridor (CPEC) initiative, for example, promises to improve road infrastructure through the length of the country, making it easier to connect local producers to domestic, regional and global value chains. Highways, fiber optic cables, ports, railway improvements and energy projects are also planned across the country.

The main risks are in the realisation of these plans: delays and lapses in implementation arise due to political economy issues, fueled by transparency and equity concerns. Stalled progress on the metro project in Lahore, and the operationalisation of the CPEC both exemplify this. An evidence-based, transparent and inclusive process of planning infrastructure projects would build ownership and support for the proposed infrastructure, and ensure timely completion.

 

Infrastructure provides the backbone to industrialisation and human development.—White Star

Equitable distribution both across and within provinces would also meet the SDG’s requirement that the infrastructure serves human development needs in addition to industrial needs. Infrastructure is required in the furthest flung rural areas to connect farmers to the market and ensure affordable access to health and education facilities in every part of the country. Infrastructure, therefore, provides the backbone both to industrialization, and to human development, both crucial for harnessing the demographic dividend.

Innovation, too, is an important driver of high value jobs and growth, whether directly through technology products and industrialization, or indirectly, through better designed solutions to local developmental challenges. Fostering innovation requires R&D personnel and a more specialized workforce. These, further filter down to quality of education, particularly higher education, which continues to be far below the targets set for the country. Innovation also requires a far more enabling, stable and efficient investment climate that gives confidence to technology partners and attracts investment. Protection of intellectual property, the development and enforcement of domestic quality standards, and access to finance for large-scale investments are additional prerequisites for industrial innovation and R&D.

The auto industry is in the top three most innovative industries in the world, filing 12pc of all patents worldwide.

The auto industry in Pakistan is an example of the detrimental impact of poor investment climate on innovation. The auto industry is in the top three most innovative industries in the world, filing 12pc of all patents worldwide. The Japanese parent companies of our domestic carmakers are all frontrunners in innovation, battling for market share in one of the most competitive and fast moving industries in the world.

Yet in Pakistan they seem to have settled into a lower equilibrium. Incomplete implementation of policies, a frequently changing policy environment and poor investment climate have discouraged new investment and entrenched the market power of the incumbents, thereby removing market pressure to provide better value, higher quality cars. The lack of national standards further means that the carmakers are not required by the government to meet any quality target in Pakistan. An investment friendly approach with sensible, stable regulation can promote a more dynamic industry, and attract innovative global firms to locate their R&D in Pakistan. This would have technology and employment spillovers throughout the value chain, and would also help retain Pakistani researchers and innovators in Pakistan.

Investment in infrastructure and the promotion of industrialisation and innovation are particularly relevant goals for Pakistan as we struggle to accommodate the youth bulge. To achieve them, a paradigm shift in governance is required towards an enabling, business friendly approach accompanied by transparent, equitable and evidence-based planning of resource allocation. Only then can the industrialisation be successful, inclusive and sustainable.

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