Industrial dynamics: evolution to revolution

Hassnain Javed

February 13, 2019



Pakistan’s economy remains unstable and underdeveloped in comparison to other South Asian countries despite the fact that CPEC is bringing in huge opportunities for investment in the country.

The major reasons behind this lag are the issues of climate change, energy crisis and poor law and order situation. All of these factors have disrupted a steady flow of foreign direct investment in Pakistan. Slow economic growth has further depressed the financial stability of the industries, leading to a cut down of formal jobs in the country. One out of three Pakistanis are still living below $3.1 per day. However, according to a report issued by United Nations Development Program (UNDP) in 2018, the working poor class has substantially reduced and the working class increased, over the past decade. This discrepancy may arise because these statistics do not include workers from the informal sector of the economy, which is a huge lot of people. The development of the human resource of a country is especially important for economic growth and improved productivity.

As of now, Pakistan has been neglecting its human development, with no improvements in vocational jobs and skill training as well as poor creative and cognitive skills which has resulted in an overall loss of productivity. Hence the outflow of exports has led to slow improvement in living standards. As there is a positive correlation between capital investment and skills, the human resource capital is also directly related with technological dynamism. With the advent of technology, the demand for technical labour has increased considerably around the globe. It should also be noted that the acquisition of new skills is a continuous process of learning, therefore, technological training is important for both the current and new labour pool.

In 2012, the Industrial Relations Act (IRA) of labour issues and trade unionism was approved. The aim of these constitutional amendments was to give more autonomy to the provincial governments regarding the control of the small and medium sized enterprises contributing to the increasing share of the informal sector in the economy. Despite these efforts, Pakistan faces a major backlash while trading across the borders where the business environment is ranked poorly due to the structural deficiencies in the labour market. Another major issue which is often frowned upon by international traders is the lack of skilled labour and women participation in workplaces. The total population of Pakistan was 193 million in 2016, increasing at a rate of 2.0 percent yearly, amongst which 70 Million are employed. In the Pakistan Bureau of Statistic report of 2017, the total unemployment rate was estimated to be 4.0 percent, whereas the youth unemployment was at 7.7 percent. The ratio of employment-to-population is stagnant at 51 percent, and only about 21 percent of women in the population are employed. According to the World Economic Forum, Global Competitiveness Report 2017-2018, Pakistan is ranked at 106 in Reliance on professional management and 132 in women participation. The stats prove that employees in country rank Pakistan low on all key indicators for global competitiveness.

According to the sectoral employment the agriculture is the largest sector for with 42 percent of all jobs in this sector. The service sector has widened two percentage points that represents 38 percent of the working class in Pakistan. However as compared to other growing economies in the region this percentage is relatively low, which shows a lack of knowledge and skilled workers in the country. Currently, there is a gap in the demand and supply of skilled labour and all the major sectors including textile, agriculture-based industry, oil and gas, steel fixing operations, leather, services, livestock, dairies, nursing, and general technicians. The Bureau of Statistics reveals that almost 92 percent of all the unemployed people are regarded as unskilled, whereas the rest of the 8 percent have the basic minimum education but lack the specific skill.

In order to fill the gap between demand and supply of skilled labour, re-establishing the link between the technical institutes and industry will be imperative. Such a move would increase the employability and aid in the human development of Pakistan. However, strengthening these ties requires curriculum reforms, funding of technical and vocational training and the promotion of approximately, 3.2 Million SMEs all over the country.

In this regard, the development of small and medium sized enterprises (SMEs) can play a pivotal role in relevance to job creation in Pakistan. Pakistan is no exception, where SMEs comprise nearly 90 percent of all enterprises and employ around 80 percent of the non-agricultural labour force. The SMEs share approximately 40 percent in the annual gross domestic product (GDP) and contribute almost 25 percent to total export earnings. Characteristically, SMEs would encourage the development of new innovative technologies that would further give rise to productivity and efficiency. The platform acts as a catalyst to transform economies and implement new solutions for increased profits. Instead of finding new jobs elsewhere, entrepreneurship would facilitate the people to become self-sufficient and develop the skills of critical thinking, decision-making, leadership, teamwork and innovation, which would benefit them in all walks of life. The extension of SMEs in Pakistan will help achieve the 6 percent growth target to facilitate the 1.3 million jobs for the youth.

Concluding the above discussion, it can be inferred that small and medium sized enterprises are more labour intensive and less capital intensive as compared to large industries. This is a major advantage for the economic development of Pakistan considering its low unemployment rates in the past decade. Up till now, SMEs are considered the informal sector in Pakistan therefore, the sector was largely unregulated. However, in order to fully utilize the scope of these small cottage industries, the evolution of the industrial dynamics is necessary.

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