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Harnessing the demographic dividend

By Nazish Afraz 2016-09-28
ACCORDING to Pakistan`s Vision 2025, 1.5 million new jobs have to be created annually until 2040 to keep unemployment steady at current rates. Demographic changes have led to a youth bulge that, in fact, can spur economic growth if matched with high value jobs. However, if jobs are not created over a period of time, an already strained economy risks the disastrous consequences of becoming inundated with growing numbers of demoralised and unemployed young people.

The ninth Sustainable Development Goal (SDG) from the 2030 Agenda for Sustainable Development 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 is particularly relevant because firstly, it focuses on industry, which has the highest capacity to generate jobs. Secondly, it places the signatory countries` sights on a goal that is beyond physical manufacturing and assembly to higher value addition processes of innovation, research and design. That said, the contribution to value added made by the manufacturing sector in this country has decreased steadily over the last thirty years, widening the gap with other lower and middleincome countries.

Increasing the share of manufacturing and moving up the manufacturing value chain to more innovative processes is crucial to transforming the quantity and quality of jobs. Every job in manufacturing creates 2.2 jobs in other sectors and is critical when generating employment. Such industrial development is dependent on the otheraspects of the goal: infrastructure and innovation.

While there is a long way to go when it comes to developing infrastructure, Pakistan is headed in the right direction. Furthermore, infrastructure provides the backbone to industrialisation and human development, both critical for harnessing the demographic dividend. Successive governments have already made investments in infrastructure, with prospects of the investment 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, regionaland global value chains. Highways, fibre-optic cables, ports, railway improvements and energy projects are also planned. However, the main risk lies in the realisation of these plans, including delays and lapses in implementation due to political economy issues. Controversies and roadblocks in the Orange Line pro ject in Lahore and the operationalisation of Gwadar port both exemplify this.

An evidence-based, transparent and inclusive process of planning infrastructure projects would build ownership and support for the proposed infrastructure.

Fostering innovation, however, is the bigger challenge in the present. It is also an importantdriver of high value jobs and growth, whether directly through technology products and industrialisation, or indirectly, through better designedsolutions to local developmental challenges. From iPods to branded jeans, putting physical inputs together is typically the lowest value addition process in the value chain. The value captured by a Pakistani factory assembling a pair of branded jeans, for example, is approximately 20pc of the sales value. Approximately 50pc of the sales value remains with brand-name retailers, where products are designed and branded.

Fostering innovation requires research and development (R&D) personnel and a more specialised workforce Pakistan has 167 R&D persons per million people, compared to China`s 1,090 and Japan`s 5,084. This further filters down to the quality of education, particularly higher education, which continues to be far below the targets set for the country. Innovation also requires a more enabling and stable investment climate lending confidence to technology partners and attracting investment.

The auto industry in Pakistan demonstrates, for example, the detrimental impact of a 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 a market share in one of the most competitive and fast-moving industries in the world. Yet, inPakistan they seem to have settled into a lower equilibrium. Incomplete implementation of pollcies, a frequently changing policy environment and poor investment climate have discouraged new investment and entrenched the market power of the incumbents, thereby removing mar1(et pressure to provide better value through higher quality cars. Lack of national standards further indicate that carmakers are not required by the government to meet any quality target. 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 spill overs throughout the value chain, and also help retain researchers and innovators in Pakistan.

Investment in infrastructure and the promotion of industrialisation and innovation are particularly relevant goals when accommodating the youth bulge. To achieve these objectives, a paradigm shift in governance is required towards an enabling, business-friendly approach accompanied by transparent, equitable and evidencebased planning of resource allocation. Only then can industrialisation be successful, inclusive and sustainable. And, while this goal has been defined by the UN, we will have to pave the path to it ourselves.

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