I Eighth Annual Report 2015 THE STATE OF THE ECONOMY: Technology and Development The Shahid Javed Burki Institute of Public Policy at NetSol The State of the Economy: Technology and Development II Copyright © by The Shahid Javed Burki Institute of Public Policy at NetSol No part of this report may be published without permission Published by The Shahid Javed Burki Institute of Public Policy at NetSol Designed & Printed by Balance AD +92 42 36313156-57 The State of the Economy: Technology and Development III Dedication “This report is dedicated to my late brother Maj Gen. Farhat Ali Burki and to my late brother-in-law Dr. Muhammad Afaf. Both of them made important contributions to the induction of modern technologies in various aspects of Pakistan’s development. Their families have made important financial contributions to our institution’s endowment fund. Shahid Javed Burki Chairman The State of the Economy: Technology and Development IV The State of the Economy: Technology and Development V The Shahid Javed Burki Institute of Public Policy at Netsol (BIPP) The Shahid Javed Burki Institute of Public Policy at NetSol (BIPP) is an independent, not for profit institution which aims at: promoting rights and evidence based inclusive policy making; filling institutional void and professionalizing the key public policy areas; and serving as a knowledge hub for policy analysis, development, and implementation. BIPP was formally launched on Ist March 2015 as a successor to the Beacon house National University Institute of Public Policy with a rich legacy of over eight years of research and policy analysis. The Institute aims at synergizing the research, education, and think tank functions to become a knowledge hub and Centre of Excellence in Public Policy. BIPP’s mission is to improve welfare of the citizenry with particular emphasis on identifying policy measures that will lead to inclusive growth, socio-economic stability, and sustainable development besides fully harnessing the potential for regional and global integration. BIPP’s areas of interest are social, economic, environmental and political development, trade and foreign policy. BIPP’s Board of Directors comprises eminent economists, experts, members of academia and development practitioners from private, public, and non-governmental sectors who are committed to improving public policy development and implementation in Pakistan. The members are: • Mr. Shahid Javed Burki Chairman • Mr. Shahid Najam Vice-Chairman • Dr. Parvez Hasan Director • Ms. Nasreen Kasuri Director • Mr. Shahid Hafiz Kardar Director • Mr. Salim Ghauri Director • Mr. Khalid Sherdil Director Dr. Mahmood Ahmad is the Adviser, Research and Coordination of the Institute. The State of the Economy: Technology and Development VI The State of the Economy: Technology and Development VII FOREWORD his is the eighth annual report produced by the Institute of Public Policy (IPP), now renamed the TShahid Javed Burki Institute of Public Policy at NetSol (BIPP). It was our practice in the past to make our reports public a month or so before the federal and provincial governments began work on their annual budgets. The timing of the release was in the expectation that some of what we wrote would influence the making of financial and economic policies at both the provincial and federal levels. The tradition, inherited from the British, that the budget is the most important economic and financial statement issued by the government was continued by Pakistan. However, we were not able to follow the timing this year. The main reason was the reorganization of the institute which is no longer associated with the Beaconhouse National University (BNU). We have delinked ourselves from BNU, our parent institution for several years, for the reason that the new framework under which universities function does not allow them affiliation with institutions with their own budgets and revenue sources. With these links severed, the institution has formed a close association with NetSol Technologies, Pakistan’s largest information technology (IT) firm. The company has a large presence in Lahore. Its campus on the Lahore Ring Road near the Allama Iqbal International Airport gives it exceptional salience. It employs 1,200 software engineers who develop, produce, and service the products it develops. These products have an international market. As we discuss in greater detail in the main report, this association with a large IT firm will provide us with the opportunity to explore the nexus between technology and development. As has been the practice in the past, the annual reports have come in two parts. In the first we analyze the state of the Pakistani economy at the time of a particular report’s writing. The assessment we made sometimes was not too different from the one provided by the government; sometimes there were differences. In addition to the assessment of the economic situation, we provided detailed analysis of a “development subject” we regarded to be pertinent for the economy and the social system. Several important subjects received our attention in the past. One year, we investigated the cost to the economy of the rise of extremism and terrorism associated with it. According to our assessment, the most significant consequence was on the rate of private investment in the economy and a sharp decline in foreign direct investment. Both reflected loss of confidence by potential investors in the economy’s future. In the same report, we estimated the price paid by the economy of severe shortages of electricity and natural gas. These estimates were made on the basis of surveys carried out by the staff of the institution involving randomly selected entrepreneurs around the country. The main conclusion of this work was not surprising: the economy was performing well below its potential because of these unfortunate developments. While public policy was not the immediate reason for the rise of extremism, energy shortages were the result of public policy failures.1 In another report we examined the effect of the extensive devolution of government functions brought about by the adoption of the 18th amendment to the Constitution in April 2010. Our main The State of the Economy: Technology and Development VIII conclusion was positive. A country that had been through a long period of rapid population growth and consequently had a population of more than 180 million people at the time of the adoption of the amendment could not be governed effectively from one central point. For many people and communities, Islamabad was just too distant for the government to fully appreciate their problems and comprehend their aspirations. Government had to be brought closer to the people. We were heartened by the fact that the provision of social services had been delegated to the provinces. In fact, we made a strong recommendation that the process of devolution should not stop at the provinces; it should proceed down to the local level. While applauding the adoption of the 18th amendment, we worried whether the provinces will have the resources and the expertise to carry out the new functions that had been assigned to them. In the same report, we looked at the award of the 7th National Finance Commission. It was perhaps political expediency that resulted in the adoption of the award before the 18th amendment was incorporated in the Constitution. It would have been prudent to reverse the sequence. Nevertheless, we made a strong case for increasing the capacity of the provinces to raise more resources of their own and, thus, reduce somewhat their dependence on financial flows from the federal government.2 We will provide one more example of a “special subject” covered in the past reports. In one report we wrote what we titled the “Punjab Story.” This was an analysis of how the various districts in the province had performed relative to one another. We concluded that the districts in the south had done less well than those in the central and northern parts of the province. The south was dependent on land-intensive agriculture which, in turn, relied on surface irrigation. The latter had been neglected in terms of the maintenance of the expensive infrastructure that supported it. The central districts had a more diversified economic base. They were close to the provincial capital,that had developed into the country’s educational and cultural center. The northern districts received significant quantities of remittances. These came from two sources: from the workers who had gone to the Middle East in recent years and before that had migrated to Britain. Money was also sent by the military personnel doing active service. These districts had always been the favored recruitment ground for the army. 3 The policy conclusion from this analysis was obvious: the provincial government in designing its development policies and in formulating its development plans had to give more attention to the backward areas. While we did not specifically investigate the links between extremism and backwardness, that such an association existed was highly plausible. After all, southern parts of the province had indeed turned into the breeding grounds for extremists. We have gone in some detail into the “special subjects” covered in some of the reports written in the past since their relevance for the making of public policy choices is as significant today as they were then. This year, the major theme of our 8th Annual Report is “Technology and Development”, a sector which holds phenomenal potential for spurring socio-economic growth and development. The report provides an objective analysis of the economic performance of the Government and dwells upon the state of play in the ICT sector and its huge potential especially in improving governance and delivery of public services. The State of the Economy: Technology and Development IX Finally, I would also like to thank Dr. Parvez Hasan for the valuable insights he brought to “The State of the Economy” chapter in our annual reports.