Development Strategy in Pakistan

2. Development Strategy in Pakistan • Macro-economic Stability – Policy Choices? or need to meet fiscal imperatives • Gains from Globalization? or risk of snuffing out any possible growth • Demographic Divident? or demographic death trap

3. Missing Links • Weak Data and Weaker Analyses • Absence of M&E and effective policy research • Scant Regard for what works and what doesn’t and how it can be replicated and up-scaled • Little understanding or consideration of the complex micro-macro linkages and sectoral inter-relationships • No consideration of the importance of institutions

4. This Presentation – Rethinking Development Strategy • Focus on the neglected rural sector • International Evidence on the importance of the rural non-farm economy • Evidence from Pakistan • The Rural Investment Climate survey 2005 • The Surveys of Domestic Commerce 2006 • The need for focus on institutions

5. Rural – The neglected sector in Pakistan’ s Development Strategy • 68% of the population is rural • High incidence of rural poverty (39%?!) • High agricultural growth appears to have coincided with rising poverty levels • Recognition that non-farm sector growth is necessary to address rural poverty. • Share of household income from rural non-farm activities is growing

6. There are sharp differences in economic and social constraints and outcomes between rural and urban areas Poverty rates in rural areas are generally higher than in urban areas [although LGO2001 has obliterated the definitional distinction] Public service delivery and outcomes are generally much poorer in rural areas Infant mortality rates higher Birth rates higher Poorer access to health services Poorer quality educational infrastructure, services and outcomes Major role of agriculture in the rural economy implies Seasonal labor demand Large fluctuations in agricultural output, price and incomes related to weather and pest What Makes “Rural” Areas Special?

7. Rethinking Development Strategy The structural transformation of developing economies has not been accompanied by a concomitant decline in the proportion of labour employed in agriculture – WHY?

9. Can the Rural Non-farm Economy (RNFE) substitute for agriculture as an engine of rural poverty reduction? • Characteristics of the RNFE • Rural dynamics: what drives change in the RNFE? • RNFE as an engine of pro-poor growth?

10. Characteristics of the RNFE • Big • Growing • Heterogeneous • Equity impact variable

11. Big

12. Growing

13. Growing

14. Growing

15. Growing

16. Heterogeneous activities

17. Heterogeneous wage rates

18. Because of this heterogeneity, equity impact of RNFE varies • Poor dominate some segments of the RNFE • Rich dominate others • Net impact on poverty varies

19. Capital intensity and returns to labor

20. Mixed equity impact

21. Rural dynamics: what drives change in the RNFE? a) Two dimensions of change in the RNFE i) Spatial dynamics ii) Sectoral dynamics

22. Sectoral dynamics • Structural transformation • Agricultural growth linkages • Other motors of RNF growth

23. Other “motors” of non-farm growth • Technology • Export markets • Foreign investment; and • Globalization

24. The growth linkages of the rural non-farm economy run in both directions • Production linkages (forward and backward) • Consumption linkages • Labor market linkages • Investment linkages • Spatial linkages

25. Supermarkets in Food Retailing

26. Evidence from Pakistan

27. Pakistan’s Rural Poor 2004-05: More than Half are in the Non Farm Sector Source: Calculated from PSLM 2004-05 data Notes: The poor are defined as households in the bottom 40 percent of the rural adult equivalent per capita expenditure distribution. Livestock herders who do not receive any crop income, (4 percent of the rural poor), are included in the other non-farm category.

28. Sources of non-farm income: % distribution of reporting households - Pakistan Source: Agriculture Census (2000)

29. Non-farm Income Sources are Important for Farm Households

30. Share of agriculture in rural and national incomes is small (20 percent of GDP; major crops only 10 percent, compared to 1960’s when agricultural share was 40 percent) Large pool of rural non-farm poor: non-farm incomes arising from multiplier effects must be spread over a large pool of households Substantial “leakages” of multiplier-induced consumer demand to urban sector (including small towns). Very little non-farm economic activity in villages Growth Linkages in Pakistan

31. WB - Rural Investment Climate Survey 2005 MOC - Surveys of Domestic Commerce 2007

32. Figure 3: Distribution of Enterprises by Type for Rural and Small Towns in Punjab, 2005 Source: Rural Pakistan Investment Climate Survey – World Bank 2005

33. Table 9: Profile of Rural Enterprises in Pakistan 2005

34. Table 10: Value of Rural Enterprise Assets

35. Table 11: Forward Linkages of Rural Non Farm Enterprises

36. Table 12: Backward Linkages of Rural Non Farm Enterprises

37. Table 13: Percent using some form of Modern Practice/Service

38. Characteristics of Rural Non Farm Economy of Pakistan • Small Size of Enterprises – lack of collateral and high moral hazard • Predominantly Sole proprietorship – unregistered and stand alone • Primitive business practices and attitudes • Lack of standards and quality in all aspects of transactions • Limited Information Flow • Low human capital - Inability to Assess Market -Inability to grow • Limited Forward and Backward Linkages outside of Geographic Area • Lack of Access to Finance • Lack of Contracts and Enforcement

39. Underdeveloped RNFE due to Absence or Inefficiency of Institution – Need for new Facilitating Policy Approach based on Institutions • Failure/Inappropriateness of Public Sector Institutions • New Institutions for: • Legal and Judicial – contracts and property rights • Capacity strengthening and Information Management/Dissemination • Factor Markets esp. Land, Water, Labour, Capital(Finance) • Domestic Commerce • International Trade and Globalization (Quality and Standards)

40. Thank You so much