Thanks to low labour costs, Pakistan is one of the most price competitive T-shirt producers of the South Asian region; yet the country has been facing low export growth for many years. The narrative that seems to be missing from the discourse is that improving competitiveness is about raising productivity rather than merely keeping costs low.
There is little doubt that improving competitiveness involves reducing costs, ensuring efficient infrastructure, good governance, refraining from overvaluing the exchange rates, and many other measures. But as a recent World Bank study on state of competitiveness in South Asia, highlights the long term steps needed to boost competitiveness requires “investing in productivity?enhancing measures” which require an innovative mindset. And it is the lack of this mindset that has been affecting Pakistan.
Based on the World Bank’s annual enterprise surveys, the authors of the study have found out that only 6 percent of Pakistani firms are generally involved in research & development, and training for innovation. That’s a very poor performance compared to that of Bangladesh, India and South Asia on the whole.
Little wonder then that Pakistan – along with Nepal – has very low innovation rates in general, whether that is in the shape of a product or process newly created by a firm, or whether innovation in question is merely the firm or local market, which is also why Pakistan fares poorly in imitation activities as well.
In the wake of CPEC, Pakistan should best learn from China which despite higher labor costs has been able to attract buyers by offering a wide range of apparel at short lead times, whereas high productivity limits its total costs despite relatively high wages.
Turning this dynamic around will require more than just adding power or improving security situation or doing business rankings. It requires a major shake up across the industry-academia linkages as well as industry-industry linkages. Let there be more light!
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