Pakistan's Industrial Competitiveness

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Market Forces April 2005

Vol. 1 No. 1

PAKISTAN’S INDUSTRIAL COMPETITIVENESS
Javed A.Ansari College of Management Science PAF-Karachi Institute of Economics and Technology The United Nation Industrial Development Organization’s (UNIDO) annual review of industrial performance contains important insights for Pakistani policy makers. It provides overwhelming evidence to show that Pakistan is rapidly losing ground in world manufacturing market.

The UNIDO Index
The UNIDO report ranks 93 countries on the basis of a Competitive Industrial Performance (CIP) index over 1980-2000. There are methodological and conceptual problems involved in the construction of this index. The index shows a pronounced bias in favor of relatively small export oriented countries and therefore under-rates the performance of large industrial powers such as Brazil, China, India, Indonesia, Nigeria, Pakistan and the USA, it over-estimates the performance of Singapore, Ireland, Switzerland and Finland which are shown to have the top four ranks in 2000 and outperform the United States, Germany and Japan. The CIP measures industrial performance in terms of (a) manufacturing value added (MVA) per capita (b) manufactured exports per capita (c) the share of MVA in GDP (d) the share of medium and high technology branches (defined in an excessively aggregate manner on the basis of the SITC three digit classification) in MVA (e) the share of manufacturers in total exports and (f) the share of medium and high technology branches (MHT as defined above) in manufacturing exports Scores obtained on the basis of these indicators are added up and averaged out to yield a CIP value for each country. No theoretical justification is provided for (a) effectively assigning equal weight to all indicators (b) ignoring problems associated with assembly as against manufacturing of MHT products. (This yields an unrealistically high score for Malaysia, Thailand, the Philippines and Mexico) (c) using SITC three digit classifications for ascertaining technological content and (d) using competitiveness rather than productivity as a measure of performance. There is no justification for regarding manufacturing export rates as performance indicators. Germany in the nineteenth century, the USSR during 1927-1970, and China under Mao were insignificant manufacturing exporters yet their industrial performance –measured in terms of total factor productivity growth was outstanding,

Moreover export growth is in many cases a consequence of special privileges enjoyed for example by Israel and Mexico in America and Israel and Morocco in the EU market Finally the CIP index omits Iran– an outstanding manufacturing sector performer in West Asia- despite including data on that country in the statistical appendixes. This can only be attributed to American political pressure on UNIDO. It is unfortunate that UNIDO like the ADB and the World Bank avoids reference to the good performance of countries that America hates. Using national data Iran’s CPI score can be calculated at 0.361, which place it just below China

Pakistan’s Industrial Performance
The UNIDO CIP index thus has many limitations but despite these it is the best measure available for assessing comparative industrial performance. Table 1 shows that Pakistan’s rank fell from 47th to 49th with in the group of 93 countries during 1990-2000. It had risen from 53rd in 1980 to 47th in 1990.Pakistan’s CIP growth rate was halved during 1990-2000. Pakistan’s CIP score as a ratio of the maximum CIP score fell from 29 percent in 1990 to 28 percent in 2000. It had risen from 25 percent in 1980 to 29 percent in 1990.We see that policy liberalization has seriously hurt Pakistani manufacturing competitiveness in world markets. Policy liberalization has also hurt India whose rank declined to 40th in 2000 from 36th in 1990. The value of India’s CIP index rose at a faster rate during the 1980s(8 percent) than it did during the 1990s China’s...
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