Rising oil prices will be a hurdle in boosting productivity and thus exports may be affected
The government can’t do anything about rising international oil prices. What it can do is to formulate and implement policies aimed at significantly boosting exports in order to reduce the impact of ever-rising oil prices on the trade gap and balance of payments
By Kaleem Omar

Goldman Sachs predicted last week that oil prices could rise to $150 a barrel by 2010 and $200 a barrel by 2012. This prediction may well turn out to be correct given the fact that oil prices have more than quadrupled since 2003 and continue to rise at a dizzying pace. Last week, they hit an all-time high of $123 a barrel. Rising demand and dwindling supplies are expected to continue to drive prices higher and higher.

The possibility of $200 a barrel oil was also confirmed by Iranian Oil Minister Ghulamhossein Nozari in an interview with the official INRA news agency in Tehran on Thursday, May 8. “If current conditions continue, reaching a period when oil is supplied at $200 a barrel is not out of reach,” he said.

As if to underscore the Iranian oil minister’s statement, the price of oil rose above $126 a barrel for the first time on Friday, May 9, bringing the increase last week to nearly $10 a barrel. Some analysts think the dollar’s protracted decline is the main reason behind oil prices doubling from a year ago. The dollar was also weaker on Friday against the British pound and the Japanese yen. On January 1, 2008 the price was $100 a barrel. Thus, the price has increased by $26 a barrel in less than five-and-a-half months. The speed of the rise is alarming.

For an oil-importing developing country like Pakistan, oil priced at $150 a barrel in two years time and at $200 a barrel in four years time could spell economic disaster, widening the trading gap to unsustainable levels, putting cataclysmic pressure on the balance of payments, and eroding foreign exchange reserves to zero.

Figures released by the State Bank of Pakistan last week show that foreign exchange reserves are now down to $13.5 billion, a drop of $3 billion in less than a year. Like the previous government, however, the present government seems to be doing nothing to tackle the problem. But sticking one’s head in the sand and hoping for the best is not going to make the problem go away.

What’s to be done, then? Obviously, the government can’t do anything about rising international oil prices. What it can do, however, is to formulate and implement policies aimed at significantly boosting exports in order to reduce the impact of ever-rising oil prices on the trade gap and balance of payments.

Our exports have been stagnating at around the $17 billion a year level for the last several years. In order to boost exports, the government needs to do a number of things.

First, it needs to stop mandating increases in electricity and gas tariffs, POL prices and other manufacturing inputs. Such increases raise manufacturing costs and make Pakistani goods less competitive in export markets.

Second, it needs to streamline government procedures and do away with the bureaucratic red tape that is one of the biggest stumbling blocks standing in the way of industry’s efforts to produce bigger surpluses of exportable products. The government should act as a facilitator in the country’s export drive, rather than as a stumbling block.

Third, it needs to give incentives to industry to spend more money on research and development in order to improve the quality of manufactured products and produce a wider range of exportable products. As it is, however, over 60 per cent of the country’s export earnings come from textiles. This has got to change if we want to increase exports.

Fourth, and perhaps most important of all, the government needs to set up a chain of polytechnics across the country to train more people in technical skills in order to produce a better educated industrial workforce. A better trained workforce is a key element in improving industrial productivity, producing exportable products that meet international standards, and boosting exports.

An international survey conducted a few years ago found that the productivity of the average Japanese female factory worker was four times that of the average Pakistani male factory worker.

Nothing better illustrates the need for Pakistan to impart technical training to people entering the job market.

There is a direct link between technical training and productivity. Higher productivity on the factory floor depends on having a technically trained work force. The better trained the work force the higher the productivity. This also holds good for better productivity in the agricultural and commercial sectors.

In Britain, polytechnics are colleges of higher education, similar to a university, providing training and degrees in many subjects, especially those which prepare people for particular jobs in science and industry. Degrees from polytechnics in Britain are as good as those from universities.

In Pakistan, polytechnics generally offer two-year courses in vocational training that are not considered as prestigious as university degrees. Nevertheless, polytechnics provide valuable technical training aimed at equipping people for jobs in industry and the services sector.

There are fewer than 80 polytechnics in this country – a woefully inadequate number for a country of Pakistan’s size. This explains why industrial productivity in this country is so low.

Low productivity means that a larger number of workers are needed to achieve a given level of output, negating the low labour cost advantage that a country like Pakistan has compared to countries where labour costs are higher. This adversely affects the competitiveness of Pakistani goods in export markets.

A poorly trained work force also has an adverse affect on the quality of goods produced, making it harder to find export markets for them. Thus, technical training has a direct bearing on the country’s economic performance as a whole.

Given all this, there is an urgent need for Pakistan to set up more polytechnics. Tokenism will not do. As a country whose population has now reached an estimated 165 million, Pakistan urgently needs to set up hundreds of polytechnics to provide technical training to the millions of young people entering the job market every year.  

Back in February 2004, then-Federal Minister for Education Zobaida Jalal said that the government planned to set up a chain of polytechnics across the country to produce technical manpower for the industrial, agricultural and commercial sectors of the economy.

Talking to Norbert Lammert, the visiting vice-president of the German Federal Parliament, in Islamabad on February 17, 2004, Jalal said the education ministry had processed concept papers for setting up 105 polytechnics at a capital cost of Rs 7.79 billion and had taken up the scheme with the Planning Commission.

She said the commission’s Concept Clearance Committee had approved the concept papers and had directed the education ministry to seek the consent of the provincial governments for obtaining loans to finance the scheme. She said the possibility of funding for the scheme was also being discussed with several donor agencies, including the Islamic Development Bank, Asian Development Bank and the Japanese International Cooperation Agency.

Jalal said there was an allocation of Rs 300 million for technical education in the Public Sector Development Programme (PSDP) for fiscal 2003-4. She said the education ministry was also seeking more funds for technical education from national resources. Jalal said that presently a total of 78 polytechnics and colleges of technology were imparting technical education to students in the age group of 16 years and above, with the aim of providing them with the skills they needed to create employment opportunities for themselves.

Jalal said that the government, after considering the pivotal role technical education plays, had directed that all development plans should include the setting up of at least one quality polytechnic institute in every district headquarters. She said similar institutes would also be set up at the tehsil level.

She added that the government would also ensure that all existing schools in the country should provide vocational training to their students.

Jalal said these vocational institutes would be linked with micro-finance banks, which would provide interest-free loans to students on easy repayment terms. All these plans, however, came to nought and ended up as little more than hot air. Four years down the road from when the plans were announced, not even one of the 105 proposed new polytechnics is up and running.

The whole scheme seems to have been abandoned. The new government needs to urgently revive it and get cracking with implementing it on a top priority basis.

To translate the scheme into reality, the new government needs to do at least five things on a top priority basis. 

First, the provincial governments should be asked to immediately give their concurrence to the scheme so that the proposed 105 polytechnics can be set up within the next couple of years. Delays in implementation would add to the cost of the scheme, making it more difficult to find the money for it.

Second, the federal government should substantially increase the allocation for technical education in the forthcoming budget for fiscal 2008-09. The allocation should be increased to at least Rs3 billion in the next fiscal year..

Third, the provinces, too, should be asked to increase the allocation for technical education in their budgets for next year to at least Rs4 billion, thus making a total of Rs 7 billion available for the purpose in 2008-09. This would cover most of the Rs 7.9 billion cost of setting up the 105 polytechnics mentioned by Jalal back in 2004.

Fourth, the government should lose no time in setting in place a mechanism to ensure that all regular schools in the country also provide vocational training to students. The scheme should also be extended to cover colleges and universities. Legislation should be enacted to make it compulsory for all schools, colleges and universities, including those in the private sector, to provide vocational training to their students.

Churning out thousands of graduates with B.A. degrees in liberal arts subjects is all very well, but such people are ill-equipped to find jobs in today’s increasingly competitive job market and increasingly technology-oriented world. Pakistan needs many more polytechnics far more than it needs more liberal arts colleges.

Fifth, the government should consider establishing a National Education Fund to finance the setting up of more polytechnics. Citizens and the corporate sector should be invited to make donations to this fund. Such donations should entitle individuals and companies to tax concessions.

According to one estimate, Pakistanis donate about Rs70 billion a year to charitable causes. So it would not be unrealistic to expect that they would be prepared to donate billions of rupees a year to the National Education Fund, provided they are assured that there will be transparency in implementing the scheme, and that the money will be spent on technical training and not on other things.

It should also be made mandatory for industrial companies and other commercial enterprises to give technical training to the offspring of their work force. The state-owned Telephone Industries of Pakistan in Haripur (in NWFP) has been running an excellent programme in this regard for more than forty-five years, which could be used as a model for similar programmes in industries across the country.