What is the economic future of Pakistan?

I’m not going to sugarcoat anything, so turn away unless you want to read a pretty biting answer.

The future of Pakistan’s economy, along with a lot of other developing economies across the world is highly uncertain.

First, the usual trend of poorer countries using large exports of low-value added goods to industrialize and move up the value chain (export-led industrialization) has been generally speaking on the wane throughout the world.

The four main points in my answer above were:

1. Increased protectionism
2. Technology
3. Changing nature of manufacturing
4. Government efficiency

Pakistan is not even exceptionally worse in comparison w/ most other developing economies in terms of dealing with these 4 challenges:

Increased protectionism

This will be more of an issue for countries like India rather than Pakistan, but it’s still an issue nonetheless.

Pakistan cannot simply export its way to wealth with the new environment of economic nationalism throughout the developed world without outcompeting other developing nations for the same markets and those markets are becoming less and less eager to absorb the huge volume of exports required for such a large country such as Pakistan to develop.

• As I’ve pointed out during China’s rise free trade and globalization were the mantra, now its the opposite.

Pakistan will have to find a way to make their exports somehow much more attractive than for example Vietnamese exports or Indonesian exports in order to outcompete them, how is Pakistan going to do this when its human capital level is extremely low and its economy is ridden w/ structural deficiencies?

 

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Technology

Technology wise automation is going to make it much harder for developing countries to develop because of the main comparative advantages in manufacturing in poorer countries is cheap wages and depressed currencies which keep manufacturing inexpensive.

Cheap labor is about as useful as it is cheap in relative with other countries and production methods, although China’s wages have increased over quintupled, China’s much more efficient supply chains, productivity and automation of existing plants meant that China’s export dominance has grown for the entire duration of the 5x increase in wages.

Although its no secret that Pakistan’s wages are cheap, the huge amount of structural deficiencies have largely prevented it from using this as an advantage, time is running out as automation will advance more and more making the low wages less and less of an advantage.

Changing nature of manufacturing

I’ll just straight up copy this from my other answer:

“Manufacturing is changing, it used to be that businesses had to order in bulk now they can order on a case by case business due to the advent of cheaper internet connectivity. This has led to manufacturing being more and more determined not by cheap labor but by the economies of scale and having the required infrastructure to catch onto this new trend.

What it used to be:

A business needs to buy at least 500 shirts for the spring sale, they need to buy in bulk due to the fear of the supply being short, unfortunately the spring sale doesn’t go as well as planned and only 350 shirts are sold. 150 shirts are now being sold at a loss or must be stored for a cost for the next season.

What it now is:

A business can now order in units of 25 using the internet and have them shipped based on demand, now the business estimates with a far higher accuracy the amount of shirts that they sell, as a result the business does not have any excess shirts they need to sell at a loss or store at a cost for the next season.

As long as developing countries (w/ the notable exception of China and Vietnam *again) don’t have the ability to catch onto this trend, there is simply less incentive to migrate manufacturing to them.”

The new trends in manufacturing have largely not taken hold in most developing nations other than China and Vietnam *Again.

Government efficiency

Government efficiency wise, Pakistan not only lacks an efficient government but its also a extraordinarily corrupt government. This level of corruption and inefficiency means that Pakistan’s problems have largely not been mitigated to the degree that they should’ve been by now.

With these points in mind, it seems unlikely that Pakistan will experience a growth miracle, could it develop? Yes, but that’s pretty far down the line from here.