Partnership for Economic Growth
April - June 2008

Economic Growth in Pakistan

Pakistan's economic growth has been insufficient to reduce poverty and underemployment. The private sector remains relatively uncompetitive, and the agriculture and energy sectors -- two areas that are critical to the country's future development -- rely on outdated technologies.

Since 2003, USAID's $70 million Economic Growth Program has increased incomes and employment in Pakistan by giving entrepreneurs the tools they need to strengthen their businesses and enter new markets. The program focuses on expanding access to credit, improving the competitiveness of Pakistani small and medium enterprises (SMEs), improving agricultural practices, and catalyzing development in energy.

Expanding Financial Services

Lacking access to credit, many small-scale Pakistani entrepreneurs are unable to achieve their full potential in the marketplace. Families and communities therefore miss out on the income that could be generated from these enterprises.

USAID works with Khushhali Bank (KB) to provide micro-credit to populations in Balochistan, Sindh and the Federally Administered Tribal Areas (FATA). In these regions, the Developing Financial Services for Communities without Credit program has established a branch network; used non-financial incentives (i.e. small infrastructure projects and vocational training) to mobilize communities and gain the trust of potential clients; coordinated with local leaders (including religious figures) to build support for the program before entering a community; and, through media campaigns, informed people about the benefits of micro-credit. The program has enabled KB to open 25 bank branches - 10 each in Sindh and Balochistan, and one each in the Khyber, Kurram, Orakzai, Bajaur and Mohmand agencies of FATA.

The program has disbursed 356,361 loans totaling more than $63 million. This includes 2,531 loans in FATA worth $429,450. The average loan size is approximately $200. KB has 70,173 active clients, of whom 20 percent are women. Under the USAID program, KB also has awarded 128 merit- and needs-based scholarships to students in various disciplines studying at universities across Pakistan.

In 2007, USAID completed its Enterprise Development Facility program with the Pakistan Poverty Alleviation Fund (PPAF). The program catered to the needs of entrepreneurs who have outgrown traditional microfinance institutions but cannot access commercial banks.

Responding to entrepreneurial demand, USAID launched this program to provide loans ranging from $500 to $1,667. USAID provided four non-governmental organizations (NGOs) and one private company credit lines, training and intensive consulting on how to provide a range of loan products to small business.

The program disbursed nearly 3,500 loans totaling $3.9 million in Sindh, Punjab and the North-West Frontier Province (NWFP). Of these, 80 loans were given to repeat borrowers and 1,064 to women-owned businesses, with a 100 percent recovery rate. More than 300 borrowers were trained in vocational and managerial skills.

USAID's Widening Harmonized Access to Microfinance (WHAM) program helped fill in the "missing middle" between microfinance and commercial financing by encouraging lending to un-banked enterprises with loans ranging from $500 to $30,000. It provided consultancy, training and technology to commercial banks and microfinance institutions to establish products and business lines to meet the needs of micro, small and medium enterprises. The program facilitated more than 51,000 loans during its three-year operation.

WHAM also worked closely with the Pakistan Microfinance Network (PMN), a trade association that has become the reference point for research and coordination on microfinance in Pakistan. The program helped PMN with various communications work including the widely circulated quarterly MicroWATCH bulletin. WHAM also produced research reports providing guiding analyses to the industry including: "Microfinance Performance in Pakistan 1999-2005: Growth but a Structural Flaw Persists"; "The Dynamics of Microfinance Expansion in Lahore"; and "Mobilizing Savings from the Urban Poor in Pakistan."

The program helped the National Bank of Pakistan, Standard Chartered Bank, First Microfinance Bank, Tameer Microfinance Bank, Asasah and the Kashf Foundation disburse loans totalling more than $57 million. Of these, 2,757 loans were made to female entrepreneurs. More than 700 lenders have been trained in various business skills, and 48 trainings have been conducted for loan officers, risk managers and product managers.

Developing Competitive Businesses

Private sector competitiveness is the fuel that drives economic growth. However, outdated business strategies and government policies have restrained the competitiveness of Pakistan's businesses.

USAID's Pakistan Initiative for Strategic Development and Competitiveness (PISDAC) program increases the competitiveness of Pakistani small and medium-sized enterprises (SMEs) in sectors such as gems and jewelry, dairy, marble and granite, horticulture, furniture and surgical instruments. The project has helped these industries form partnerships of business people and officials known as Strategic Working Groups (SWOGs) that develop sector-specific strategies.

These strategies are aimed at upgrading production, improving marketing, and understanding and meeting consumer demand. Activities include benchmarking against the global market, identifying pertinent policy reforms, enlisting the support of the public sector to improve the regulatory and legal framework, developing linkages with major local and international research institutions, and designing pilot projects to implement lessons learned.

As a result of the SWOGs' work, $17 million has been invested by the private sector in different initiatives. To date, the dairy, gems and jewelry, marble and granite, and furniture SWOGs have met with relevant Government of Pakistan (GoP) officials, as well as other stakeholders pertinent to each sector's growth. As a result of their presentations to the government, the SWOGs have received more than $102 million for implementing their development strategies (marble and granite: $30 million; dairy: $38 million; gems and jewelry: $24 million; furniture: $10 million). Interventions include setting up common production facilities, workforce development centers, branding and marketing plans, and improved production processes.

As a result of a policy dialogue facilitated between the industries and the GoP, the government also has adopted 40 recommended reforms to make the industries more competitive.

USAID's Competitiveness Support Fund (CSF) program was created in March 2006, in collaboration with Pakistan's Ministry of Finance. The fund provides technical assistance for economic and sectoral development. It also promotes business incubation and venture capital using GoP funding.

CSF signed Memorandums of Understanding with the Pakistan Agriculture Research Council, the Government of Sindh, the FATA Secretariat and the Pakistan Business Council to introduce competitiveness and innovation in agribusiness and regional business development. In addition, CSF has undertaken sector analyses of the motorcycle, telecommunication, marine fisheries and horticulture sectors and has drafted a report on women's economic participation in Pakistan. CSF is also assisting Pakistan's Board of Investment (including help with Pakistan's integrated investment strategy) to attract investment into Pakistan.

In March 2007, CSF published the first-ever State of Pakistan's Competitiveness Report. In addition, it is sponsoring the Stanford International Innovation Journalism Fellowship Program, through which four journalists have enrolled in a six-month program in economic journalism at Stanford University.

In 2006, USAID funded a feasibility study for the creation of a Center for Entrepreneurial Excellence at the Institute of Business Administration (IBA) in Karachi. The assessment generated a tremendous response from both IBA and the Karachi private sector, and the study became a catalyst for the center's eventual creation.

Improving Efficiency in Agricultural Production

Pakistan's agricultural sector employs over 40 percent of the population and generates nearly 20 percent of the country's gross domestic product. Nevertheless, the sector continues to employ inefficient, outdated methods. In the province of Balochistan, the arid climate exacerbates the challenges facing farmers.

Since 2004, USAID has supported the market-driven Improve Agricultural Practices in Balochistan project. Implemented by the United Nation's Food and Agriculture Organization, in collaboration with Balochistan's Department of Agriculture, the project (1) assists agricultural producers in Balochistan to improve water resource management that increased on-farm water use efficiency by 40 percent; (2) improves agricultural production and agro-processing by introducing high-value, water-efficient crops, such as olives, pistachios, almonds, grapes and pomegranates; and (3) improves livestock production by 30 percent by introducing new animal husbandry, feed and rangeland management practices.

Approximately 25,000 people in 249 community organizations have benefited from these components. Among the community organizations, 77 are exclusively dedicated to assisting women. These efforts to assist farmers have resulted in a 19 percent increase in household incomes.

The program also helped to monitor and prevent avian influenza in Pakistan through support for an avian influenza laboratory. The laboratory is the only facility in the region that can conduct surveillance and testing services for avian influenza.

Reforming Commercial Law

Pakistan's business climate is negatively affected by weaknesses in its commercial laws. Reforming intellectual property laws and improving implementation and enforcement will is critical to attracting trade and investment.

The USAID-funded Commercial Law Development Program (CLDP) is implemented by the U.S. Department of Commerce and aims to build the institutional capacity of Pakistan's Intellectual Property Organization (IPO); ensure the consistency of Pakistan's intellectual property laws, regulations and standards with international obligations and standards; and improve mechanisms for enforcement, implementation and adjudication of intellectual property rights (IPR). The program works in collaboration with various GoP bodies including the IPO, the judiciary and the Ministry of Health to complement USAID's existing IPR activities.

The program has: enabled 22 individuals from Pakistan's IPO, Federal Investigative Agency and Customs Department to train with the U.S. Patent and Trademark Office; conducted judicial capacity building programs for 67 judges; and delivered specifically tailored capacity building programs to Pakistan's patent office on using electronic databases, streamlining office procedures and interpreting patent law. CLDP also incorporates outreach to government officials, academics and the private sector to raise awareness regarding the importance of IPR protection, with specific emphasis on Pakistan's consumer well-being, economic growth and innovation.

Promoting Energy Security

Pakistan's rapidly industrializing economy is experiencing unprecedented energy demands, which will only grow in the future. An adequate, reliable energy supply is key to achieving many of the country's development objectives. Cooperation on energy security will hinge on the ability of South Asian countries to build regional trust and confidence.

USAID's South Asia Regional Initiative for Energy (SARI/Energy) promotes energy security in Afghanistan, Pakistan, India, Nepal, Bhutan, Bangladesh, Sri Lanka and the Maldives. Started in 2000, the SARI/Energy program focuses on developing new approaches to meet South Asia's regional energy security needs through increased cross-border trade, investment and access to clean energy. Over the past six years, the program has focused on building trust and confidence across borders, as well as advocacy for necessary reforms in the energy sector.

SARI/Energy has completed both wind and solar energy resource assessment maps of Pakistan and Afghanistan. The maps will help these countries respond to their energy needs by developing their renewable energy resources.

SARI/Energy assisted Pakistan in developing a strategic and business operating plan for the South Asia Association for Regional Cooperation Energy Center that was set up in Islamabad in December 2006. At the GoP's request, a National Policy Framework for liquefied natural gas was prepared to address management-, regulatory-, revenue- and tariff-related issues for the import on Natural Gas to mitigate the shortfall beginning in 2008.

In addition, more than 250 regulators, parliamentarians and energy company representatives have been trained in the United States and other countries.

SARI/Energy also is helping the Ministry of Water and Power to identify American Electric Utilities where government officials working in the energy sector can be supported with on the job training. Funding for this program is provided by the GoP.