In a scenario of consistently stagnant economic performance of manufacturing and agriculture sectors of the economy for the last two decades service sector is the only immediate hope for rejuvenating the economy of Pakistan. It is a astonishing fact that despite hiccups faced by entire economy, it is the service sector particularly information technology, communication and financial sector, which has attracted largest foreign direct investment until 2018.
In the wake of antagonistic attitude of majority of industrially rich countries, it is not advisable to focus totally on development of agriculture and industrial sector to enlarge size of country’s external market taking it as engine for achieving fast economic growth rate. Other South Asian countries like India and Siri-lanka (until their recent two years of economic crisis) who are not faced with a jumble of internal and external threats like Pakistan, they also shifted their reliance from manufactured exports to development of service sector and also strengthening of domestic market on war footings so as to manage sizable reduction in demand for manufactured items from developed countries particularly United States and European countries absorbing major share of exports trade from Asian countries.
Adherence to philosophy of globalization by both developed and developing countries with the start of present century and then getting away from this trend for the last one decade has necessitated their greater dependence on regional trade pacts rather than seeking global export markets. As such main focus of these countries is on manufacturing of tradable goods. China’s manufacturing sector’s share in country’s GDP hovers around 50% whereas service sector share in GDP has considerably increased after 2010. Employment pattern of such economies reflects substantial share of labor deployment now going to service sector apart from agriculture and manufacturing sectors where goes the the major share of workforce deployment.
To combat increasing frequency of external threats arising out of bouts of global economic recession developing economies need to build domestic demand and making service industry an engine of growth rather than focusing on manufacturing sector putting total reliance on promoting exports for achieving accelerated economic growth rate.
Present era characterised by rapid technological advancement and innovation provide immense opportunities for service sector growth in Pakistan. Integration of technology particularly IT adaptation in financial sector has made the entities more effective and has improved financial inclusion ratio through Fintech initiatives. It has not only improved service quality, but also brought a place for Pakistan in global digital environment culminating into enhancing foreign exchange reserves of the country through export of services of related fields.
Among South Asian Countries India’s endeavor to promote service industry is commendable. Their service sector has made a significant contribution to GDP growth, which has surpassed the input of manufacturing sector. Advancement in information technology achieved through heavy investments in the area, which prompted development of trained and English speaking workforce, which in turn enabled India to have access to growing global and domestic economic opportunities. In addition to that deregulation of services and financial sector reforms helped enhancing foreign direct investment and accelerated privatization program of public sector activities. Deregulation of services has also provided ample opportunities to workers for their exposure to foreign markets, which in turn helped India, achieve steady GDP growth despite world wide economic recession.
Further financial sector reforms In South East Asian countries particularly in Korea, Taiwan and Indonesia have promoted small and medium Size enterprises responsible for 80% of service sector growth.
In Pakistan also service sector has sizable representation in Small and Medium size Enterprises (SME). Almost 65% of service sector has been developed through small and medium size ventures. According to latest State Bank Report regarding inflow of credit to SME sector, 59.4% goes to commerce and trading sector, whereas only 39% has been utilized by manufacturing entities of SME category.
Growth rate of Pakistan’s service industry hovers around 9%. According to Economic Survey of Pakistan number of service enterprises has exceeded 2.65 million being more than 80% of total business ventures.
Telecommunication, Finance and insurance sectors, attracted largest amount of foreign direct investment hence registered a growth rate of 40% by 2016. The whole sale and retail trade entities grew by 7.1% during the same period.
Relevant survey report also reveals that 40% of the total employment opportunities generated during the period from 2007 to 2015 came from service sector. During the said period major share of foreign direct investment had gone to cell phone industry and banking sector.
In view of continuous recession in economically rich countries who are the main buyers of Pakistan’s exports, country need to shift dependency on exports to domestic sources of growth. There is need to develop domestic market both for agriculture and manufactured products. No doubt weak private consumption in view of growing poverty and galloping food as well as core inflation prevent growth of domestic market particularly of manufactured goods, yet creating congenial environments for development of service sector particularly in the area of infrastructure development will ultimately lead to increased production from manufacturing and agriculture sector, which in turn would create demand and boost domestic market growth.
Development of small and medium size enterprises in areas of power generation particularly of wind power and solar power generation projects can help solving most acute energy problem being faced by industrial sector. Similarly construction of small dams on private and public partnership basis can solve water supply problem to farmers. Service sector related ventures like providing store houses with cold storage facilities in rural areas can help farmers to protect their harvested agriculture products against untimely rain and floods etc and also can provide them a comfortable wait opportunity to get better price from the market. This will not only create employment and self-employment opportunities, but also will give fillip to agriculture and manufacturing sector. Consultancy firms relating to matters pertaining to finance, business development and agriculture particularly consultancy for improving crop yield etc exclusively service sector ventures can help promoting manufacturing and agriculture sector, which is essential for strengthening domestic market.
Pakistan’s government policies are already aimed at increasing investments in infrastructure development related services, opening up the retail and financial sector having accessibility to economically disadvantaged segments of population in collaboration with Chinese government under their CPEC (China-Pakistan economic corridor) venture. A report published by Chinese government in 2022 speaks highly of growth of Pakistan’s export of services during the period from 2021 to 2022, which was recorded as Us $2.84 billion as compared to US $2.835 billion in 2020 showing growth despite onslaught of covid pandemic. According to the said report ‘service sector in Pakistan is emerging as main driver of It’s economic growth with its share in GDP increasing from 56% (in2006) to 61.4% in 2020’. Despite pandemic adverse impact on services exports during the period from 2021 to mid of 2023, service exports have rebound. According to statistics released by Bureau of Statistics service exports reached a level of $627.05million in February this year making a 6.11% increase from the$590.96/ million in the corresponding month last year.
Focus on development of Micro finance sector by State Bank Of Pakistan through special regulatory framework has facilitated development of service sector and at the same time strengthen domestic demand side- most needed to give fillip to agriculture and manufacturing sector, which is a safeguard against threats to economy as was experienced by ASEAN economies during first decade of the present century as stated in ASEAN PACIFIC report released by IMF such happenings have made business ventures in these countries more sensitive to the availability of internal funds, but domestic oriented small firms of service sector find it difficult to have access to institutional credit. It is true in case of Pakistan also where due to lack of accessibility to institutional credit small and medium size business venture could not flourish. Lack of needed infrastructure particularly regular supply of electricity coupled with poor law and order situation have been the impeding factors for the growth of micro and small businesses recognised as engine of growth for service industry all over the globe.
To ensure accessibility to institutional credit for small traders and entrepreneurs, State Bank of Pakistan apart from issuing special prudential regulations have in the past launched credit guarantee scheme and thereafter Prime Minister’s youth business loans for promoting small business enterprises in all sectors of economy of the country, particularly modern service industry, which in turn will expand employment landscape,increase employment opportunities, promote social stability, and improve quality of life in the country.