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Innovation can save Pakistan
Policymakers must understand what R&D and innovation can do for the economy, writes Shahid Mehmood
By Shahid Mehmood
November 29, 2019
If you ask any person about picking an example of economic success, it does not matter whether he/she is economist, the expected answer would usually be China. And rightly so! In recorded history since the dawn of civilization, no country’s economy has managed to achieve what China’s has done since 1978. The result of this truly breath-taking economic success is that China, from being not even in the top 20 list in 1978, is now the second largest economy in the world.
One aspect of this remarkable leap which tends to get less attention, though, is the Chinese expenditures on Research and Development (R&D), which have persistently been growing over time. Since the beginning of the 21st century, it has grown by 170 percent, arguably the fastest rise in terms of frequency and quantum of monetary outlay around the globe! To get an idea of how much importance is given to R&D by the Chinese government, contemplate the fact that its 2011-15 Five-Year Plan envisaged $1.5 trillion (5 percent of its GDP) investment in innovative industries like advanced manufacturing and Artificial Intelligence (AI).
In essence, what China and the developed world are interested in is ideas that lead to innovation. Smart policymakers understand well that technological prowess through R&D and innovation are what gives imparts a competitive edge to the nations. Moreover, its positive spill overs for the economy can neither be questioned nor ignored.
In China’s immediate neighbour lies the Islamic Republic of Pakistan, which hardly spends any of its annual expenses on R&D. In fact, whatever is shown under R&D head of expenditure, is mostly non-development expense (salaries, etc.). Thus the real, meaningful expenditure is even lower. Critically, little of it adds value. Is it any wonder than that we are such laggards when it comes to technological advances, innovation and R&D? The implications of all this can be clearly gauged by a recent example: under the CPEC initiative, one of the biggest items of import was advanced machinery since Pakistan does not manufacture any!
This is the dominant, disappointing, on-ground narrative that stares us in the face. But there is another narrative, hopeful, less discussed but slowly and gradually gaining traction. This narrative revolves around innovative Pakistani minds and institutes like the National Incubation Centre (NIC) Karachi. On the October 25, an innovative idea by the name of Encore Pay brought pride to Pakistan. A product centred on the idea of its founder Imran Saeed and polished further at NIC, Encore Pay got selected for IBM’s prestigious Hyper Protect Accelerator Program. IBM’s accelerator program is a new tech start up program designed to build and scale the next generation of fintech and healthtech companies.
The scale of achievement can be gauged by the fact that Encore Pay managed to secure a spot in top 15 startups from worldwide under this program. It will be participating in IBM’s prestigious program with other companies from United States, Canada, Europe, Middle East, Africa and India. A proud achievement indeed!
Around Pakistan, besides NIC, various other platforms are also vying for innovative ideas and striving to turn them into products. And there is no shortage of ideas. Recently, for example, a female Pakistani engineer came up with an innovative way of reducing carbon emissions of commercial airlines. And then there are selfless people like Syed Nouman ul Haq, a young journalist who travels around Pakistan to promote the gospel of innovation and its importance. What is lacking is government support and an infrastructure that can properly sustain and nurture ideas like Encore Pay.
How can Pakistan incentivize investment in R&D and innovation? What would it take to create a discourse that centres around innovation and its benefits for the economy? More importantly, what is the probability that Pakistan’s government and its policymakers can be weaned off of their unhealthy infatuation with cemented structures? The answer, ironically, is that it is the government that would have to be at the forefront of this change. That is what the overall historic evidence suggests.
Take the example of internet. Its origins lie in a US government sponsored program to create a single, secure channel of communication for the various arms of its defence forces. What began as a public sector led effort at Defence Advanced Research Project Agency (DARPA) blossomed into a platform whose fruits are being enjoyed all around the world. Similarly, in China’s case, it is the government’s support that has propelled innovation around the country. Its facilitation channel for R&D and innovation include, for example, the establishment of China Development Bank (CDB), a channel through which low cost loans are channelled to private sector led innovation. CDB was instrumental in helping raise the Chinese solar cell industry, which has given competitors a run for their money.
For Pakistan, in case its policymakers and rulers can somehow understand what R&D and innovation could do to the economy, it should not be difficult to lend public support to these activities. One example would illustrate this assertion. Since 1976, the federal government has been charging 1 percent tax, equivalent to gross income of pharmaceutical companies, in the name of conducting R&D. Billions of rupees have been collected till date, of which there is no account. Yet there is zero public sector R&D in pharmaceutical products, and Pakistan still lacks a WHO or FDA approved lab for testing. A better course of action would have been to withdraw this tax, and let pharmaceutical companies carry out this task by themselves, with government acting as a regulator. If it were done since 1976, the results would have been quite different for the industry and Pakistan.
There are countless other examples that speak of government’s apathy. Billions of rupees are dished out everywhere in the form of inefficient subsidies to sustain rent-seeking lobbies. This year, a Rs20 billion subsidy was announced for the stock exchange. Not many Pakistanis invest in it, and its fruits fall in the lap of a tiny minority. In contrast, the benefits of innovation are far reaching and more equal, democratic in nature. So, the question is that why couldn’t this amount be channelled to NIC or other such platforms that support innovation?
For Pakistan, whose exports hardly register $25 billion, is it not an incentive enough that it can earn billions of dollars just by exporting ideas? USA earns more than $125 billion a year through patents on ideas that originated on its soil but are being used worldwide.
So let’s change the direction of our thinking and support innovation. That is one of Pakistan’s best bet to get out of economic rut. We’ve had enough of cemented structures, which tend to become future liabilities. Let’s now concentrate on building a structure based on innovation and R&D.
The writer is an economist
https://www.thefridaytimes.com/innovation-can-save-pakistan/
Policymakers must understand what R&D and innovation can do for the economy, writes Shahid Mehmood
By Shahid Mehmood
November 29, 2019
If you ask any person about picking an example of economic success, it does not matter whether he/she is economist, the expected answer would usually be China. And rightly so! In recorded history since the dawn of civilization, no country’s economy has managed to achieve what China’s has done since 1978. The result of this truly breath-taking economic success is that China, from being not even in the top 20 list in 1978, is now the second largest economy in the world.
One aspect of this remarkable leap which tends to get less attention, though, is the Chinese expenditures on Research and Development (R&D), which have persistently been growing over time. Since the beginning of the 21st century, it has grown by 170 percent, arguably the fastest rise in terms of frequency and quantum of monetary outlay around the globe! To get an idea of how much importance is given to R&D by the Chinese government, contemplate the fact that its 2011-15 Five-Year Plan envisaged $1.5 trillion (5 percent of its GDP) investment in innovative industries like advanced manufacturing and Artificial Intelligence (AI).
In essence, what China and the developed world are interested in is ideas that lead to innovation. Smart policymakers understand well that technological prowess through R&D and innovation are what gives imparts a competitive edge to the nations. Moreover, its positive spill overs for the economy can neither be questioned nor ignored.
In China’s immediate neighbour lies the Islamic Republic of Pakistan, which hardly spends any of its annual expenses on R&D. In fact, whatever is shown under R&D head of expenditure, is mostly non-development expense (salaries, etc.). Thus the real, meaningful expenditure is even lower. Critically, little of it adds value. Is it any wonder than that we are such laggards when it comes to technological advances, innovation and R&D? The implications of all this can be clearly gauged by a recent example: under the CPEC initiative, one of the biggest items of import was advanced machinery since Pakistan does not manufacture any!
This is the dominant, disappointing, on-ground narrative that stares us in the face. But there is another narrative, hopeful, less discussed but slowly and gradually gaining traction. This narrative revolves around innovative Pakistani minds and institutes like the National Incubation Centre (NIC) Karachi. On the October 25, an innovative idea by the name of Encore Pay brought pride to Pakistan. A product centred on the idea of its founder Imran Saeed and polished further at NIC, Encore Pay got selected for IBM’s prestigious Hyper Protect Accelerator Program. IBM’s accelerator program is a new tech start up program designed to build and scale the next generation of fintech and healthtech companies.
The scale of achievement can be gauged by the fact that Encore Pay managed to secure a spot in top 15 startups from worldwide under this program. It will be participating in IBM’s prestigious program with other companies from United States, Canada, Europe, Middle East, Africa and India. A proud achievement indeed!
Around Pakistan, besides NIC, various other platforms are also vying for innovative ideas and striving to turn them into products. And there is no shortage of ideas. Recently, for example, a female Pakistani engineer came up with an innovative way of reducing carbon emissions of commercial airlines. And then there are selfless people like Syed Nouman ul Haq, a young journalist who travels around Pakistan to promote the gospel of innovation and its importance. What is lacking is government support and an infrastructure that can properly sustain and nurture ideas like Encore Pay.
How can Pakistan incentivize investment in R&D and innovation? What would it take to create a discourse that centres around innovation and its benefits for the economy? More importantly, what is the probability that Pakistan’s government and its policymakers can be weaned off of their unhealthy infatuation with cemented structures? The answer, ironically, is that it is the government that would have to be at the forefront of this change. That is what the overall historic evidence suggests.
Take the example of internet. Its origins lie in a US government sponsored program to create a single, secure channel of communication for the various arms of its defence forces. What began as a public sector led effort at Defence Advanced Research Project Agency (DARPA) blossomed into a platform whose fruits are being enjoyed all around the world. Similarly, in China’s case, it is the government’s support that has propelled innovation around the country. Its facilitation channel for R&D and innovation include, for example, the establishment of China Development Bank (CDB), a channel through which low cost loans are channelled to private sector led innovation. CDB was instrumental in helping raise the Chinese solar cell industry, which has given competitors a run for their money.
For Pakistan, in case its policymakers and rulers can somehow understand what R&D and innovation could do to the economy, it should not be difficult to lend public support to these activities. One example would illustrate this assertion. Since 1976, the federal government has been charging 1 percent tax, equivalent to gross income of pharmaceutical companies, in the name of conducting R&D. Billions of rupees have been collected till date, of which there is no account. Yet there is zero public sector R&D in pharmaceutical products, and Pakistan still lacks a WHO or FDA approved lab for testing. A better course of action would have been to withdraw this tax, and let pharmaceutical companies carry out this task by themselves, with government acting as a regulator. If it were done since 1976, the results would have been quite different for the industry and Pakistan.
There are countless other examples that speak of government’s apathy. Billions of rupees are dished out everywhere in the form of inefficient subsidies to sustain rent-seeking lobbies. This year, a Rs20 billion subsidy was announced for the stock exchange. Not many Pakistanis invest in it, and its fruits fall in the lap of a tiny minority. In contrast, the benefits of innovation are far reaching and more equal, democratic in nature. So, the question is that why couldn’t this amount be channelled to NIC or other such platforms that support innovation?
For Pakistan, whose exports hardly register $25 billion, is it not an incentive enough that it can earn billions of dollars just by exporting ideas? USA earns more than $125 billion a year through patents on ideas that originated on its soil but are being used worldwide.
So let’s change the direction of our thinking and support innovation. That is one of Pakistan’s best bet to get out of economic rut. We’ve had enough of cemented structures, which tend to become future liabilities. Let’s now concentrate on building a structure based on innovation and R&D.
The writer is an economist
https://www.thefridaytimes.com/innovation-can-save-pakistan/
