PAKISTAN COUNTRY STRATEGY
INTRODUCTION MDF stimulates business innovation, investment and regulatory reform with the aim to create additional jobs and income for poor women and men in rural and urban areas through sustainable and broad‐based pro‐poor growth. In Pakistan, MDF aims to create approximately 6,000 additional Full Time Equivalent (FTE) jobs and increase incomes for 72,000 households, potentially reaching up to 500,000 people over a four‐year period (2013 – 2017). To achieve this, MDF stimulates growth in sectors that represent a major part of the economy, have long‐term growth prospects and are relevant for poverty reduction. The three sectors initially chosen in Pakistan are Dairy and Meat, Leather, and Horticulture.
POVERTY In Pakistan an estimated 45% of the population are poor (UNDP‐Oxford Multidimensional Measure). Poverty levels vary widely between geographic regions and between rural and urban environments. The incidence of poverty is dramatically higher in remote rural areas (up to 90%), with strong variations caused by differences in climate and the presence of cash crops. The bulk of the poor live in the densely populated Punjab and around a few big cities. Of the rural population, 60% is dependent on agriculture; 80% of farmers are small or landless; while 60% of Punjab farmers have access to canal irrigation infrastructure, for most it is not regular or consistent enough access. Tube‐wells have proliferated which are expensive for small farmers because of high pumping costs. The bulk of rural trading takes place through traditional trading systems with limited investment in quality, storage and value addition. Most poor women in rural areas participate in economic activities within the confines of the household and have a say in expenditure decisions but this varies between regions. In conservative areas, women do not participate despite being poor. More commonly poor women work on the land, but gradually withdraw from doing so as the household income improves. The majority of poor in urban areas work in informal workshops. Women are particularly disadvantaged as businesses do not provide suitable working conditions and they are reluctant to work in male‐dominated workplaces.
GROWTH Pakistan's growth rate is improving from 2% in 2013 to 4.7% in 2015–2016. However, this is significantly below growth rates in neighbouring economies and insufficient to reduce poverty. Foreign Direct Investment (FDI) has dropped due to security concerns, but domestic investment and urban consumption have increased, signalling growing confidence among Pakistan's urban elite. The urban services sector is growing. International competitiveness in manufacturing is improving, but companies struggle to comply with the quality, service and certification expectations of global customers and local ancillary services are often poorly developed. Agricultural production struggles to keep up with domestic demand, which further limits the country's ability to export. Investments in innovation in local supply chains, processing, value addition and retailing are tangible yet often small and with a limited reach. Security concerns, energy shortages, water shortages and a complex regulatory environment all weigh down on economic growth. The trade balance is negative, driven by fuel imports. Capital and connections are concentrated in the hands of a small number of players, limiting the ability of new entrepreneurs and regional entrepreneurs to fill gaps in the country's economic fabric and improve its overall competitiveness.
DEVELOPMENT CHALLENGES Rural and Regional Inclusiveness Formal distribution networks and supply chains lack reach and volume. Agricultural information and innovation reaches bigger farmers, but not many small ones. The demand for high�quality produce for urban and export markets penetrates slowly through to distant rural areas and regions. Small farmers should be recognised as having a commercial orientation and hence as potential clients; there is a need to invest in the distribution networks, products and information to reach them. There is also a need to invest in regional companies, which can source, store, process and add value to products, and to connect farmers to demand in cities and overseas.
Export Competitiveness Manufacturing for exports and agricultural value addition for exports could grow more if local ancillary services are better developed and product standards are on par with international expectations. There is a need to establish a range of production inputs and services to create fast, local and cheap access to these. There is also a need to invest in product and process innovation in factories to meet international standards.
Broadening the Entrepreneurial Base Pakistan's small formal economy and limited number of companies will not sufficiently pull Pakistan out of poverty. There is no shortage of promising initiatives, but they need to be scaled�up to be relevant in Pakistan. There is a need for investment, more accessible business services, and a more conducive business environment for small, innovative and regional business ventures. There is also a need for investment in services and infrastructure that reduce the costs and risks of doing business.
Creating Opportunities for Women In rural areas, the role of women in economic activities is mostly restricted to the household level and in urban areas women have difficulty finding appropriate workplaces. There is a need for the private sector to invest in employment conditions suitable for women. There is also a need to invest in distribution and information channels that can reach women within the household.
CAPTURING OPPORTUNITIES FOR GROWTH AND POVERTY REDUCTION 45% of the population is poor with variation in poverty levels between and within geographic areas
Growth is significantly lower than neighbouring economies
Poverty is concentrated in the population dense Punjab region and around a few big cities
FDI is low due to Pakistan's risk profile but domestic funds are available for investment
Incidence of poverty is significantly higher in remote areas such as Khyber Pakhtunkhwa, Gilgit Baltistan and Balochistan
There is growth in manufacturing, urban services (including hospitality and retail) and in agricultural value addition, but local ancillary services and supply chains are underdeveloped
Broadening the entrepreneurial base to include innovative and regional entrepreneurs to fill gaps and strengthen Pakistan's economic fabric
The agricultural sector is poorly connected to innovation, information and high‐quality demand in the cities and overseas
Creating opportunities for women by reaching them within the household and making more suitable workplaces to work in
Rural and regional inclusion in growth
80% of farmers are small or landless, most with limited access to canal irrigation water Women in rural and urban areas encounter barriers to engaging in economic activity
Export competitiveness supported by stronger local ancillary services and supply chains
Focus on agricultural sectors that have the potential to connect rural and regional households to demand in cities and overseas. Focus on an urban sector that allows poor workers to acquire skills and offers opportunities for women. Horticulture provides opportunities to exploit specific agro‐climatic advantages of (mainly borderland) regions to supply Pakistan or the global market. There is a strong focus on establishing better connections and regional entrepreneurship, processing and value addition. Better access to inputs and information and innovations in supply chains will allow small dairy and meat farmers (mainly in Punjab and Sindh) to become more productive and commercially oriented. For this local and innovative entrepreneurs need to work alongside established players. The leather sector can be made more competitive internationally with improvements in product innovation, process innovation and the availability of ancillary services. It also allows workers to gain skills and increase wages and offers opportunities for women. In general a focus on partnerships that help to increase the reach and scale of rural value chains and information channels that help diversify local services, foster new entrepreneurship and reduce the cost of doing business in Pakistan. MDF's choice of sectors is strategically aligned with the Government of Pakistan's over‐arching goals embedded in Vision 2025.
Activities stimulate economic growth creating approximately 6,000 new FTE jobs and increasing incomes for 72,000 households Farmers are better connected to innovation, information and demand in cities and overseas Workers find more employment in manufacturing, processing and ancillary services Women are better informed and better able to utilise opportunities within the confinement of the household or in suitable workplaces Pakistan's economy becomes more inclusive, diverse and innovative – making it more competitive
Horticulture Represents 12% of agricultural GDP representing a wide diversity of regional products.
SECTOR SIZE AND RELEVANCE
Fruit and vegetables production has good potential for domestic and export growth and a high level engagement of smallholder farmers including those involved in fruit production in remote regions. Potential for growth in exports through more diversified produce and new processing, packing and preservation methods.
LONG TERM GROWTH PROSPECTS
Opportunities for higher yields, improved quality and expanded off�season production for domestic markets. Improved market linkages provide income opportunities for fruit producers in remote areas.
Dairy and Meat Improved volumes of quality products are required to satisfy growing domestic demand for dairy and export demand for meat products. Between 35 and 40 million of the rural population is dependent on income from livestock.
As Pakistan transforms into a more modern consumer led economy, demand for formal pathways to domestic and export markets for higher quality, compliant livestock products will increase. Livestock farmers will require improved access to a full range of inputs and new pathways to market for higher volumes of improved quality milk and livestock.
Leather 95% of leather produced in Pakistan is exported with 15% exported as finished products. The sector currently employs around 250,000 people.
Value adding through conversion of leather into retail ready leather goods could potentially add up to USD 3 billion to the economy. Improved quality and customer compliance will increase the market demand for retail ready leather goods produced in Pakistan. Increasing value addition through conversion of leather into retail ready leather goods will substantially increase urban employment opportunities. Good potential to increase urban female engagement within the sector.
Small fruit and vegetable producers are disconnected from the full range of inputs that have the potential to increase incomes through improved product quantity and quality. Improved pathways to access domestic and export markets provides opportunities for farmers in remote areas.
RELEVANCE TO POVERTY REDUCTION
Increased further processing provides alternative outlets for lower grade fruit and vegetables. Potential exists to improve poor farmer yields and incomes through better production techniques, access to inputs, product diversification, longer seasons, and increasing access to markets.
80% of livestock in Pakistan are held on smallholder farms with less than five animals.
Increased production of retail ready leather goods requires significant semi�skilled labour input.
Smallholder livestock product producers are currently disconnected from growth markets (domestic urban and export).
This means poor workers can improve their skills by receiving on the job training and access increasingly better employment opportunities.
Small holder livestock farmers currently have very limited access to information, nutritious fodder, veterinary services and other inputs to increase their productivity.
The opportunity exists to encourage growth in female employment in manufacturing enterprises.
Access to more quality sensitive, formal supply chains would allow poor farmers to sell more milk, possibly at premium prices, and optimise meat production rather than retain livestock as an asset. Access to reliable information and inputs will allow poor farmers to increase production and reduce risks.
HORTICULTURE The Horticulture sector covers the cultivation, harvest, post‐ harvest handling, processing and packaging of fruit, vegetables and root crops including fresh and processed produce for both domestic and export markets. MDF intends to work in all fruit and vegetable belts in Pakistan characterised by a high incidence of poverty and limited economic opportunities. MDF will invest in connections and local entrepreneurs to exploit the distinct quality and seasonal windows offered by different agro‐climatic conditions and/or proximity to urban markets. There will be a particular focus on remote areas in Gilgit Baltistan, Khyber Pakhtunkhwa, Sindh and Balochistan.
Sector Relevance Horticulture makes up 12% of agricultural GDP representing a wide diversity of products sourced from specific geographic and climatic zones – some of the poorest regions of the country. It involves an estimated eight million farms producing horticulture products for both subsistence and commercial purposes. Whereas large farmers are involved in production of mangoes and kinnows (mandarins) a large number of smallholder farms maintain small orchards and sales of produce make a sound contribution to household income. Also, a large number of smallholder farmers are involved in vegetable production due to short production cycles and regular contribution to household income.
Growth Potential There are four areas for growth potential in horticulture. 1) MDF aims to better exploit seasonal windows which allows a particular region with specific agro‐climatic conditions to supply produce to the rest of Pakistan at time when other regions cannot – fetching higher than average prices. 2) There is growth potential for fruit and vegetable production to supply emerging domestic retail formats, such as supermarket chains and food services and restaurants. While the traditional pathways to market are large, traditional marketplaces, they are extremely difficult to influence except through connecting them to newly developing distribution/processing pathways that focus on produce quality rather than trading margins. Cultivation improvement, post‐harvest handling and further processing into retail ready products is virtually absent, particularly for medium and smallholder farmers. 3) Similar growth potential exists in relation to export markets. 4) There is further growth potential in increasing agricultural productivity to supply more produce to Pakistan's growing domestic market by improving farmers access to inputs, information, post‐harvest handling and transportation, packing and processing, extending seasons and introducing new varieties.
HORTICULTURE
CONSTRAINTS TO FURTHER GROWTH IN HORTICULTURE
MDF'S STRATEGY TO UNLOCK GROWTH IN THE HORTICULTURE SECTOR
There are insufficient businesses able to exploit agro‐climatic zones, connect farmers to market demand (export and local) and meet quality standards (freshness, variety, packaging, etc.). Significant volumes of farm produce go to waste and value is lost.
Stimulate investment in upstream linkages and local businesses and support services through which local supply can connect to and comply with interprovincial, urban‐retail or export demand.
Small‐scale farmers have limited access to quality agricultural inputs impacting yield and/or quality resulting in demand or quality standards not being met.
Stimulate investment in distribution networks and affordable, cost saving and yield increasing inputs and equipment for a broader range of farmers.
Small farmers have limited access to information and production know‐how (input use, cultivation techniques, irrigation, on‐farm storage etc.). Service providers, processors and exporters focus on big agriculture (few crops, target large farmers) resulting in small farmers having limited access to information.
Stimulate investment in media and outreach channels and distribution networks to pass suitable information to small‐scale farmers. Stimulate applied research on appropriate techniques for small farmers where necessary.
Investment in upgrading local processing facilities, technology and skills Lack of investment in local processing and specialised infrastructure to meet international standards. Stimulate investment in storage, (packaging, storage, transportation) for local sourcing hampers the sector processing and value addition at the local level and/or near end‐markets from increasing its competitiveness. to improve post‐harvest handling. The horticulture business environment is constrained by poor management of water resources, complicated and lengthy approval and registration procedures for horticultural inputs and limited relevance and access to public research and extension services.
Assist farmer groups and input providers to improve access to water, improve approval and registration procedures for horticulture inputs and increase the appropriateness and outreach of public sector research activities.
SECTOR RESULTS CHAIN SECTOR CHANGES
Traders, buyers and processors invest in their capacity to source and export horticulture produce Traders, buyers and processors invest in their capacity to source horticulture produce for inter‐provincial and urban trade
BENEFITS TO FARMERS AND PRODUCERS Traders, buyers and processors source more products and pay better prices to supply export, urban and provincial markets
Traders, buyers and processors invest in specialised infrastructure to preserve and add value to produce in line with market requirements Service providers improve horticulture farmers’ access to quality inputs and financing options
Farmers are able to apply inputs and information appropriately to modernise cultivation techniques, improve quality and increase yields
Service providers improve horticulture farmers’ access to information on cultivation techniques and farm inputs Organised private sector is able to conduct constructive and evidence based public‐private dialogue
Horticulture buyers and sellers benefit from an improved agri‐business environment
(Quality conscious) traders, buyers and processors increase their market share for locally sourced produce
Farmers sell more, more consistently and at a better price. Less produce goes to waste
Farmers invest in their farms, plant more and improve yields
RESULTING PRO‐POOR GROWTH
Farmers earn additional income
Additional employment created. Increased income from additional jobs
Consumers benefit from improved quality and availability. Increased exports
DAIRY AND MEAT The dairy and meat sector covers production, collection, processing and marketing of livestock products. The focus for dairy is domestic market expansion and for meat is export market expansion. Milk production remote from large urban centres suffer price discounting due to an inability to deliver fresh milk to a high demand market. In addition, milk yields per cow and total herd productivity is low. MDF will focus on connecting milk producers in remote areas to urban markets through improvements in the supply chain. MDF will also invest in better availability of fodder and essential services, allowing farmers to invest in their herds. Livestock sales for meat production are dominated by household financial needs. MDF will focus on connecting livestock sales with demand for improved quality meat products to supply growing export and domestic retail formats.
Sector Relevance Livestock products contribute 55% to the value of agricultural production. Around 35 million rural people derive income from livestock. Milk production is around 40 billion litres per annum with less than 5% passing through a formal market linkage. There is a demand/supply gap of around three billion litres currently satisfied by imported milk powder. Annual meat production is 3.5 million metric tons (approximately 1 million metric tons is poultry). In 2014, 64,000 metric tons of red meat was exported – an increase of around 55,000 metric tons over a ten year period. Over 80% of dairy animals in Pakistan are held by small‐holders many of whom hold less than five animals, on less than five acres or are landless. The same small‐holder farms also provide the majority of livestock for meat production.
Growth Potential There are two areas for growth potential in the Dairy and Meat sector. 1) The supply/demand gap will increase due to population increases and improving socio‐economic conditions. While processors prefer to source fresh milk, the growing formal retail demand is outpacing their ability to procure sufficient quantities of quality fresh milk, particularly in the summer months when demand is high and yields are low (lack of grass due to heat and lack of rain). As a result, formal processors reformulate imported milk powder to supplement local milk supply. There is a need to increase production, in particular in the dry season. This can be achieved through consistent sourcing (giving a farmer the security to invest in a more productive herd), and better access to information and inputs, – especially nutritious, drought resistant grass varieties and storable fodder. Also, access to veterinarian services to maintain animal health and financial services to maintain consistent husbandry practices are important. 2) Meat exports have expanded rapidly in recent years but future growth is likely to be constrained by limited markets and transport logistics. Formal meat processors are seeking to expand the product range and customer quality compliance in order to sustain future growth.
DAIRY AND MEAT
CONSTRAINTS TO FURTHER GROWTH IN DAIRY AND MEAT
MDF'S STRATEGY TO UNLOCK GROWTH IN THE DAIRY AND MEAT SECTOR
Production is poorly connected to growth markets, new supply chains are growing but are thin and most production still goes into traditional markets.
Stimulate investment in establishing or expanding organised supply chains connecting producers to growth markets.
Small‐scale farmers have limited access to quality inputs, distribution networks do not penetrate rural markets sufficiently, small farmers are insufficiently targeted as clients, or products do not meet their requirements (too expensive etc.).
Stimulate investment in establishing or expanding availability of inputs through better distribution or local production and inputs companies learn to see small‐scale farmers as clients and develop products accordingly.
Small‐scale farmers have limited access to information and production know‐how (input use, husbandry techniques etc.).
Stimulate investment in media and outreach channels and distribution networks to pass suitable information to small farmers. Stimulate applied research on appropriate techniques for small‐scale farmers where necessary
Lack of access to formal financial institutions (for savings, loans) restricts access to finance for inputs, consumption and reinvestment.
Stimulate product development and investment in low‐cost financial services that can support commercial farming.
The public sector does little to improve the infrastructure to support cold chain development (for milk collection, vaccination distribution etc.) and focuses on large dairy farms. Limited incentives exist for private producers of vaccines limiting investment in the area.
Encourage the public sector through the livestock‐processing sector (Pakistan Dairy Association and the All Pakistan Meat Exporters and Processors) to support cold chain development and inclusiveness of small‐scale dairy farmers. Leverage on existing government extension networks to increase supply of quality inputs to small farmers.
SECTOR RESULTS CHAIN SECTOR CHANGES
Buyers and processors invest in their capacity to source and access domestic urban and export markets for livestock products Buyers and processors invest in improvements in product handling, value addition, and quality compliance processes Suppliers invest in providing improved quality inputs to livestock farmers Suppliers provide information to livestock farmers on animal husbandry techniques and farm inputs
Buyers and processors source more products and pay higher prices to supply to urban and export markets
Livestock farmers are able to apply inputs and information appropriately to modernise cultivation techniques, improve quality and increase quantity
Financial institutions and service providers offer customised financial products to livestock farmers and livestock businesses
Livestock farmers and businesses use financing to develop new products and services to further commercialise their business
Organised private sector is able to conduct constructive and evidence based public‐private dialogue
Buyers and sellers of livestock products and services benefit from an improved agri‐business environment
BENEFITS TO FARMERS AND PRODUCERS (Quality conscious) buyers and processors increase their market share of locally sourced milk and meat products
Farmers consistently sell more milk and livestock at a better price
Farmers invest in their livestock farms to produce larger volumes of higher quality milk & meat
RESULTING PRO‐POOR GROWTH
Farmers earn additional income
Additional employment created in livestock farms and firms. Additional incomes from additional jobs Increased supply of milk and meat to domestic consumers, increased meat exports
LEATHER The Leather sector involves sourcing of hides and skins through to the production of retail ready leather goods. Pakistan currently has a robust tanning sector producing finished leather. While there are issues, MDF does not intend to work with tanning enterprises. MDF will work to increase the conversion of finished leather to retail ready products in Pakistan for exports (and in a more limited manner for domestic consumption).
Sector Relevance Pakistan exports over USD 1 billion of leather and leather goods each year. Pakistan exports around 27 million m2 of finished leather valued at USD 450 million. While leather goods consume around 4.5 million m2 of finished leather they contributed USD 550 million to export receipts. The value added in converting finished leather to finished goods is considerable and increased conversion would make a significant contribution to balance of payments. Increased production of finished leather goods would significantly increase the current estimated 250,000 people employed in the sector. A considerable number of semi�skilled employees would be required in the manufacturing and conversion process. These employees would be predominantly urban based and there is potential for increased employment of women.
Growth Potential China currently dominates conversion of leather into finished leather goods, however with rising labour costs production is moving to other developing economies. Pakistan is well� positioned because of availability of finished leather and competitive labour costs. Growth has been restrained by an inability to meet rigorous customer requirements including fast turnaround for fashion items and compliance certification. While global demand for leather garments is stable, demand for shoes, accessories and upholstery products continues to expand. It should be recognised that modern leather goods involve components of both natural leather and composites and some items available may not contain leather. MDF will look at opportunities for increased production of shoes and accessories etc. in situations where the consumption of finished leather is limited (e.g. use of fabric, composite materials, faux leather etc.). The potential of value adding indicates that if all Pakistan's finished leather was converted into retail ready leather goods it would potentially add up to USD 3 billion to the economy.
LEATHER
CONSTRAINTS TO FURTHER GROWTH IN FINISHED LEATHER GOODS MANUFACTURING
MDF'S STRATEGY TO UNLOCK GROWTH IN FINISHED LEATHER GOODS MANUFACTURING
Finished goods manufacturing requires greater investment to capture the advantages of local leather availability and an increasingly competitive manufacturing economy.
Production of competitively priced, higher value finished goods stimulates manufacturers to increase investment in manufacturing capacity and utilise locally sourced finished leather.
Lack of domestic technology, testing, ancillary and components industry for leather goods manufacturing results in low export competitiveness.
Stimulate investment in local support industries to provide quality and timely inputs and services to finished goods manufacturers to reduce their costs and the response time to export orders.
Lack of third party compliance support results in failure to gain customer orders due to tighter regulations in the global leather market.
Encourage third party compliance support to increase access to high value markets that require extensive certification compliance.
Insufficient expertise in marketing, designing, innovation, product development and customer compliance is available and this limits growth.
Stimulate investment in in‐house and third party expertise in marketing, designing, innovation, product development and customer compliance to foster growth.
Lack of sufficient, appropriately trained shop floor and supervisory labour and insufficient recognition of the potential for women's contribution undermines investment confidence.
Stimulate provision of in‐house and third party training vehicles and improvement in employment conditions for women.
While rules have been implemented to restrict lower quality value‐added leather exports (e.g. raw hides, wet blue & crust leather), business environment settings do not provide targeted support for finished goods and even create barriers at times (e.g. limits on fur export).
Improve the ability of finished goods business membership organisations to make representations to Government to improve the business environment settings to stimulate growth in finished goods manufacturing.
SECTOR RESULTS CHAIN SECTOR CHANGES
Manufacturers invest in technical production capacity to produce high value retail ready goods Manufacturers invest in design, production innovation and marketing to produce higher value retail ready goods
BENEFITS TO FARMERS AND PRODUCERS Manufacturers are able to produce higher value retail ready goods for export and domestic markets
Manufacturers and third party suppliers invest in skills development programmes
Manufacturers increase production and source local leather raw materials
Manufacturers have better access to local components and accessories, testing services and certifications
Third party suppliers invest in upgrading production facilities to meet export standards Organised private sector is able to conduct constructive and evidence based public‐private dialogue
Additional employment created and increased income from additional jobs Additional income from sales of hides due to increased demand from local Manufacturers
Third party suppliers invest in the local availability of quality components and accessories Third party suppliers invest in the local availability of certification services
RESULTING PRO‐POOR GROWTH
Buyers and sellers benefit from an improved export oriented value adding business environment
Third party suppliers expand production of ancillary items, testing services and certifications
Increased exports and reduced imports
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