Non Farm Economy in Pakistan

8/6/2019 Non Farm Economy in Pakistan

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The Rural

Non-Farm Sector in Pakistan

Mona Sur

and

Jian Zhang

April 23, 2007


2/20

The RNF Sector: Why Is It Important?

Close to 40% of the rural

working population is self-employed or employed aswage or salaried workers inRNF activities.

45% of HH income comesfrom non-farm sources. RNF income shares vary by

province: 67% in NWFP,43% in Punjab & 23% in

Sindh

The poor are relatively moredependent on RNF incomes. Source: HIES/PHS 2001/02

Sources of Rural Incomes 2001/02(By Expenditure Quintile)

54%

48%45% 45%

41%

0%

10%

20%

30%

40%

50%

60%

70%

Poorest 2 3 4 5

Quintile

Share

ofIncome

Agricultural Wages Total Farm (exl. ag. wages)

Net Business Income Non-agr icultural Wages

Total Non-farm


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Distributional Implications of

Agricultural Growth

Model simulations indicate that even largeincreases in agricultural production have onlyminor impacts on incomes of agricultural laborersand the rural non-farm poor.

The implication is that agricultural growth alone,(even including multiplier effects), withoutspecific interventions targeted to agricultural

laborers and the rural non-farm poor, will notalleviate poverty for much of the poor in ruralPakistan.


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Pakistan: SIO Model Simulation Results

10 percent Output Shock

Pakistan Semi-Input-Ouput Model results based on a 2001-02 Pakistan Social Accounting Matrix.

Source: Dorosh, Niazi and Nazli, 2004.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Lrg/Med

Farm

Sm

Ow ners

Sm

Renters

Agr

Workers

Non-farm

Non-poor

Non-farm

Poor

(%

change)

Wheat

Major Crops

Livestock


5/20

Pakistan Rural Investment Climate

Survey 2005

May - December 2005

Sample: 1651 non-farm enterprises

1069 Punjab, 300 Sindh, 282 NWFP

72 small towns (Town Committees and Municipal

Committees) with population less than 100,000

76 villages (50 Punjab, 15 Sindh, 16 NWFP)

Implementation: Innovative Development

Strategies, Ltd.

Funding: DFID, FAO, World Bank


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Pakistan: Travel Times

and Rural Investment Climate Survey Sites


7/20

Profile of RNF Enterprises

94%92%88%93%96%92%94%91%Sole-proprietorships

4%13%0%4%5%13%5%17%Pay income taxes

10%19%12%12%5%9%21%31%Registered firms

Registration & Taxes

57%59%60%73%53%68%57%46%Trade

31%33%32%25%28%27%32%41%Services

12%8%8%3%19%4%11%12%Production

Sector

8.278.396.386.829.047.348.229.92Average age of firm

Age

12%24%5%31%17%26%7%19%Firms hiring workers

1%3%0%3%1%4%1%2%More than 5 workers

1.72.01.51.91.92.31.51.8Average number ofworkers

Employment

Rural

Small

TownRural

Small

TownRural

Small

TownRural

Small

Town

AllNWFPSindhPunjab


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RNF Employment by Industry

Self-employed Persons

11%

1%

3%

5%

25%

1%

9% 47%

Mining & Quarrying

Manufacturing

Electricity

Construction

Wholesale & RetailTradeTransport & Storage

Real Estate,

InsuranceSocial & Personal

Services

Others

Non-Agricultural Workers

38%

8% 1% 13%

1%

24%

7%8%

Source: PLSM 2004/05


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Enterprise Sales and Assets (000 Rs)

18277718282028Value added perworker

2443111431462548Value added

10866713117Fixed assets perworker

121571014251410

Value of fixed

assets

1021809616018029598151Sales revenues

RuralSmallTownRural

SmallTownRural

SmallTownRural

SmallTownMedian Values

AllNWFPSindhPunjab


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Investment Climate:

What Do Rural Pakistan Entrepreneurs Say?

0% 5% 10% 15% 20% 25% 30% 35% 40%

Access t o fi nance

Cost of f inance

Loan procedur es

Low market demand

Quality of electr icit y

Access to electric ity

Economic policy uncert ainty

Crime theft

Corruption

Access t o market

Road Quali t y

Market Information

Natur al Gas

High tax r ates

Availabilit y of tr ansport

Raod Access

Illegal t ax levies

Complicat ed t ax rules

Road Bloc ks

Water Supply

% of firms reporting constraints as 'm ajor' or 'severe '

Small Town Rural


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Investment Climate Constraints by Province

0 10203040% of firms

Econ. policy uncertainty

Loan procedures

Low market demand

Cost of finance

Access to finance

Small Towns

Punjab

0 1020304050% of firms

Natural Gas

Low market demand

Loan procedures

Cost of finance

Access to finance

Rural

Punjab

0 10 20 30 40% of firms

Corruption

Crime theft

Access to finance

Cost of finance

Loan procedures

Small Town

Sindh

0 10203040% of firms

Availability of transport

Road Quality

Cost of finance

Access to financeLoan procedures

Rural

Sindh

0 1020304050% of firms

Quality of electricity

Access to electricity

Loan procedures

Access to financeCost of finance

Small Town

NWFP

0 10 20 30 40% of firms

Access to electricity

Water Supply

Access to finance

Loan proceduresCost of finance

Rural

NWFP

Percent of firms reporting major/severe constraints

Top IC Constraints


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Constraints Identified by Urban Firms

46.1

45.6

42.6

40.4

40.1

39.2

37.6

0 10 20 30 40 50

Tax Administration

Tax Rates

Cost of Financing

Corruption

Regulatory Policy Uncertainty

Electricity

Access to Financing

% of firms reporting major/severe constraints

Source: World Bank and SMEDA, 2003


13/20

Access to Finance (Formal Credit) Lack of access to long term finance and

financing for new investments

< 20 % of entrepreneurs wanting formal credit for

start-up capital or investment purposes received

credit

Only 7% of small town and 4% of village

enterprises had applied for formal loans

80% of formal loans required collateral


14/20

Access to Finance (Savings) Few entrepreneurs have savings or

current accounts

10-12% have PLS accounts


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Access to Finance (Short-term Credit)

Firms appear to have more access to short-termcredit

54% use supplier credit

62% of traders have access to supplier credit,compared with 32% of production relatedenterprises and 29% of service relatedenterprises

On average those with access to supplier creditpurchase 50% of their inputs on credit

Credit is available on average for 14 days


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Infrastructure

0%1%0%2%0%0%0%1%Uses email

0%1%0%3%0%1%0%0%Use fax

4%9%6%19%3%3%3%10%Owns cellular phone

7%28%6%39%4%24%9%28%Owns fixed line phone

Telecommunications

3030203030204540Median days to get new electricityconnection

5%7%0%5%4%12%7%4%Own or share a generator

2015302030301010Power outages (days/month)

100%99%100%100%100%100%99%98%Enterprises connected to the gridreporting power outages

83%96%96%98%81%94%79%97%Enterprises with access to electricity

Electricity

187183256209248236149126Travel times to nearest city of 500K

1031031621291581237175Travel times to nearest city of 100K

68%92%47%92%28%85%85%98%

Public transport available to nearest

main city

42%15%54%0%93%37%26%1%Internal roads are dirt roads

Roads & Transport

Rural

Small

TownRural

Small

TownRural

Small

TownRural

Small

Town


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Governance

1%2%0%0%9%3%0%0%Strongly disagree

31%30%19%15%39%45%33%23%Disagree

48%54%56%47%49%46%45%63%Agree

7%9%19%37%0%1%5%7%Strongly agree

Legal system will uphold contracts and property rights in disputes---proportion of enterprises that:

0%0%1%0%0%0%Strongly disagree

24%28%18%8%25%40%26%26%Disagree

56%55%56%38%67%52%53%63%Agree

8%12%21%52%6%5%4%4%Strongly agree

A contract offers protection from being cheated---proportion of enterprises that:

6%9%6%5%18%16%3%3%Highly unpredictable

21%18%19%23%8%8%25%25%Unpredictable

47%58%24%26%67%67%50%62%Somewhat predictable

15%11%46%44%7%4%7%4%Highly predictable

Proportion of enterprises reporting that laws and regulation affecting their businesses are:

RuralSmall TownRuralSmall TownRuralSmall TownRuralSmall Town

AllNWFPSindhPunjab


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Some Policy Implications

Finance:

Improving supply side conditions including

promoting use of alternative forms of collateral,more flexible loan repayment schedules

Demand side: technical assistance in

bookkeeping, documentation, training on business

management and entrepreneurial skills for rural

enterprises

Infrastructure:

Increase investments in rural electrification and

quality of rural roads (including maintenance)


19/20

Some Policy Implications

Governance:

Improving efficiency of the legal system--contract

enforcement and confidence in the legal systemremains a concern for many particularly

enterprises in Sindh

Human Capital:

Invest in human resources. Firms with more

educated managers consistently seem to perform

better; they are more likely to innovate and access

business networks


20/20

Thank You

Non Farm Economy in Pakistan

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