non farm economy in pakistan
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The Rural
Non-Farm Sector in Pakistan
Mona Sur
and
Jian Zhang
April 23, 2007
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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
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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
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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
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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
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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)
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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
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Thank You
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