With improved security, law and order outlook in Khyber Pakhtunkwa, there are renewed hopes for a more inclusive economic growth, implementation of social justice reforms and due care of natural resources and environment.

In academic and policy publications, we are repeatedly reminded of the economic potential of this province which includes but is not limited to 30,000 MW hydropower, 9 trillion cft gas, 500 million barrels of oil, 3 billion tons of marble, 8 trillion tons of limestone, besides also having an endowment of 60 per cent of Pakistan’s total forest cover, 20 per cent of the country’s overall mining and minerals production, and significant stocks of gemstones.

There are also public and private sector studies which inform us of a high oil and gas drilling success rate with one in three drill activities lending good news. We also observe that ten exploration and production companies are already active in the province, including Kuwait Foreign Petroleum Exploration Company.

While the above-mentioned growth potential of Khyber Pakhtunkhwa is well recognised, a natural question is what stops the province from achieving better possible development outcomes?

During a survey by Sustainable Development Policy Institute (SDPI), the business community in Khyber Pakhtunkhwa highlights four key issues stifling the growth of private enterprise in the province. These include: multiplicity of taxes imposed by federal, provincial and district administrations often giving rise to incidence of double taxation and increased cost of trade; uncertainty with regard to incentives for private sector (e.g. missing information regarding how micro, small and medium enterprises can gain from projects and special economic zones under China Pakistan Economic Corridor); energy shortages and high costs of accessing electricity and gas; and rampant informal economy riding on the back of illegal and informal trade.

The civil society organisations also highlight some gaps which include: development funding mostly channeled towards districts represented by treasury benches in the provincial parliament; need to raise a more capable and autonomous provincial civil service free form political interference; sluggish pace of implementation of laws that strengthen voice and accountability in the provinces (e.g. Police Ordinance 2016, Right to Public Services Act 2014, Right to Information Act 2013, Whistleblower Protection and Vigilance Commission Act  2016, Ehtesab Commission Act 2014, Local Government Act 2013), and slow progress towards implementing the promises under the economic legislation furnished by the current provincial government (e.g. Industrial Policy 2016, Minerals Policy 2014, Tourism Policy 2014, Hydropower Policy 2016, Small Scale Gems & Mining Policy 2014 and proposed investment policy).

In the same survey, academics in the province also reveal low quality of human resource as a key impediment to economic growth. According to them, proliferation of public sector universities in the province was not matched by higher incentives for more experienced faculty at these universities. As a result, we see several large university departments without a single full professor or equivalent. Even at the primary school level, flagship teachers’ training programme has been reported to be falling behind timelines due to mismanagement and coordination issues. The ongoing vocational training programmes face challenges which prevent scaling up to western and southern districts in the provinces.

Given the above-mentioned challenges, what is the way forward for achieving sustainable development goals in Khyber Pakhtunkhwa? First and foremost is the need to expedite ongoing reforms to improve quality of public administration, transparency and accountability. This is most desired to mitigate the incidence of corruption, timely completion of development programmes, managing existing infrastructure and social sectors in a cost-effective manner, and to be more able partners for China in implementation of CPEC portfolio in Khyber Pakhtunkwa. An evaluation is also required as to why previous civil service capacity building programmes have not delivered the envisaged outcomes.

Second, we need to position Khyber Pakhtunkwa as a supplier of relatively economical and clean energy to the rest of Pakistan and the western region including Afghanistan. As the province is already a conduit for some mega energy projects such as Central Asia South Asia-1000 MW electricity project and Tajikistan Afghanistan Pakistan India (TAPI) gas pipeline project, it may also offer its own potential for renewable energy including hydropower to the region. The CPEC portfolio only includes a single project on the high priority list from Khyber Pakhtunkhwa i.e. Suki Kinari Hydro power station with a capacity of 870 MW. An inter-governmental high-level energy working group having participation of federal government may be constituted to see what other projects can be offered to foreign and local investors. Regular meetings of this working group will also help implement the measures under Khyber Pakhtunkhwa Hydropower Policy 2016.

Third, focus on primary industries for medium term economic growth and job creation at local level. For this, Khyber Pakhtunkhwa Integrated Development Strategy does talk about several ongoing agriculture projects aiming to increase crop varieties and value addition in agriculture. However, the strategy is silent on ‘market development’ for farmers -- who can only be compelled to experiment with new methods, dedicate greater working capital and employ innovative technologies if market signals greater profitability in crop and livestock sectors.

Farmers’ cost of doing business which sharply increased since 2013 due to multiplicity of indirect taxes, particularly on inputs, needs to be rationalised. The Agriculture Policy of Khyber Pakhtunkwa does recognise that a reformed regulatory regime is required to ‘cater for standardised market operations and reduce cost of doing business’. However, the policy is silent on how this may be achieved. The policy also needs to address climate related challenges faced by agriculture sector.

The province has also witnessed frequent floods in recent past. It is worth noting that the perennial flow in most parts of Khyber Pakhtunkwa is untapped for the use of agriculture. This can be achieved by channeling streams of water from the main river flow towards the agricultural lands which will not only result in a sustainable agricultural sector but also mitigate the impact of flood risk.

Fourth, creating formal and competitive markets for farmers will pave way for a more efficient food processing sector which can form the basis for revival of secondary industry in Khyber Pakhtunkhwa. The higher volumes of agricultural output, particularly fruits can be processed into various forms for boosting exports. Value chain integration with countries in the region, particularly Afghanistan, Iran and other Central Asian economies can provide additional avenues for local investors and traders in Khyber Pakhtunkhwa.

Fifth, the above-mentioned developments will require improvements in human resource. In education sector, this has to start by bringing greater balance across, primary, secondary and tertiary education spending. Currently, per student expenditure on primary students is far lower than secondary and tertiary education. Second, bring a more rational balance in the budget allocation between physical infrastructure in education and teacher capacity building. Finally, the provincial development budget for education should be given protection by law. It must not be diverted to other expenditures as and when required by treasury benches.

Equally important for development of human resources is improvement in outcomes of health sector interventions in Khyber Pakhtunkhwa. Like education, health budget should also be protected by law. Furthermore, future expenditure can be saved with enhanced focus on primary preventive health care, particularly through dedicating greater funds for primary care, mother and child healthcare, and immunisation. The governance of health sector can improve through decentralisation of planning and budgeting of health activities at the district level, putting in place a more transparent monitoring and evaluation system at all levels.

Sixth, commercial trade and transit provide immense opportunities given Khyber Pakhtunkhwa’s strategic location and land route linkages with the region. The SDPI’s research demonstrates that during the period 2004-2011, employment in Khyber Pakhtunkhwa provinces increased in transport, trade and warehousing sectors, primarily due to increased transit flows to Afghanistan. This increase in employment was particularly significant in the poorest quintiles. Now that Tajikistan has also requested for transit, provincial government in consultation with all stakeholders should put in place a coherent transit trade strategy. The provincial government will need to include federal government’s focal organisation i.e. Ministry of Commerce in this exercise. Improved transit linkages will in due course boost revenues for the province.

Seventh, for success of newly-identified special economic zones, it is important to first conduct an evaluation of past industrial estates in Khyber Pakhtunkwa. Such an exercise will identify those key reforms which may be pre-requisite for the success of future economic zones in the province. Such an evaluation should also answer how Khyber Pakhtunkhwa’s economic zones and industrial states can get integrated with regional trade and investment cooperation programmes such as Central Asia Regional Economic Cooperation Programme (CAREC). A study on overall regulatory burden faced by Khyber Pakhtunkwa’s private sector is also long due. This burden and related transactions cost increase due to lack of judicial reforms that can ease the process of dispute resolution and cut down litigation related costs.

Eight, a more conducive fiscal regime is required for businesses in districts hit hard by conflict and violence. In this regard, the government of Khyber Pakhtunkwa should negotiate a special fiscal package with the federal government, including preferential tax and development spending allocations for revival of micro, small and medium enterprise in such districts. This can be done as part of the forthcoming budget 2017-18.

Ninth, the revenues of the provincial government can increase in turn also boosting spending on social sector priorities if ongoing reforms of tax departments are expedited. To reduce compliance cost of tax payers and bring down administrative costs, the three revenue collection bodies in the province may be merged. All taxes rendering miniscule revenues, but having larger administrative costs, may be merged to form a single uniform tax. Also, incidence of double taxation under general sales tax on services and federal excise duty may be corrected.

Finally, the provincial government needs to put in place a more structured public-private dialogue mechanism. Currently, the business community feels that their voice is not heard at the policy forums. Their proposals to the government are not scientifically evaluated. Therefore, a more appropriate way forward may be to put in place public private advisory councils at departments of finance, planning and development, industries and agriculture. A quarterly follow-up meeting of such councils will not only ensure demand-side accountability, but also allow the provincial government to present their constraints and possibly engage the private sector towards collective solutions of complex policy issues.

Also contributed by Junaid Zahid, Shujaat Ahmed, Ahad Nazir. The writers are associated with www.sdpi.org