The services sector registered convincing and broad based growth of 8.8 per cent during the current year, against a target of 6.8 per cent and last year’s increase of 7.9percent
Transport and communication sector grew by 7.1 per services relates to public service by governments, which are an indicator of good governance as well as human development. These include access to and quality of services related to education, health, environment, transport and communications, and law and order. Many financial services such as financial regulation are also expected of good governance and the modern tool of good governance, namely, e-governance contributes towards providing public information to people so as to reduce time and transaction costs, and increase quality and transparency of government functioning.

The private sector is now also perceived as an important partner in provision of even those services which were the traditional preserve of government. Public private partnerships, when forged properly, can supplement government activities and programmes.

The World Trade Organization (WTO) has identified 12 areas with 161 sub-sectors from the perspective of international trade in services and further aims to liberalize services sectors in member countries under the General Agreement on Trade in Services (GATS).

Types of services sectors:

Some institutions offer a diverse menu of services, while others specialize in an area such as mutual funds, credit cards or corporate financing. Over the past couple of decades, the industry has undergone a dramatic restructuring in terms of who offers what. At one time, banks mainly provided banking services, insurance companies sold insurance, and so on. Regulatory barriers that restricted different types of institutions from competing in each other's core business have since been largely removed. Today an increasing number of players offer many similar and directly competing products and services. The result is greater choice and opportunities for consumers and Canadian society as a whole. Canadians can choose from a growing array of financial products and providers. A competitive and healthy financial sector gives consumer’s improved access to financial services, more innovative products, greater convenience and more attractive pricing. The services sector’s growth was mainly boosted by growth in the banking sector through a large gap between higher interest rates and low return on deposits but said it was necessary for the government’s development agenda. The banking and insurance sector grew by a mammoth 23 per cent against a target of 6.7 per cent.

Professional, Scientific & Technical Services:

Business, Building & Other Support Services:

Under GATS The Federal Bureau of Standards (FBS) and The State Bank of Pakistan (SBP) are the two focal institutions responsible for collecting most of the data related to GATS. SBP has started compiling Balance of Payments (BOP) statistics from November 2003 onwards on the basis of the Fifth IMF Balance of Payments Manual. Pakistan’s total transactions in services amounted to US$ 12.069 billion, with exports of US$ 5.378 billion and imports of US$ 6.691 billion showing a deficit of US$ 1.313 billion during the two years 2002-03 and 2003-04 (the services sector accounted for 44.5 percent of the deficit in trade of goods and services).

Inter Sector Linkages of the Services sector

The services sector has strong linkages with major sectors of the economy, and is strongly embedded in the sale and purchase of commodities and manufactured goods.

Linkages with Commodity Producing Sectors

The salient features of inter-sector backward and forward linkages in the past couple of

years are:

Backward Linkages

i) Of the non-factors input used by the services sectors, 61.1 percent were

purchased from commodity producing sectors, suggesting strong backward

linkages of services with commodity producing sectors.

ii) Of the total purchases from the commodity sectors, 73.9 percent were

purchased from manufacturing sector, followed by 14.6 percent from

construction, and 7.7 percent from electricity and gas sectors. The service

sectors purchases from agriculture sector account for 3.3 percent of total

purchases from commodity sectors.

iii) About 76.5 percent of services sector (public administration and defence, 40.6

percent and transport and communications 35.9 percent) made purchases

from the commodity producing sectors respectively.

Forward linkages

The shares of individual service sectors in total purchases from commodity producing sectors are agriculture 28.1 percent, mining and manufacturing 70.2 percent, electricity and gas distribution 1.0 percent, and construction 0.7 percent.

Wholesale And Retail Trade (W&RT)

During 2003-04, the gross value added in this sub-sector increased by 8.0 percent, surpassing 5.9 percent growth witnessed in 2002-03, mainly due to 17.1 percent increase in the output of large-scale manufacturing sector and sharp increase in exports. Resultantly, the share of W&RT in services and in overall GDP increased to 35.3 percent and 18.4 percent respectively. The average share of W&RT in services and GDP for the last five years (1999-2004) has been 34.6 percent and 18.1 percent respectively.

Transport, Storage and Communications

The contribution of TS&C sector on the average for the last five years has been 11.4 percent to GDP. However, because of rapid economy growth in recent years, TS & C is under stress and need major investments in physical and qualitative terms to meet expected demand.

Information and Communication Technologies (ICT)

Pakistan has seen an explosive growth in the ICT sector in the last few years with deregulation and ending of the monopolies of the state sector. The number of mobile phones achieved their 2007 target two years earlier, and the recent deregulation of long distance (LDI) wireless local loops (WLL), other sections have served to provide faster, better and wide coverage, all at lower costs.

The opportunities within Pakistan are expanding fast on the back of the government’s programmed for digitizing a wide array of administrative databases relating to ownership of land and property, taxation, judicial records at all tiers, hospitals, and agriculture. Education sector, health, private businesses and industry at large are also investing heavily. Nearly 60,000 IT professionals are operating in the country with an annual turnover of Rs 12.0 billion (or $ 200 million) of which 15 percent is exported.

Finance and Insurance

Banks, DFIs and insurance companies, account for 98 percent of value added in this sector. The finance and insurance sector comprises State Bank of Pakistan, all scheduled (domestic and foreign banks) development financial institutions (DFIs), all insurance (life and general) companies, Modaraba/leasing companies, moneychangers and stock exchange brokers. The financial sub-sector consists of all resident corporations principally engaged in financial intermediations or in auxiliary financial activities related to financial intermediation. The State Bank of Pakistan has continued to pursue growth accommodative policy stance since 1999-2000 which has helped promotion of competition and deepening of the financial sector while broadening its coverage to include the middle and lower income groups of the population. The impact of this broad based access to institutional credit on the economy was found to be direct as well as indirect, as it has diversified the client base from a narrow focus on government, corporate and foreign trade financing to larger spectrum of financial services extending to consumer finance, small and medium enterprises (SMEs), agriculture, housing, construction and micro-finance.

The insurance sector and non-bank financial institutions (NBFIs) have performed better during 2003-04. The total insurance premium of life and non-life insurance for calendar year 2003 was Rs 55.0 billion compared to Rs 44.3 billion for calendar year 2002.

Presently, 61 percent of the total insurance market is life insurance, but a significant population does not insure their lives on religious grounds.

Under GATS, insurance falls under the purview of financial services and covers all insurance and insurance-related services, such as direct life and non-life insurance (including co-insurance), reinsurance and retrocession; insurance intermediation, such as brokerage and agency work, and auxiliary services such as consultancy, actuarial, risk assessment, and claim settlement services. While the insurance industry is regarded as a strong pillar in the economy it is constrained by issues of legislation, reinsurance, and taxation.

The need for professional manpower is more immense than investment of capital or technology, as the number of those possessing international level accreditation British based Associate Charter Insurance Institute (ACII) or American based Fellow of Life-insurance Management Institute (FLMI) is very small.

Housing and Construction

Ninety percent of the housing sector is financed out of personal savings or borrowings, and only 10 percent comes from the corporate sector. Recent bank liquidity and relatively easier credit terms have enabled fast growth sector, but a major skills shortage and a skills gap is appearing in this sector, as more houses with better standards are in demand. The vendor industry for the fittings in the housing sector is generally robust.

Public administration and Defense

In the restrictive sense of outlays made on wages and salaries of general government and the sector employees, it contributes about 6.5 percent to GDP. However, public administration is synonymous with governance and the quality of service it offers to the country’s population. Governments around the globe are gradually coming online using processes in which Information and Communications Technology (ICT) play an active and significant role, beyond simple digitalization, or automation of governance services, or provision of LANs, since it is ultimately a tool for good governance and human development. The main objectives of e-Governance are to increase transparency of government working, increase and diversify public information and its value, and increase the quality of products and services being currently offered. This helps reduce high transaction costs (in terms of time, efforts and opportunities lost) by timely and relevant access to government information, specially for those who are disadvantaged or marginalized or living in remote rural areas.

One instance of improved delivery of services has been in the government postal department, which has completed mail tracking system in 7 Divisions in the country, and is now competing with several private sector entities for mail and courier services.

Social, Community and Personal Services

Pakistanis are estimated to spend Rs 72 billion annually on charity and philanthropy.

As Zakaat, it helps provide an important safety net for the disadvantaged sections of society mostly in the form of education, and medical acre.

Voluntary services by citizens and NGOs are growing in the country in order to mobilize communities and local stakeholders in the process of development. This has been effective in highlighting the cause of universal literacy, and gender empowerment and affirmative actions. This has helped first to supplement the state programs in poverty alleviation and development, and more important, it has provided a benchmark for comparison. Madrassa are an important form of this private social net.

Educational Services

Pakistan is only now beginning to invest considerably more in all tiers in of education than it used to in the last three decades. The task of improving the size and quality of education in general , and of economically relevant education (whether these be improved skills for agriculture, manufacturing or the services sector) is immense, and cannot be met by public funding alone.

Fortunately, the private sector is quite active in Pakistan’s education sector. In 2003-

04 it was running 17,621 or 11.4 percent of all primary schools in the country with an enrolment of 5.83 million or nearly 30 percent of the total enrolment 19.781 million . Its share of enrolment at the secondary level is 23.1 percent. The private schools are also more gender affirmative with female : male teacher ratio of 72:28 , compared 40:60: in the public sector.

Interesting experiments are going on in public-private partnerships in several

provinces, whereby government schools are being supplemented by private philanthropy to meet various gaps regarding teachers, laboratory equipment and basic infrastructure.

Health Services

Pakistan has one of the best health care infrastructures in the developing world, but the delivery of service is poor because of several factors as discussed in the Chapter on Health. The private sector (for-profit segment) plays a major role in the provision of health facilities and accounts for 60 percent of total expenditure on health. Private clinics and surgeries, testing laboratories, and chemists’ shops are the major components of this contribution from the private sector. Health insurance is in its infancy, but is increasing its share of the corporate and business

ICTs

Information and communication technologies (ICTs) are perhaps the most critical tool for a dynamic and flexible services sector. An efficient, low cost, high bandwidth and high availability system will help provide an important tool for exploiting a major paradigm of the 21st century, in which physical and national distances are not important to the process of analysis, decision-making, commerce, banking, or designing.

Exciting new opportunities are opening up in electronic designing, call centers and tourism services. There has been rapid growth in call centers and other Business Process Outsourcing (BPO) services. Currently Pakistan offers the lowest cost either for annual / hourly costs per seat or transaction costs (Source: Prospects of IT Industry in Pakistan, EAC, Ministry of Industries, May 2004). It is growing at over 60 percent per annum. Medical and legal transcription, and accounting services are also doing well, as well as engineering design services.

To strengthen these programmes, emphasis within HRD is now on quality rather than on numbers only. Increase in broadband services at lower costs is another priority during MTDF as this will facilitate better quality and speed of services. The allocation for

ICT in MTDF 2005 – 10 is Rs 24.59 billion, to be spent on increasing infrastructure for greater tele-density and broadband services (fixed and mobile/wireless), implementing the government’s ambitious programme for better data collection and management through digitization of various records and database, and HRD.

.Engineering and Manufacturing

The rapid growth during the last four years in manufacturing in general and large scale manufacturing in particular, has thrown up a whole new set of opportunities for manufacturing related services such as integrated logistics comprising the entire supply chain management, software package development for businesses and industry including procurement of and hardware, warehousing, distribution (transportation and freight services), packaging activities, and customs clearance. It is therefore planned to facilitate growth in the private sector for efficient activities focusing on:

i) Logistics for the manufacturing sector, which include transport and shipping, warehousing, customs handling.

ii) Companies who set up regional headquarter (HQ) in Pakistan, for manufacturing related services, with at least five countries under this HQ.

iii) Electronic Design Services (CAD, Microelectronics, Graphics, Textiles, and Fashion Design).

iv) Back Office Operations, Electronic billing, Call Centers/agencies.

v) Digital Transformations/Arching (conversion of old engineering drawings to digital, conversion of paper archives to digital format)

Factor productivity improvements generally arise from better management, skilled/trained manpower, and efficient use of technology either imported or developed locally through R&D. It will be necessary to modernize all sectors of the economy and embed technology in them. Development of skills will be a key ingredient. National

Productivity Council has been accorded the pivotal role for the productivity enhancement through its institutional strengthening. Tariff rationalization and export orientation are also expected to result in improved competitiveness and comparative advantage though intersector transfers. The linkages between government, academia, industry and trade will be enhanced to bring about demand driven growth, which is rooted in the local talent. Growth by itself is not enough, if the general well-being of the people is not taken care of. In this regard the perils of pollution and environmental degradation will be carefully monitored and mitigated.

Tourism

Pakistan is blessed with one of the great ecosystems in the world in the form of the

Indus Basin, ranging from snow-clad mountains in the north to mangrove swamps in the south. The flora and fauna is extremely diverse and the people hospitable. While northern mountains and Gandhara civilisation are well projected locally and abroad, Pakistan is also home to ancient civilizations and cultures reflected by group of settlements based around Mohenjodaro in Sindh, Meher Garh in Balochistan and Harappa in Punjab. These invite an effective contribution from the private sector tour operators, with help from the state. The government recognizes the importance of tourism as an economic venture which is also an employment generator at the local level. Liberal incentives have been accorded to promote private enterprise in this sector, with a focus on promotion of domestic and foreign tourism during the MTDF. Major thrust will be on:

i) Provision of basic infrastructure such as roads and utilities in areas of interest are on high priority. This includes improving inter-city and urban transport, including mass transit networks in large cities.

ii) Facilitating the development of affordable and acceptable chains of hotels and tourist sites, in northern mountainous areas and around major archaeological sites in all the provinces by the private sector.

iii) Improvement in tourist operating services, with emphasis on training of tourist guides, including learning of foreign languages

iv) Promotion of religious tourism, with guides well trained in languages and in expounding with sensitivity the historical and cultural milieu of the present and past religions in Pakistan.

v) Development of museums to effectively portray and preserve the rich cultural heritage of the country and region.

vi) Preservation of printed, painted, and crafted national treasures

vii) Encouraging local arts, theaters and music activities.

viii) Recognition of achievements of local artists and their due promotion.

ix) Additional financial instruments to enhance credit environment for local companies.

x) Effective cultural exchange programmes with other countries.

An amount of Rs 1.28 billion is planned to be spent during MTDF 2005-10 for the promotion of tourism, basically in promoting infrastructure and its improvement.

Human Resource Development

During the five-year period 2005-10, the production structure of the economy is likely to undergo considerable changes, with shifts in the nature of work and demand for different skills. This will shift employment opportunities across industries and occupations.

The composition of services output is also likely to change because of the inter and intra occupational movement of labour force on the one hand and consequential shifts in producer’s demand for each other outputs. Experience shows that during the process of socio-economic growth and transition as being experienced by Pakistan, various components of services react differently to the stimuli of development, which in turn, effect the composition of output and the pattern of inter-sector demands for each other outputs.

Because of these anticipated changes, the nature and levels of skill and education of the workforce will need to change to match of the changing content of international trade, in which share of high technology in manufactures and services is increasing, while those based on resources or low technology content are declining.

As part of a wider investment in the knowledge economy, an amount of Rs 315.5 billion is planned to be invested in increasing the numbers and quality of Pakistan’s educated youth; Rs 32.7 billion will be spent on developing skills and providing vocational training, which will be of relevant to all the sectors of the economy. Specific to the services sector will be a focus on hospitality, retail and sales, tourism, graphics and designing, agriculture and horticulture services, managing livestock, ICT, multi-media, inventory/stock control, and implementing QA systems among others.

Projections for MTDF , 2005-10

The services sector is projected to attain growth rates from 6.6 percent in 2005-06 to

7.4 percent in 2009-10, with an average growth rate of 6.9 percent during the period 2005-10.

Within the services sector, its various sub-sectors, like transport, storage and communications would grow from 6.4 percent in 2005-06 to 6.8 percent in 2009-10 with an average growth of 6.4 percent during 2005-10. Similarly, the other sub-sectors including wholesale and retail trade, finance and insurance, ownership of dwellings, public administration defense, and community and social services on the average during 2005-10 are expected to grow by 8.6 percent, 5.4 percent, 4.6 percent, 6.3 percent and 5.1 percent The average growth rate of 6.9 percent during the MTDF is not ambitious for services sector and can be achieved if commodity-producing sectors (especially agriculture and manufacturing) simultaneously perform well and provide the associated demands.

Similarly, the high growth rate of 8.6 on the average percent in case of wholesale and retail trade would be achieved on account of better performance of commodity producing sectors.

ii) Apart from the normal effects of agricultural and industrial production, the major contribution to growth in wholesale and trade sector is expected to come from import of industrial raw materials and capital goods to materialize the MTDF fixed investment targets. The contribution of agricultural and manufacturing output to trade sector is likely to follow the historical path.

iii) Major expansion in banking and insurance sector is expected in export of financial and insurance services, financial leasing, other financial intermediations, security dealing activities and insurance of crops and no life activities.

iv) Major expansion in public administration and defense is expected in health, education and security related activities and district level governance. During the period of elected governments, some expansion in employment is also inevitable.

v) Major expansion in other services is expected in real estate, renting, advertising, tourism, sporting, recreational, computer and computer related activities. Other services like health, education, social and personal. May follow the past 20 year’s pattern of growth. The growth rates in some of the services, being the function of population, may decelerate. Boundaries between services and industry are changing fast, and about half of all services in modern industrialized economies are sold and bought while embedded in the form of goods. While the content and function of goods remain important, the designing, marketing, consultancy and advertising services claim a share of the value added to goods.

Manufacturing, too, has important contribution from services, such as resource planning, warehousing, value chain analysis, financial services and inputs, after sales services, and the logistics of transport and communication. In the modern globalised economies, it has been shown that not just manufacturing, but designing can also be done anywhere. This has resulted in much greater significance for engineering design and consultancy.

Apart from services to business and industry, an important class of services relates to

public services by government, which are an indicator of good governance as well as human development. These include access to and quality of services related to education, health, environment, transport and communications, and law and order. Many financial services such as financial regulation are also expected of good governance and the modern tool of good governance, namely, e-governance contributes towards providing public information to people so as to reduce time and transaction costs, and increase quality and transparency

In order to ensure maximum coverage of above services, the Federal Bureau of Statistics will have to extend its data collection network. Without special efforts the contribution of fast growing services to growth, investment and employment may remain un-captured.

“Three or four years of strong economic growth has positioned Pakistan among the fastest (growing) economies in the Asian region like, China, India and Brazil,” said Dr Salman Shah.

Financing of Investment for the Services Sector

Major portion of investment in services sectors will be self-financed, as almost, the

entire investment in banking, insurance, wholesale and retail trade, social and community services is financed out of their own savings.

In the ownership of dwellings about 90 percent of fixed investment is financed out of households own savings or borrowings from friends and relatives. The remaining 10 percent comes as loan from financial corporate sector. Major sources of financing of investment in transport and communication enterprises are loan, share capital, government grants and retained earnings.

Iv)

v)

vi)

vii)

Trade in services with the following four modes of supply as defined in the GATS

S.No Modes Contents

1 Cross-border supply

This is the possibility for non-resident service suppliers to supply services cross-border into the member’s territory (e.g. telecommunication services supplied by one country to another).

2 Consumption abroad

This is the freedom for the member’s residents to purchase in the territory of another member (e.g. tourism).

3 Commercial presence

These are the opportunities for foreign services suppliers to establish, operate or expand a commercial presence in the member’s territory, such as a bank branch, agency, or wholly owned subsidiary.

4 Presence of natural persons

These are the possibilities offered for the entry and temporary stay in the member’s territory of foreign individuals in order to supply services (e.g. professional services).

Strategy for Development of Services Sector

The paradigm of the 21st centaury is built around globalization and the knowledge economy, and the service sector is bound by the same logic. Competition is the major factor shaping the economies of developing economies and only skilled and dynamic people will be able to withstand competition by harnessing their comparative advantage.

In order to develop its service sector, Pakistan recognizes the needs to liberalize operating rights, and separate regulators from operators. It is also necessary to raise awareness among government officials, the business community and the general population, so that services should be treated as the primary industry not a tertiary industry.

The key requisites for an economically vibrant service sector will be good infrastructure (ICT, transport, shipping), ability to plan and prepare the complete logistics chain, mobilization of human resources and entrepreneurial capacity, good language and communication skills, and a clear understanding of how these tools can be harnessed. The physical focal points where all activities converge will be at the level of SMEs, which are the principal generators of employment and are also most in need of upgrading skills and internal processes.

Success factors in service ventures:

The nature of a service venture is different from a product-based company in that services require exceptional human resource skills.Services can usually be initiated with low-entry capital requirement,but having the right people is vital.a good service idea can easily be copied but having commited people will often make the difference between success and failure.

Following are the important factors in success of service industry:

Creating the vision:

A good way to be successful in a new business is to start with a clear vision.a vision encompasses the value that an entrepreneur will provide for his or her costumers,and if that service is achived,it encompasses the result the entrepreneur will achive.

for example, Fred Smith of Fedral Express envisioned hundreds of thousands of costomers,frustrated by postal system that required standing in post office lines to mail,parcels that could take days to be deliverd.he knew before he started that personalized service was important in that costumer would appreciate a guranteed rapid-delivery parcel system.

Effective hiring:

Three things are generally needed to get a business started.

The pattern of employment for smaller enterprises is that owners will make initially hire one or two full-time persons and suppliement busy seasons with part-timers.one of the full-time empolyes usually will be skilled or experienced in the trade.

Effective ways to locate an hire good employees include the following:

Specify jobs attract candidates select new employee

hknndh

perhaps a small firm can servive without systematic hiring and training practices’,but entrepreneurs will more often experience high turnover among employees who are poorly prepared to do a good job.there is a fundamentle problem with finding highly motivated long term employees because smaller firms can seldom offer high vages,good benefits,or opportunites for advancement.

Leasing personnels:

When the entrepreneur is not in a position to hire or train employees, and when the business is too small to support an organozation,an intresting option is to lease personnel.this is a recent innovation in staffing that is, itself, an entrepreneurial service.leasing firms usually hire hundreds of employees, train them, and provide a full range of employee benefits.the leasing company places employees in a client’s firm, thereby relieving an owner of hiring, firing, training, and managing acomplex system of compensation and benefits.

It is important to clearly understand that there is no way companies can grow if entrepreneure try o do everything themselves.to resolve this diffculty,

High growth enterprises are unlikely to follow the recruiting methods of smaller firms,growing firms will need functional specilailst,research scientists,engineers,and other technical specialists. For these firms,professionals and mennegrial talent is found through national searches,professional societies,conferces,university placement services,and networking.

Networking:

This is particularly fruitful as entrepreneurs socialize with other entrepreneurs,do business with their counter parts in other firms,and developd contact with suppliers and costumers.who may become potential applicants.

Training:

Personal service firms tend to be structured around the skills of founder. For very small firms, such as independent professionals photographers, success hinges on the reputation of skilled individuals. when expansion occurs, owners have two option:

For service firms that do not require skilled personnel, training is a less sensitive task. for example, a retailer may requires sales clerks who need only know how to use a cash register or to stop shelves.

Training posses two problems :

Aspiring entrepreneur can acquire insight by taking formal courses in personnel administration or by attending seminars offered by consulting firms, government agencies, and educational institutions.

Effective decision about training can be made by following a simple process of

Motivating employees in a growth environment:

It includes the followings

Encouraging creativity:

New ventures through creative endeavor, although we tend to equate creativity and innovation with new products, most growth-oriented services succeed through similar philosophies.

Rewarding quality:

Everyone working in a service environment is there to help others, to provide some measure of satisfaction. So in addition to helping employees enjoying providing this satisfaction, and in addition to giving them the autonomy for successful rules, it is also crucial to assure quality services. One way t accomplish this goal is to reward quality performance.

Rewarding performance is important to reinforce positive behaviouer, and it can take the following forms:

Non monetary rewards can include employee-of-the –month awards, issue of certificate to those who attain certain skills, hold company dinners or picnics to recognize achievements, and do many little things on a daily baise to enrich and employees self image.

Monetary rewards are sensitive and require careful thought and planning.

Gain sharing and employee equity plans:

Gain sharing programmes assure employees a percentage of increased profits, income, or cost savings it implies a splitting of benefits with employees for good performance. In profit sharing the assumption is that bonuses are paid much like dividends on earnings.

The ESOPs is a method of systematically selling shares of stock to employees.

The shares of an ESOP are latterly treated as stock “placed in trust” for the employee’s benefits. when employees leave the firm or retired, their ESOPs shares are either converted to a form of retirement income or cashed out.

Working with vision:

The entrepreneur is limited in what can be offered to employees, yet if the firm has growth potential, emphasizing a vision for growth can pay dividends. Employees must be able to share the vision of success and, most important, be able to share in its success.