Diversifying exports

Diversifying exports

According to Prime Minister’s Advisor on Commerce Abdual Razak Dawood, government has priortised diversification of both composition and destination of exports under “Make in Pakistan Policy,” including more value added items in the quantum of merchandise. For this purpose a comprehensive programme of expanding the domestic industrial base shall be implemented, when coronavirus pandemic subsides. Potential foreign markets shall be accessed including Central Asia, China, the Middle East and African region countries through bilateral trade agreements and strengthening trade linkages with both existing and new trading partners.

A cursory look at the policies of successive governments reveals that no attention had been given to diversification of exports’ composition and their markets. The nationalization policy of 1972 heralded an era of decline in industrialisation process under the private sector, leading to chronic stagnation in technology upgradation and pursuit of products innovations. The PML-N governments made claims of making foreign sector an engine of economic growth, first talking about making the country Asian Tiger and then boasting of turning it into world tiger. On the contrary, Prime Minister’s Programme 2010 and Vision 2025 were long on rhetoric and short in substance, devoid of clear parameters about industrial, agriculture and trade policies.

Corona virus pandemic dealt a big blow to global trade, impacting Pakistan’s exports of primary commodities and few value items. World Trade Organisation (WTO) brief data, released in a press release, predicts 12 to 32 percent decline in world’s trade in 2020. The recovery in 2021 will depend upon policy responses undertaken by the governments of developed and developing countries.

In Pakistan exports to GDP ratio is 10 percent and it is highly unlikely to substantially increase it, given the current situation of technological gap that exists in its manufacturing sector and that of other developing countries of the region. The exports destination is confined to 12 countries, including the United States, the UK, Germany and China. Out of total quantum of exports 40 percent is directed to European Union countries by virtue of preferential market access under Generalized Scheme of Preferences (GSP) plus. On the contrary, exports to China accounts for hardly 9 percent of country’s exports.  Under FTA phase-1 Pakistan faced annually a trade deficit of $12 billion. The imbalance in bilateral trade will be partially offset with increase in exports by $1 billion under the terms of FTA phase-2. Main items of exports over the past five decades included textiles, surgical items, pharmaceuticals, cement, sugar, wheat rice, fruits, meat and fish preparations.

Country’s exports went on the downward trajectory from 2013 to 2016, dropping from $25.1 billion to in 2013 to $20.5 billion. It registered a modest growth t of 5.1 percent in 2019 to reach $23.8 billion. The exports of value added items are not competitive in foreign markets, because of their low quality, high price and lack of product innovations. The tariff of energy inputs is not regionally competitive; large and medium scale manufacturing sector is stuck in second generation technology; majority of industries have R&D facilities; and neither government nor private sector has been keen to develop linkages between private sector industries and R&D organisation of the government. Moreover, Pakistan spends 0.42 percent of the GDP on research and development activities, being the lowest among the developing countries. It is beyond comprehension that dream of “Make in Pakistan Policy” will come true in the short term when coronavirus pandemic subsides.

Next phase of industrialisation in the country entirely depend on the fast track establishment of special economic zones for the relocation of Chinese industries, joint ventures in new industries between the local entrepreneurs and their Chinese partners, protecting the existing local industry, located outside these zones across the country, with induction fourth and fifth generation technology and running long term skill development programmes for the training of local manpower. The new phase of industrialisation will take off only when long term industrial policy is out, which has missed several deadlines so far.

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