Productivity gap

Productivity gap

The World Bank Senior Economist Gonzalo Verala and other experts have drawn the attention of stakeholders of textile sector and federal government towards the wide productivity and product innovations gaps that exist between manufacturing sector of Pakistan and other developing countries of the region, which impact external balance of country. In an online dialogue titled “Textile and Garment Industry Outlook”, held under the auspices of Sustainable Development Institute, Gonzale Verrala  said that productivity of small and medium scale enterprise is very low as compared with Bangladesh and other countries of South Asia. It merits mention that before the outbreak of coronavirus pandemic Bangladesh exported textile products worth $ 27 billion, six billion more than the total value of Pakistan exports of all items

 Not even a single cotton plant is grown in that country. On the country Pakistan used to be cotton exporting country but its exports of textile products are stagnant at $3.47 billion over the past 12 years. The reasons are low quality, high price and lack of product innovation.

The World Bank Senior Economist has suggested injection of liberal doses of working capital and making economic environment favourable for foreign direct investment, which brings latest technology and product innovations. The South Asian developing countries are leading in textile exports by inducting fourth and fifth generation technologies, availability skilled manpower on relatively low wages, progressive taxation regime, low electricity and gas tariffs and improved innovations. That is why Gonzalo Verala said that Ministry of Commerce along with Small and Medium Enterprise Authority (SMEDA) can guide firms how to comply with quality control measures, meet pre-shipment requirements, border clearance and other conditions imposed by the buyers in the importing countries.

It is matter of record that demand for Pakistan’s textile products had fallen in the European Union countries despite enjoying the edge of duty free exports to these countries under the Generalized Scheme of Preferences Plus facility. Likewise exports to the United States could not increase despite import duty concession. In such a scenario, it was the responsibility of the government to have addressed the issue of exorbitant cost of production.  Major factors which are responsible for high production cost include electricity tariff, gas price, wages; irrationally high rate of sales tax, expensive imported raw material and technological stagnation. The fuel cost is a supplementary factor. Ironically, these bottlenecks are not removed in trade policies.

Surprisingly, government has approved five year textile export policy based on presumptions about reducing input cost.  The policy envisages an increase in textile products export to $25.3 billion by 2025. Pakistan will be the only country in the world which will imaginatively expect high growth in exports by relying on a single item such as textiles, while not facilitating export of other items of competitive edge and markets diversification. How this quantum leap can be taken to increase textile exports from the current value of $3.47 billion to 9 times more high target within the next five years when the high input cost does not provide competitive edge over the competitors including India, Bangladesh, Indonesia, Vietnam, Thailand and even Cambodia? In these South East Asian countries, low interest on bank credit, low wages, lower cost of energy inputs and progressive taxation structure, and induction of latest technology provide greater comparative advantage in the international market. In sharp contrast, in Pakistan electricity and gas tariffs are the highest in the world what to speak of this region, industrial technology is stuck in second generation, skilled manpower is scarce and expensive, monetary and fiscal policies are regressive in nature. The electricity and gas tariffs are not less than landmines laid by previous elected governments to blast the economy once and for all. A proposal of increasing electricity tariff by 14 percent is on the table and Finance Advisor has already hinted at upward adjustment in gas price. If the present government cannot do mine sweeping then it can at least avoid further increases in the tariffs of energy inputs, in addition to facilitation of latest technologies induction and skill development.

Posted in