Strategy for improving exports
At a seminar on “Strategies for Improving Exports with special attention to CPEC and Regional Trade” organized by PIDE and CE-CPEC, the issue of declining exports was thoroughly discussed, with a special reference to the measures to propel country’s exports. It was highlighted that there were deep structural problems due to which Pakistan had performed extremely poorly in exports over the past several decades. Our pattern of exports was not aligned with the current configuration of global trade. For instance, while textile and garments constitute 70 percent of Pakistan’s exports, these form only 4 percent of global exports. Cost of doing business was high, competitiveness was low, tax policies were not business-friendly and energy shortages were common. Other significant factor was the absence of Direct Foreign Investment (DFI). Another negative was the lack of friendly relations with the neighbours which created major impediments towards exports.
So far as DFI was concerned, CPEC, according to the participants of the seminar, represents a big step forward. Not only would China be investing in Pakistan, this initiative would also have a strong crowding-in effect. However, deep structural problems will take a longer time to be resolved, especially because the way forward is blocked by powerful vested interests. The policymakers, nonetheless, could find several methods to work around these obstacles. Firstly, the nine Special Export Zones (SEZs) would bypass most of the structural problems. The fears that these would compete with local industry are unfounded because SEZs will build industries in areas where nothing exists and will manufacture for exports in areas where there are no exports. A significant jump in the exports of rice, soybean, dairy products, marble, granite and mushroom to China is expected. Fears about the burden of debt created by the FDI are largely misconceived. While there will be short-term stress on the balance of payments, a substantial easing within two years is expected, significantly reducing our import bill. And finally, there is empirical evidence to show that depreciation of rupee will not have a favourable impact on our balance of payments. This will increase country’s import bill by more than export revenues and increase the burden of debt.
We feel that it was an excellent idea to organise a seminar on strategies for improving exports at this critical juncture when country’s exports are declining rapidly, imports are increasing, C/A balance is fast deteriorating and there is a great risk of depletion of foreign exchange reserves held by the SBP. It was also good to see that deep structural problems, creating major barriers to export promotion, were rightly recognised. As shown by various studies and identified by multilateral agencies, cost of doing business in our country is quite high, competitiveness is low, energy shortages are rampant, tax policies are not business-friendly and neighbouring countries are not happy with Pakistan. All these obstacles have tended to depress our exports and increase imports to meet the domestic requirements. However, while forwarding the proposals, the participants of the seminar have gone out of their way to appreciate the likely favourable impact of CPEC on our exports and offered certain suggestions which are contentious. For instance, the participants have projected a significant jump in exports of rice, marbles, mushrooms, etc., to China. Although the exports of these commodities could be facilitated by CPEC, the hope for a “significant jump”, in our view, is far-fetched though. It is only natural that China will buy these commodities from sources which would be the cheapest and Pakistan would already be selling these commodities to the rest of the world if it could produce them at competitive rates. High hopes attached to the nine SEZs, as suggested by the past experience, also seem to be misplaced. The suggestion that our exports are depressed because their pattern is not properly aligned with world configuration is also not correct. Pakistan has to rely on textile and garments in which it has a comparative advantage in production. It cannot rely on the exports of engineering goods, chemicals, plastics, metals and minerals which constitute more than 60 percent of global trade because the country cannot produce these goods at competitive rates due to lack of natural endowment and low level of technology available to the country. To say that FDI would not be a cause of stress on the external sector of the economy also does not seem to be true. It could definitely be a source of stress if such an investment is used to promote consumption industries in the country. Therefore, it would be better to keep track of FDI with a view to ensuring that it is optimally used to enhance productive and export capacity of the country. We don’t want to say anything on the observations of the participants that depreciation of rupee does not have a favourable impact on the balance of payments. Such statements are against the fundamental rules of economics and a poor reflection on the understanding of this subject.
Can CPEC help defuse tensions?Can CPEC help defuse tensions?