Despite signing multiple trade agreements; almost 11 that are currently in force (Asia pacific average: 7.5); Pakistani exports have been getting a tough beating in the international market and exports are dangerously falling month after month. Insofar as preferential or free trade deals are concerned, the business community remains wary and the government acknowledges that these agreements have not helped as much.
Recent falling exports have time and again been attributed to low commodity prices and a slowdown in emerging markets rather than structural and policy related issues. However, stagnancy in Pakistani exports started long before.
This column has talked at length about the importance of value-addition and moving away from a concentrated basket of commodity exports toward a more diversified portfolio while creating industrial linkages through trade agreements. It is argued that diversifying the portfolio can hedge against adverse terms of trade shocks by stabilizing export revenues while value-addition and innovation can set Pakistani products apart from other key competitors.
But Pakistan does not seem to have caught onto these ideas. The only trade strategy of TDAP has been to organize international exhibitions that have drained scarce funds and resulted in stagnant exports. Experts argue that TDAP and other trade promotion organizations should be abolished because they are inefficient and are marred by bureaucratic failures and red tape; while government bodies such as National Tariff Commission (NTC) that provide remedial measures should be empowered. But TDAP is not going anywhere and there is no solace in the NTC’s slow and intermittent responses.
The government announced a Rs20 billion package under the Strategic Trade Policy Framework (STPF); with an additional Rs6billion under textile policy—with zero sales tax for export oriented sectors, better financing facilities, and ensuring cheaper and uninterrupted power supply. These could potentially help in bringing costs down but they are neither revolutionary, nor do they channel an export-focused vision.
A recent World Bank study on South Asia titled: “South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse” claims that despite penetrating into new markets, almost 80 percent of the regions’ export growth came from exporting same goods to same destinations with high export concentration on textile. Meanwhile, aside from India, product sophistication is direly missing—there is no substantial transformation of production structures or innovation.
Keeping costs low can improve competitiveness in the short term, but the only sure-fire way to boost competitiveness in the long term is by improving productivity—focusing on the quality and efficiency of the product. The study says much of the region’s resources are locked away in small, low productivity firms that neither grow, not exit. And these resources should be reallocated.
Productivity growth should be front and centre on the policymakers’ agenda “to ensure sustained progress on job creation, growth, poverty reduction and shared prosperity”, the study argues. This productivity can be enhanced by moving labour from less productive to more productive firms and boosting the manufacturing sector because that is where innovation and value-addition can be most adapted.
In an interview with BR Research, Majyd Aziz told that the productivity and efficiency of Pakistani firms is very low and few have gained economies of scale. “We are concentrating in limited markets and with limited products. We generally cater to the lower end of the market and are not keen to explore new opportunities”, he said. That indeed is the case. While cutting costs of doing business down will help; it is only the first step. Pakistan needs a more comprehensive long term trade strategy that introduces reforms on many fronts—using trade deals for an exchange of ideas, expertise, technology and inputs; improving capabilities of small and medium firms, removing barriers on entry and cultivating a skilled labour force.
Trade marketing and promotion should be left to firms, traders and associations instead of TDAP while institutional capacity of NTC should be improved so that firms and investors are safeguarded against dumping and trade malpractices. Just allocating large funds without a long-term vision in mind will not be the respite that Pakistan’s export needs.
