If wishes were horses, beggars would ride! The recent trade policy announced out of thin air is a manifestation of the wish list of the Ministry of Commerce without any meaningful deliberation on how to achieve a target of $35 billion annual exports by 2018. There was a policy announced in 2012 which targeted exports proceeds of $95 billion during 2012-15 while the actual number was even below $75 billion.
First of all, having numbers in billions of dollar isnreally a right indicator, a better benchmark could have been to see exports as a percentage of GDP or peg the targets with the trade deficit. Unfortunately, the trade policy only arbitrarily talked about enhancing nontextile exporting sectors but nothing meaningful on imports apart from limiting imports of 3D printers, aerial vehicles and stuff like that which is more linked to security than to trade.
Exports to GDP in FY15 at 8.8 percent are decades low number and its falling further in FY16.
The highest absolute exports of $25.1 billion were actually a low number from the lens of the size of the economy – it was 10.3 percent of GDP as compared to an average of 13.1 percent of GDP in FY95-05. Ever since FY05, it’s a southward journey and none of the subsequent trade policy really deliberated on how and why we lost our exports share?
There was a case of industrial expansion in the country during FY02-08; however, in the aftermath, the imports grew at a higher pace amidst domestic consumption boom while the exports remained subdued. According to the latest census of manufacturing (2005), the coefficient of imports to total production at 0.34 was much higher than that of exports at 0.24.
This simply implies that any expansion in the industrial production is prone to more imports than exports. This explains the growing gap between imports and exports. But the trade policy didngive too heed to this economic reality of Pakistan.
The buzz in the policy is to try to expand exports in areas other than textile. That is the right approach but the released policy failed to give any realistic economic roadmap to do so. The policy narrated the focus is on regional connectivity by enhancing trade with SAARC, ASEAN, and CAR regions; but how to do so? Anyone who has basic knowledge of Pakistans trade history or has been attending conferences and seminars on trade can say that its fashion to talk beyond textiles and have more regional connectivity. The task of trade and commerce ministry is to come up with a concrete policy framework to do so rather than stating the obvious.
The recent steep fall in exports (in % of GDP) is attributed more to other manufacturing exports than of textile as the share of textile to total exports has increased lately. Hence, the focus is on other manufacturing sectors – job-creating SMEs sector. The incentives given are peanuts for any player in another manufacturing sector who is thinking of becoming big in exports.
For instance, technology advancement package has a peak of Rs 1 million per annum per company – is it PM youth scheme or export enhancing scheme? In case of product development, there is a generous matching grant up to Rs5 million to encourage innovation in leather, pharmaceuticals, and fisheries. It’s good but not enough. Sir, the need is to make existing players big – the size of these leather, surgical, sports and other small manufacturers exports ranges from $50-$200 million per player. For someone to become big in these sectors ought to be competitive with regional players. Nonetheless, there is something for these exporters to stop crying.
The policy emphasized on exploring new markets and identified the need of having better-suited staff for market research, new trade missions and exhibitions and delegations. But it seems like that rift of commerce and trade section to DMG and other groups is spelled out in a way to accommodate more officers from former service in foreign positions. The policy raised a potent point of delays in tax refunds.
Let’s hope ministry of finance will listen to them and work on the timely release of all refunds, but it’s a hard task.
The policy didnanalyze how all the free trade agreements are done in past or opening up of routes have done to trade balance with those countries.
Mostly, the trade balance is worsened and imports growth surpassed that of exports. There is a case of an opening up trade route with Iran – is there anyone working on how it could impact our cement and steel industry? The opening up will simply make our rent-seeking industries uncompetitive.
That may do the reverse of import substitution. China has already dented, through cheap imports, a few of industries that are catering to the domestic economy. Iran can do the same. What is the policy saying on the issue of imports replacing domestically produced goods?
What the policy should have talked about increasing exports through knowledge economic expansion. It should have spelled on a framework to enhance services exports especially in earning labor arbitrage. It should have enhanced the scope of IT and accounting in exporting industries. But probably, thinking out of the box is not a norm in Pakistan.
The ground reality is that expanding trade deficit in the last decade is filled by growth in home remittances to tame down the current account deficit. But the juice from unskilled labor remittances is almost fully extracted. The realistic way to proceed is to enhance the skill set through vocational training programs which can give a fresh boost to remittances.
While in the goods market, the world is moving too fast and changing demand patterns of Pakistan will fuel in more imports and infrastructure expansion planned under CPEC is not likely to generate any exporting surplus.
The sticky exchange rate policy is further exacerbating the situation. All that ministry of finance and SBP are doing firefighting by discouraging imports and not letting domestic banks to finance industrial expansion by the private sector, especially in power sector. As they know any economic expansion will further deteriorate the trade balance. Is the solution to not let the economy to expand? Is there any remedy offered in the trade policy? The answer is a resounding and disappointing, no.
First published: March 29, 2016.
