As Pakistan’s exports continue to fall for the fourth consecutive year, posting a decline of 12 per cent, the need for a fresh policy is now badly felt.
The newly-appointed Commerce Minister, Pervaiz Malik, finds himself hamstrung by the daunting task of re-framing the policy. The decline in exports is unprecedented in the recent history of national exports and warrants major structural reforms.
One of the major concerns expressed by Prime Minister Khaqan Abbasi, since he took over the government, was the declining exports against the immense opportunities which were being missed.
“Until next election in 2018, I may not be able to bring structural changes in the time remaining” the new commerce minister told Dawn. However, he said he will focus on some facilitating measures. He listed few areas where he said the business community needs facilitation.
Instead of trying to prepare a viable action plan for the promotion of the export sector, he said that he would take up the issue of stuck sales tax refunds with the relevant authorities. This will resolve the industry’s cash flow problems.
He admitted that industries did not reap the benefit of falling petroleum product prices because of rising cost of other utilities in the country.
However, the minister was not sure about the exact amount of refunds withheld by the Federal Board of Revenue.
The second important area was to pursue the industry demand of unconditional cash subsidy on exports proceeds in 2017-18, under the prime minister’s Rs180 billion support package.
At the time of announcement of the package, exporters agreed to avail the cash support by achieving an incremental increase of 10pc in export proceeds in 2017-18.
But, now exporters demand that the condition be waived. “I will support the industries demand”, the minister said, adding he will take up the issue with the finance minister. He said the exporters cannot wait for one year to claim the subsidy.
In the past four years, it has been observed that the most frequent government intervention was at the enterprise or industry level which has not yielded the required results to boost exports.
Since 2009, the commerce ministry has issued three Strategic Trade Policy Frameworks.
These policies were partially implemented owing to lack of availability of funds as well as poor human resource.
“In the next couple of months, I will be in a position to comment on the failure of these policies”, Mr Malik said, adding the policies never reflected the ground reality which the industrial sector faces.
As many as 70pc -80pc of initiatives announced in the trade policy are never implemented because of the human resource problem in the ministry of commerce.
“I have asked the secretary commerce to fill the vacant posts”, he said, adding the human resource deficiency in other subsidiary departments will also be met out.
The minister said that Pakistan has become uncompetitive in terms of price. He blamed the rupee which he thought was still overvalued.
But the three sectors of the economy — industry, agriculture and services — are generally also marked by low productivity.
Poor working conditions, outdated production technologies, unskilled labour force and quite often lack of awareness about best international practices are a few factors that are responsible for low productivity.
Low productivity results in poor global competitiveness.
Pakistan ranked 122 among 138 countries in terms of competitiveness, according to the World Economic Forum Global Competitiveness Report 2016-2017.
Some of the factors that contributed to the low ranking included infrastructure, health and primary education, higher education and training, goods market efficiency, labour market efficiency, technological readiness, business sophistication, and innovation.
It must also be noted that action, or in-action, of the government ultimately impacts the private sector’s productivity.
The current government’s focus is on demand-creation through preferential market access for export goods.
No doubt, the government has achieved success in its trade diplomacy by striking deals with various countries. However, the biggest challenge is to translate this opportunity into increased exports.
The new commerce minister’s focus is on further pursuing trade diplomacy at bilateral, regional and multilateral levels.
“We will sign the FTAs with Turkey and Thailand”, he said. However, he agreed that the China FTA had a negative impact on the overall economy of Pakistan. “We will revise the treaty with China”, the minister said.
There is a need to increase production, efficiency and to access more markets. A trade surplus and excess industrial capacity should also guide the government’s market access efforts.
A major reason for Pakistan’s dismal export performance is the serious constraint on the supply side. The traditional exports seem to have reached a saturation point and the law of diminishing returns has set in.
While India, a major competitor, is heavily focusing on bold initiatives like the ‘Make in India’, ‘Skilled India’ and ‘Digital India’ initiatives, the STPFs contain only stereotypical measures like providing support for the development of traditional products such as leather, pharmaceutical, fisheries, and surgical instruments, to be sold in old identified markets; such measures did not achieve much in the past.
As usual, there is a heavy dose of fiscal subsidies and support in the policy, without any focus on the drivers of growth, like plants, machinery or technology.
Currently, the focus of the government policies is more on revenue generation which has badly affected the export sector.
It is the duty of any government to mobilise revenue, but the wisdom to compromise the base of the economy to this end is counterproductive.
When did we have the census of manufacturing (CMI)? How can a country of over 200 million people justify ignoring agriculture and industry, which absorbs a major chunk of the labour force? How can you let commerce be subservient to finance?
The government needs to revisit its trade policy approach.
The focus should be to narrow down the overall impact of the policy to encourage new products for export purposes.
Currently, the commerce ministry’s focus is on export promotion of established products to achieve overall export targets. Similarly, the existing trade policy discriminates between export-oriented industries and domestic commerce.
Development initiatives — financial (subsidies) and regulatory — have been announced for export industries, while industries that cater to domestic consumers have been ignored.
Therefore, there is clearly a need for synergising Pakistan’s resources, both technically and physically, to lift the local industry towards competitiveness and productivity.