Many developing countries are pursuing export diversification as an engine of growth to insulate themselves from unexpected changes in their terms of trade and, to stabilize domestic incomes and employment.

Diversification is two-pronged and places emphasis on producing manufacturers, and securing new markets for the produce. A WTO study points out that the developing countries have minimized their reliance on primary commodity exports and have made remarkable progress in exporting manufactured or semi-manufactured goods over the past three decades.

Pakistan’s economy too, reflects the success of the developing world by slashing its reliance on primary commodity export at the start of the 1990s (from 44 per cent in 1980-81 to 19 per cent in 1990-91), and to less than 12 per cent at the end of the 1990s. The share of manufactured goods on the other hand has increased from 45 per cent in 1980-81 to 57 per cent of total exports in 1990-91 and further improved to 77 per cent in 2002-03.

The share of semi-manufactured goods remained more or less stable in the range of 11 to 14 per cent in this period. It implies that the space created by primary commodities is occupied by the manufactured goods. This is a big achievement as far as the share of value-addition is concerned.

However, the diversification efforts are within a narrow range of products, for example, a shift did occur as export of cotton yarn or raw cotton is being replaced by knitwear, bedwear or readymade garments. Pakistan seems far away from showing signs of readiness to take the challenge of globalization and capitalize immense opportunities existing in the services sector in the digitalized world.

Pakistan faces many constraints in its effort to diversify the export base. These are domestic resource scarcity, shortage of skilled manpower compounded by poor network of outdated vocational education, lack of adequate economic infrastructure, low investment level, lack of professionalism in civil bureaucracy and the Export Promotion Bureau and, massive corruption.

It is not amazing in this background that Pakistan exports a narrow range of products with two-third share being that of textile-related items. During the 1990s growth in exports decelerated to under three per cent per annum on average as compared to over 10 per cent in the 1980s. This is because of the over-reliance on traditional quota captive exports of textiles in selected countries in the European Union and North America. Although, Pakistan’s exports did not experience any significant deterioration in terms of trade, however, export to the GDP ratio declined gradually.

The quota-based dependence of export was the main impediment in diversification. The expansion of competitive exports from agriculture, agro-processing activities and manufacture continued to offer the main opportunity for economic growth and thus for export in the 1990s. In 1990s the economy lost growth momentum substantially and thus exports grew at a slower pace.

The reason was the absence of a pro-active export policy and inability of the economy in generating enough exportable surpluses because of the double-digit inflation and the rising cost of production. The provision of safeguards was not enough in economic policies for exporters to protect them against ill effects of structural adjustment.

Expanding the production of tradable goods and services in the monetary sector is less important than ensuring the security and predictability of the other sources of income and income transfers for Pakistani exporters.

The European Union and North America account for nearly three-fifth share in total exports from Pakistan. Neither foreign missions nor the commerce ministry played an active role in exploring new markets for Pakistani goods. Our trade policies or devaluations went unnoticed by the stakeholders. We have to explore new areas. The EPB has identified Africa, South America, Eastern Europe, Central Asian Republics, Oceania (Australia/New Zealand) where Pakistani products can be marketed. The last trade policy did mention these areas but practically nothing has been done up till now.

No considerable shift has been witnessed in patterns of exports in recent years which implies policy failures in directing new product categories in the export markets.

These products categories are fisheries, poultry, fruit, vegetables, wheat, IT software and services, marble and granite, gems and jewellery, engineering goods, chemicals, healthcare and general services.

The policy inducement measures to encourage export diversification need to be viewed in a broader context of sustainable development and poverty alleviation objective. Given the crucial role of the subsistence economy in sustaining livelihoods in our economy, government measures to promote the export led growth have to be pursued in tandem with efforts to strengthen the subsistence sector like cottage industry, small and medium enterprises and agriculture-based products.

Moreover, additional resources have to be provided,other constraints have to be removed, and the issue of efficiency in the utilization of development allocations has to be tackled. It is extremely essential to maintain political stability and keep law and order under control. At the same time we must pursue appropriate macroeconomic policies to ensure price stability and maintain a rational exchange rate regime that does not discourage export initiatives. The role of the public sector should be facilitative.

The developments at the international level are not very encouraging and are likely to have a major impact on export diversification initiatives in the developing world. We have to follow new rules of the game in world trade.

The new trade order is a two-edged sword which is threatening the very existence of the traditional approach towards exports and on the other is opening windows of opportunities for developing countries.

The most sustainable thing is the change and those unable to change will perish or would be left behind. It is unfortunate that majority of our exporters are accustomed to extraordinary official patronage and thus weak in the marketing management abilities and the financial/human resources required for aggressive market share enhancement.

International markets are becoming more and more quality conscious these days and the Total Quality Management (TQM) and Continuous Improvement (CI) are the order of the day. We have to adhere to these principles if we have to survive in the export markets of the future.

The structure and quality of vocational and technical education in Pakistan is outdated and lack effectiveness. Skills are not developed in proportion to the demand in the job market.

Although, Pakistan had offered most attractive terms to foreign investors in the Investment Policy of 1997 but after 6 years of its announcement we are unable to touch one billion dollar mark in FDI attraction. Foreign investment is crucially important for diversification of exports and industrial development.

It is opportune time for Pakistan to concentrate on export diversification in both products and direction of trade. Diversification of exports is instrumental for long-term sustainable growth. Pakistan needs a trade policy fully compatible with challenges of globalization. Pakistan should focus on capitalization of opportunities in the area of e-commerce.