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| 22 November 2004 | Monday | 09 Shawwal 1425 |
Exports in a changing world economy
Pakistan's exports have fallen marginally to $993 million during October 2004 as against over $1.1 billion in the same month last year. But what is more significant that the export volumes of a wide-range of products including textiles
, leather goods, sports goods, fruits, vegetables, rice and fish and fish preparations have plummeted. In the first four months of the current fiscal trade deficit has mounted to $1432 million as the annual budget estimate of $3 billion.
Trying to capture any future trend on the basis of a month's export figures may not be prudent but the drop in earnings from merchandize have raised anxiety as it comes on the eve of the WTO's liberalized trade regime effective from January next and the forecast for a slowdown in growth of the world economy in 2005.
The policy makers seem to be concerned about the pressures building up on the external sector that has primarily helped bring about a turn-around in the national economy. President Pervez Musharraf has decided to visit six states to promote economic relations and seek more market access for local merchandize. The federal secretary of commerce will visit Europe on a similar mission. And the chairman of the Export Promotion Bureau would make a much wider trip to 11 countries.
With a narrow production base and not very many items to offer for international trade, exporters have to compete in global markets where demand shifts with an unprecedented speed. In fact, the global trade is being re-oriented toward regions emerging as centers of economic growth.
Up to the year 2000, America was stated to be responsible for the two-third of the world's economic growth with American imports twice as much as its exports and its current account deficit financed by Europeans and Asians. The mounting debts, the widening trade gap and growing current account and budget deficits is making further the US borrowing unsustainable.
Commenting on the US Senate decision to raise the debt ceiling by $800 billion to $8 trillion former American presidential candidate John Kerry warned that it could lead to inflation and economic recession.
Financial analysts say that the dollar needs to decline by another 20 per cent to reduce the trade gap, by boosting exports and cutting on imports. America's growing current account deficit is now eating up around 75 per cent of the excess saving of Japan, Germany and China and other countries.
American exports to Pakistan moved much faster than its export to the United States in fiscal 2004. Exports were up from $2.6 billion to $2.9 billion but imports jumped from $735 million to $1.3 billion.
According to the State Bank of Pakistan, in 2003 China's imports grew by 40 per cent and during the last three years, it accounted for one-third of the total increase in the world import volumes.
China is the largest recipient of FDI as companies move their operations to China to benefit from the low cost labour and large market. But the exports to China from Pakistan remained almost stagnant, moving up from $244 million to $288 million. Imports however jumped from $839 to $1153 million. Incidentally, China has trade deficits with developing countries and trade surplus with the USA.
It indicates that both officials and exporters lack the agility to move with the times. In fact, the world economic order is changing fast. To quote the London Economist: Emerging markets are, on average, running much smaller deficits than rich countries.
According to a recent study by the UBS, a bank, emerging markets are much less dependent on foreign capital than before. Collectively, they have a current account surplus for six consecutive years; they have been in deficits for most of the previous 20 years.
Unlike debt-financed booms, which were followed by financial crisis, the current expansion has been financed largely by domestic savings, which allow them to repay foreign debt.
While the developed countries have saturated markets, the emerging markets show a trend towards independent economic development. It means that new trends of globalization which would no longer be led by developed states particularly the United States.
The economic muscle acquired by the developing countries would be used to seek even playing field in global trade. Till such time that a more equitable global economic order emerges and is stabilized, the international markets would suffer from great volatility.
Japan has a stagnant economy. Spurred by the US unilateralism and with ten new states in the EU, Europe would tend to work harder for more integration of the EU market and building of economic muscle.
While not relaxing efforts to boost its exports, time has come for Pakistan to review imports and see how import substitution could take place to reduce trade deficit and pressure on the external sector in areas where the country has domestic advantage. It should be a priority area in the formulation of the next five-year plan due to be enforced from next July.
Of the three drivers of the global trade, aid, investment and access to market, none seem to be drawing strength from the current global environment. The issue of access to market is under cloud because of the current status of the industrialized states.
The target for official development assistance set 34 years ago at 0.7 per cent of the Gross National Income of developed states has not been achieved. The task has been made more difficult by fiscal and current deficits and high levels of unemployment in industrialized countries.
Foreign direct investment, the purchase of factories and other fixed assets by companies and an engine of globalization has declined for the third running year. The UNCTAD figures show that it plummeted by 18 per cent to $560 billion in 2003, less than half the peak reached in 2000.
No doubt, FDI into the developing countries rose by nine per cent and 13 per cent in Asia but it was concentrated in a few countries like China. It could not be categorized as regional trend. Pakistan's $950 million direct foreign investment is a mere one per cent of the FDI inflow into developing countries.
The World Development Report 2005 published by the World Bank has come out with the theme of " A Better Investment Climate for Everyone". The objective is to encourage developing states to further open up their markets for foreign investment with facilities, incentives and concessions. It may be difficult to achieve unless industrialized states provide access to their market to the developing countries.
The economic muscle acquired by developing states over the past 50 years requires an even playing field for its sustained growth. It translates into a more equitable economic order. The mindset of the industrial powers needs to change for required adjustments.
But the basic assumption that globalization brings prosperity has not been conclusively proved." The idea that open markets and free trade lead invariably to economic growth may be sound in theory but it has repeatedly failed the reality test", says William Finnegan in his article "The Economics of Empire." He argues: More than a billion people are living on less than a dollar a day-the figure in 1972 was 800 million. To add to what he has stated national self-reliance has not ceased to be an option.
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