October 22, 2007	Monday	Shawwal 9, 1428

Over the years, the country has expanded its simple manufacturing base and raised exports. But it needs to add more value to industrial products for a rapid and sustainable growth in exports.

Exports grew just 3.4 per cent in the last fiscal year against the target of 13 per cent whereas its imports increased 6.8 per cent against the target of minus two per cent.

“If we don’t introduce value-addition at all levels our exports won’t grow fast enough and our dream of import substitution would be shattered,” says Mr Iqbal Ibrahim, Vice Chairman, All Pakistan Textile Mills Association.

The country cannot afford to miss its export growth targets year after year or continue to delay import substitution because that would weaken its external sector and make it more dependent on external debt.

In FY07, the country posted a balance of payments surplus of $3.5 billion but its stock of foreign debt and liabilities also increased by $3 billion to $40 billion.

Policy makers do agree that it is time to focus on industry-led growth strategy and value-added exports, transfer of hi-tech technology and import substitution. But not much is being done in practical terms.

The creation of the ministry of textiles is a good omen to start the process of strategic industry-led growth. But the ministry has not delivered much in terms of facilitating the textile sector to develop on sustainable grounds and to increase value-added textile exports, says textile industrialists.

According to a report of Pakistan Institute of Development Economics, Pakistan’s exports of textiles are concentrated in low value- added products despite a rising share of higher value added textile products in global trade. To move with the global trends, the textile industry must move up the value chain and increase the share of high value added garments and made-ups in its export portfolio.

The textiles sector remains largely cotton-based, despite an increasing trend towards synthetic and blended fabrics. Current spindle utilisation for man-made fibres is very low compared with its competitors. A major reason for this is the protected man-made fibres industry.

“The overwhelming reliance of the textile sector on cotton makes it vulnerable to adverse shocks in the cotton market,” says the PIDE report authored by Musleh ud Din and Ejaz Ghani. In order to decrease the reliance on cotton, there is a need to encourage a shift towards man-made fibres.

There is also a need to move up the value chain both within and across all the sub-processes of the textile sector. And to reward value addition, incentives provided to the textiles sector should be linked with value addition. Similarly, other incentives such as export refinance should be cascaded across the value chain within a sub-process e.g. lower refinance rate for the finer counts and other value-added yarns and higher rate for the lower counts.

After textiles, leather sector is the biggest foreign exchange earner . Lately, this sector’s exports have grown because of higher value-addition. “But still there is much scope for making our products more-value added,” says a leading exporter of leather and leather products.

Exports of tanned leather and such value-added items like footwear and leather garments have risen over the past few years. “But there is a vast array of leather products whose exports need to be boosted. These items include leather under garments, gloves, handbags, purses, key chains, wallets etc.”

In FY07, exports of tanned leather rose 3.5 per cent to $303 million. But the exports of leather manufactures fell 24 per cent to $546 million. Some exporters say that the exports of leather manufactures were over-stated in FY06 and that the decline seen in FY07 was a consequence of it.

But like many others, they too admit that not much is being done to make leather exports more value-added. “One basic reason for not-so-fast value addition in leather products is that the industry lacks the modern technology used in this business,” says Qaisar Hassan, a leather technologist.

“Hardly half a dozen tanneries out of more than two dozens I have so far worked with have the latest technology necessary for making finished value-added leather products,” he says.

Textiles and leather industries use local raw materials and can easily go for value-added production. But the scope for value addition exists even in case of other industries.

The plastic industry is one good example. Polypropylene granules are imported to meet industrial requirements. “But whereas we use it for making low value-added products like woven sacks India, China and Turkey manufacture and export an array of industrial and household goods made from polypropylene,” says Sardar Ashraf, a member of the managing committee of FPCCI.

“The Indian Reliance Company is the biggest plastic granule importer but at the same time it is also the biggest exporter of plastic bags. This is real value-addition.” A leading rice exporter pointed out that whereas Thailand has long been producing and exporting rice-based food products “we only export rice.” And flour millers say a big scope also exists for export of value-added wheat and wheat flour-based food products. “We have started exporting vermicelli to the UAE and the response is encouraging. We can explore possibilities for exporting other traditional food items made of wheat flour to the Gulf countries where a large number of non-resident Pakistanis live.”

Apart from textiles, leather, plastic and food industries there is a vast scope for value-addition in almost every industry including those with export potential. Value-addition in construction and engineering industry can earn a huge amount of foreign exchange. The light engineering sector has started investing in technology needed for value-addition in manufacture of household electronic goods. Till recently, local fans were doing a roaring business in global markets but with the emergence of cheaper Chinese fans, the situation has changed.

Businessmen point out that the issue of value-addition in exports needs to be handled through a public-private partnership programme. “Let the ministry of industries, ministry of commerce, Trade Development Authority of Pakistan and the FPCCI join hands to come up with a vision for value-addition,” suggests Sardar Ashraf.

Many frankly admit that the private sector has so far not played its due role in introducing value-addition to various industries. But they say that the country cannot afford to delay this requirement any more.

Moving up the chain of value addition in every industry is not only needed to boost exports but also to cater to the growing domestic demand for sophisticated goods.

If local companies fail to make value-added products to suit to the tastes of an emerging class of domestic buyers, influx of imported goods would continue unabated. And that would adversely impact the efforts being made to boost industrial production and employment and take its toll on the external sector.