Missing export focus

Published February 27, 2015
The writer is a senior research fellow at the Institute of Development and Economic Alternatives and an associate professor of economics at LUMS, Lahore.
The writer is a senior research fellow at the Institute of Development and Economic Alternatives and an associate professor of economics at LUMS, Lahore.

I RECENTLY met a few manufacturers who are not only suppliers of quality products to local manufacturers and markets but are also exporting significant proportions of their output. And the exports are not just to developing markets, they are going to Europe and the United States as well. These manufacturers are not working in textiles or textiles-related areas. They are producing glass products, products based on plastic moulding and metal forging.

These manufacturers were emphatic that there were no technology gaps between them and those who manufactured these products in other areas of the world. They were confident they were matching and could continue to match the quality of products being produced in any part of the world. In some cases they were not producing the highest quality product as their market was not demanding that quality, but that was a demand issue and not one related to capability or technical knowledge.

Though these manufacturers were in different indus­tries, produced different products and used very different raw materials, machines and production technologies, there were commonalities as well. In all cases, the local Pakistani market provided a significant part of the demand for these manufacturers and that demand ensured that reliance on export orders was not crucial for survival. All these manufacturers had been in their respective businesses for decades and had built up their reputations as reliable and high-quality producers over time. They had all invested heavily in quality control and marketing areas.


Frequent policy changes by the government have not helped Pakistani manufacturers.


What these manufacturers lack, it seems, are design capabilities. Most of them produced products whose designs came from downstream manufacturers: auto parts for producers/assemblers or the spare-parts markets, glass products that are used in buildings, or moulded plastics for bottles.

These manufacturers are excellent in producing precision quality products according to given specifications, but being part of the larger production chain, there has been no reason for them to develop their own design departments. Where this can be a limitation if manufacturers want to introduce final products to consumers, it is not an issue for those who are part of the larger value chains.

These manufacturers are globally competitive. Otherwise they would not be exporting. And, surprisingly, they are globally competitive, despite the Chinese presence in the region, our high energy costs and other problems that the manufacturing and commerce sectors face in Pakistan.

Their main advantage, across all sectors, seems to be low labour costs (most of these manufacturers are in labour-intensive industries), freight-cost advantage in some markets for bulky products, and, in some cases, more relaxed emission and environmental standards than have been imposed in some of the more advanced countries.

In a few cases, a base level of protection for local markets was instrumental in guaranteeing local demand, while in others this continues to be an issue despite the free trade agreements that Pakistan has signed. But this has, over time, as tariffs have been reduced, become less of an issue. Exports are not subsidised and clearly show the competitiveness of these producers.

Some of the manufacturers did say that though there were no technology gaps between them and the global industry leaders in their areas of work, the local market demand was small and did not require the production of the highest quality products. Hence they were not set up to compete in the most advanced markets even in their areas of expertise.

The limited local market demand issue could be tackled by export demand. But the matter of quality standards needs regulatory interventions. The lack of specification of standards and their implementation in Pakistan has been one of the reasons for the lack of demand for quality, and this calls for government action. But it is not something that manufacturers can do anything about.

It was interesting, but depressing, to hear these manufacturers express their views on government departments and on what the government could do to facilitate them in their work. Most of them said that the government had almost never done anything to help them.

Many felt that the relevant government departments, bureaucrats and policymakers, had, in general, created problems for manufacturers rather than helped them. This was attributed to the lack of policy coherence, frequent policy changes, absence of long-term commitment to particular policies and frameworks, incompetence, corruption and a dearth of sector-specific expertise.

Even on the export promotion or facilitation side, they did not have anything positive to say about the role the government had played thus far. They had plenty of specific examples to back up the general points made.

Lacking confidence in the ability of the government to do things differently, most of them felt that the rulers should make a regulatory framework that was conducive to business and manufacturing and then step back and implement that consistently (tariff structure, regulatory structure, trade agreements, taxation policies, etc). The business of manufacturing should be left to the industry itself — the outcome would be better if there was a less interventionist government.

Several recent conversations about exports and industry have been around issues like exportable surplus, diversification, ‘make versus import’ debate, comparative advantage and transit trade. They seem to be missing the point. Though, right now, I am generalising from a very small sample of successful firms, it seems that the real issues are about better regulatory frameworks (quality standards included), consistent policies and a clearer vision of integrating Pakistani manufacturing into global value chains.

This requires a very different kind of governance and government in the areas of industry, trade, commerce, taxation and infrastructure provisioning than what we have. Most manufacturers are sceptical about the ability of the state to carry out the appropriate reforms in these departments, and looking at the issue institutionally and historically, their scepticism seems justified.

The writer is a senior research fellow at the Institute of Development and Economic Alternatives and an associate professor of economics at LUMS, Lahore.

Published in Dawn, February 27th, 2015

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