November 30, 2003

Economic diplomacy is a key component of any country’s effort to improve its image abroad. We appear to have denied it the importance that it deserves in our official policy. This is at our own cost

PAKISTAN’s economic and commercial relations with the world leave much to be desired. The major difference between the developing and the developed societies is that the advanced nations generally rely more on the use of reason and scientific method and have free and open societies, stronger, stable, and representative institutions, enlightened leadership and a much greater sense of purpose and direction.

National challenges are met, not evaded; answers are found, not conjectured; and responsibility accepted, not denied. There is no reliance on the supernatural, but on human effort, and there is confidence in the ability to control one’s environment and improve the human condition. This has an impact on everything the advanced nations, or those aspiring to be so, do including their economic diplomacy.

With this kind of approach it should be obvious that trade and investment have an organic link with the state of a country’s economy, its policies and institutions. They have a similar linkage to the global economy. As they say, a country’s external economic relations cannot rise above the state of its own economy. This compelling truth has somehow been missing from the debate on the issue in Pakistan.

The purpose here is not to criticize, but to make some constructive suggestions in the belief that Pakistan’s economy finally seems to be poised for growth. I would not have written this three, four years ago.

Let’s have a look at the issue of the state of the economy. In a live economy, primary production must give way to intermediate economy, which, in due course, must be followed by an advanced industrial level, culminating in hi-tech information technology. Of course, in general, some or all these streams flow together in a growing economy. But a country, fixated to a lower level of economic achievement, such as ours, will obviously have problems in this globalized world. Sooner or later it will become un-competitive, or un-productive, and must move up the ladder to gain a competitive edge.

The world economy moves in waves. As one country moves up, it creates opportunities for some others to fill the vacuum. I am sure that as China and ASEAN countries move up the economic ladder, they will relinquish a large part of low-end manufacturing, which will go to less developed countries. We really need to move up the ladder of economic activity to benefit from this coming wave, and aim even higher, specially for an export-led growth. Naturally, we require foreign investment for the purpose, like the ASEAN countries did. How can we attract foreign investment? Briefly, international investors take into account several factors, political as well as economic, before committing their money to an emerging market. The internal political poise, and peace and stability in the region concerned are, of course, important.

And then there are the economic factors that include not only the obvious elements, such as the quality of labour, cost and the market size, but also the state of ancillary industries, capital market, financial services, infrastructure, the bureaucratic, legal and regulatory environment, transparency and consistency of policies, traditions of corporate management and the tax system. And, above all, the security of investment. Incentives are not important; they are often too transparent an attempt to mask or compensate for the market risk and weakness, and smart investors can see through that.

The so-called investment seminars, however well prepared, do not achieve much, at least not by themselves alone. These seminars or regular campaign by our embassies do have a purpose, but it is rather limited. These efforts can inform foreign investors, stimulate their interest in Pakistan, but the investors are not going to commit any funds merely on the basis of what we tell them. Embassies can show them the way, but their decision would be very hard-headed, depending on first-hand knowledge and understanding of the market as well as economic outlook of the country.

They will also consult international credit rating agencies’ assessment, apart from checking whether domestic investors are putting their money in the country or not. And some of the foreign investors, specially the Japanese, are very cautious, calculating and painstaking. They would like to have full knowledge of their prospective business partner and develop a relationship of absolute trust before striking a deal.

Also a matter of high priority for them are the living conditions in the country, specially law and order situation and the quality and comforts of life. Let us not forget Pakistan has attracted great international attention for radiating a wide array of negative and troubling impulses on several issues of considerable concern in the developed world.

Now for the exports. What is it exactly that can be done to advance them? The answer is simple. Whatever constitutes the wherewithal of trading or business inside a country is also valid for external trade, such as quality and product image, price competitiveness, speed and reliability of delivery, predictability of profit, and element of trust, integrity and consistency of a business relationship. You need to study the export market, see who your competitors are, what they are selling and at what price, and how you can establish a long-term relationship with your buyer. Ironically, our exporters’ approach to foreign markets is often the other way round — easy and relaxed as compared with that towards the domestic market. They are no doubt active in some of the foreign markets, but only those where the pickings are easy.

Significantly, much of our export is of textiles, including cotton and cotton yarn, where we enjoy either some form of monopoly in that we are one of the essential suppliers, or we have a quota protection. Initiative, innovation and marketing strategy have not figured often in our exports. This explains why our exporters shy away from really competitive or tough markets.

What is it that you need to do in Pakistan to advance our exports? Indeed, many things. You need to revolutionize the supply side, by expanding the range and volume of exportable items and improving their quality and competitiveness. We continue to base our exports on the concept of export surplus. Yes, you can export on this basis also, but the volume will remain limited.

You have to invert the process — produce what you want to export rather than export what you want to produce. It may be a very simple concept to grasp, but hard to implement. You need an economic turnaround in the country, in fact a massive re-allocation of resources — financial, human and natural — for an economic buildup dedicated to export.

Let us look at Taiwan, Hong Kong and Singapore. It is perhaps not realistic to aspire to be like them, but we are not even succeeding as an export-surplus model either, because of our inability to fully exploit our existing potential. In a largely agro-based economy depending on elemental and natural forces, such a strategy is obviously precarious. The situation is compounded each year by the distortion and manipulation of estimates of crops, such as cotton, by vested interests that also adversely affect our exports.

I often hear from proud manufacturers in Pakistan that they produce goods of international quality. May be so. But how to expose them to the world and in markets. You cannot do so passively. There are established institutional frameworks for making the target market know what an exporting country is capable of producing. Two of the well-established methods, participation in exhibitions and personal visits by the exporters, have not been fully utilized by us.

Even when we have participated in exhibitions, our stalls have been among the poorest in terms of size, getup, presentation and salesmanship. The exhibitions organized by the Export Promotion Bureau are relatively better, but about those run by private parties, less said the better.

The problem is that exhibitions by the EPB are so few and far between that they do not leave a marked impression on the market. Only a sustained and long-term exposure of our products, irrespective of immediate prospects, can help us gain a foothold in a market. But if you appear in the market once and disappear as suddenly as you came, not to be seen again for years, you cannot make any impression, much less penetrate the market. One-off appearances are a waste of money and effort.

The exporters should visit their markets even otherwise, regardless of exhibitions. The embassies may send excellent reports, but these are no substitute for the exporters’ own firsthand study of the market. I have been repeatedly told by Japanese trading houses that only those exporters succeed who are in constant touch with the market. This involves regular visits there to know their business partners, and to update the market surveys and sales strategy. They also have to extend invitations to their importers to visit their plants back home for quality checks.

What are the other problems with our export strategy? We treat the whole world as a potential buyer, and thus end up trying to export to markets that do not need our stuff, and not paying sufficient attention to those that do. All major exporting countries in the world have different and specific strategies for chosen and targeted markets. We need to abandon the present omnibus global export policy, and, instead, focus on country-specific market strategy targeted at our major markets. We should identify, let us say, about ten major export markets and then develop a specific strategy to suit the demand in each of them.

For each major market we should identify some priority products and select five to six exporters for each product. The embassy concerned and this group should then jointly work on each selected product aimed at capturing a significant share of the particular market over a period of three to five years.

The mission could then focus its efforts on the implementation of the plan through regular and extensive contacts with the exporters in Pakistan and the importers. As for the exporters in Pakistan, the mission should inform them of the import rules, industrial regulations, quarantine laws, if any, quality standards, packaging, designs and patterns etc. It should apprise them of market trends and opportunities and competition from other sources as well as assist them in adapting products to suit the consumer preference through a series of counter sampling.

Our missions need to expand and deepen their contacts with the importers as well. To this purpose they should widen their access to all major centres of economic activity in the country of their jurisdiction, and must be given necessary financial support to do so by the government. Our commercial officers ought to have marketing skills, both to survey the market and to sell the product. Their ability to do so needs to be strengthened.

This objective can be achieved by giving them specialized training, at least for three to four months, prior to their assignment. The trade officers must be provided up-to-date and reliable economic data by the relevant ministries and agencies and their queries to Pakistan must be answered quickly. It enhances their credibility and effectiveness.

There should also a constant evaluation of our competitors in each product included in the group. The evaluation should have two components, one on the marketing side where our commercial counsellors must inform the EPB, based on their survey reports, of the quality of the product from our competitors and their strategy for marketing.

The other component should consist of evaluation at the origin. Our commercial officers posted in the countries from which these products originate should keep a constant watch on the emerging trends in their economy and the changing production patterns that are likely to pose a future threat to the export of similar product by us. Prompt dissemination of this information by the EPB will enable our exporters to position themselves for competition even before it begins.

In an economy like ours, government intervention is necessary by way of appropriate policies and incentives. What we need is an integrated approach involving consistency of policies specially harmonizing and synthesizing various special interests and a broad reallocation of resources reflecting overall national interest. We also need improvement of infrastructure, specially storage and port facilities, and the removal of administrative bottlenecks, such as hurdles by the customs, police and the taxation bureaucracy.

We also seriously need to review the performance of the Export Promotion Bureau and bring about institutional and structural changes in it. Its composition and operation is too governmental. An institution oppressed by bureaucratic controls and budgetary and audit constraints cannot be responsive to the requirements of modern business.

Government officials are usually not exports promotion specialists and do not even stay in the export promotion organization for sufficiently long time to accumulate expertise. The government institutions also do not have a free hand to adjust their export promotion budget to cope with the opportunities in the world market. That is why we need an autonomous semi-government entity instead.

Lastly, a word about our economic ministers and ministries. They need to realize that an ambassador represents not one institution, but the whole government of the country. It is vital, therefore, to the success of his mission that he is regularly fed information, policy guidelines and detailed briefs on our position on various issues by ministries and agencies concerned. This enhances his potential to be useful to them and to the country.

If what has gone above has focussed on factors other than diplomatic missions, it is to highlight their greater weightage in the equation, and not with a view to defending the missions. Unfortunately, in Pakistan any debate on export promotion ends up focusing far too much on our embassies, and shifts the onus of improvement to a single institution. While there can be no argument over the fact that a lot needs to be done to improve the performance of our diplomatic missions, an imbalanced focus on them would not contribute to the awareness of the totality of the situation. It may lead to an improvement in the missions’ performance, but would not make much impact on our exports.

Promoting external economic and commercial relations is beyond the reach and capability of a single institution. It is a national task, requiring full mobilization of a country’s resources and efforts. Exports flow from a healthy economy and not just from export promotion drives.

The mechanism of advancing Pakistan’s economic interests abroad shall consist of a triad: the private sector, the economic bureaucracy, and the diplomatic missions abroad. Everyone has to play its due role. There is no other way of going about it.

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