IN the presence of the GSP Plus status, a 14pc fall in the country’s exports — from $5.959bn to $5.42bn during July-September — is really a worrisome matter.
A similar falling trend was also evident over the past two fiscal years, when overall exports declined to $24.087bn in FY15 from $25.077bn in FY14 and $24.802bn in FY13.
Sector-wise data indicates that the downward trend is manifest in almost all major areas. Apart from foreign sales of textiles, exports of rice, sugar, cement, leather, footwear, handicrafts, petroleum products, engineering goods and gem/jewellery also dropped.
However, most of the discussion about the sluggish performance of the export sector is largely restricted to textiles only.
The main argument presented in this regard relates to the eroding competitiveness of our exporters due to the costly and infrequent supply of electricity and gas and the imposition of certain levies and taxes etc.
Taking competitiveness as a function of policies and institutions that determine the level of productivity in a country, an analysis of Pakistan’s export sector is called for.
The banks do not finance any start-up ventures before they have completed three
years of their business life. There are no arrangements for venture capital for financing innovative ideas
First of all, we take policies that are strong enough to convert any comparative advantage into disadvantage and vice versa. Bangladesh has gained a lot by converting its disadvantage of being a non-cotton producing country into an advantage by concentrating on more value-added exports. As a result, almost all of its textile exports comprise value-added items like readymade garments, knitwear and hosiery etc.
Being the fourth biggest cotton-producing country in the world, Pakistan enjoys two advantages: prompt availability of cotton yarn for local users and rising demand for cotton yarn from neighbouring countries.
But due to our blurred textile vision, the country has not been able to make much of these two advantages, as we are neither producing cotton nor yarn of high quality.
Due to their lower quality, Pakistan’s cotton yarn exports to non-cotton producing countries in larger quantities are not possible, whereas the value-added textile sector does not want to use local yarn due to its high price.
Instead, the textile sector now stands divided under two groups with varying demands. The imposition of a 10pc regulatory duty on imported Indian yarn has pleased the spinners, while readymade garment, hosiery and knitwear units have responded with a threat to go on strike again.
The role of institutions in fostering high quality exports is almost negligible. For example, the auto industry, despite having a 35-year history of assembling cars, has neither any passion nor the capability to enter the export market.
At the same time, the auto industry is doing roaring domestic business in the absence of any mandatory deletion programme from the government and in the presence of a market of captive users.
About 25 years ago, the SBP had included the concept of ‘indirect exporter’ in its Export Finance Scheme, which made a large number of vendors associated with any chain of export business admissible for cheaper export finance. Not a single indirect exporter has so far been accommodated by banks. The SBP has also never taken any note of this.
The banks do not finance any start-up ventures before they have completed three years of their business life. There are no arrangements for venture capital for financing innovative ideas.
The third factor relates to the exporters themselves, as they are generally reluctant to modernise their workplaces in line with best international practices. There are, no doubt, some proactive (as opposed to reactive) islands of excellence, but the working style of a large number of export outlets needs to be upgraded.
A few years back, a 6pc rebate of the exported value was allowed to value-added sub-sectors of textiles for R&D support. Billions of rupees were disbursed to readymade garments, hosiery and knitwear units under this programme, but very little was spent for the actual purpose.
The industry’s workforce is largely semi-skilled and works under unhygienic conditions that often fail to meet the WTO’s sanitary and phytosanitary requirements. For example, the country has faced sanctions from the European Union in the case of fish exports in the recent past.
Our preparedness to benefit from the GSP Plus status is not up to the mark. However, a number of options are available to come out of the sluggishness that is slowly creeping in our export sector.
Firstly, we should put in place a long-term textile policy that covers all stakeholders, right from the cotton-sowing stage to the exporting of garments. The focus on various segments should be assigned according to their respective contribution and not on the basis of their lobbying muscle.
It is also important to look beyond textiles, particularly towards food and engineering goods. The export of fruits, vegetables and meat has been showing a rising trend for the last three years. If we are able to reduce the number of seeds in our kinnow, its export could increase manifold. The export of herbicides to China’s growing pharmaceutical industry is another unexplored area.
It is also surprising that an agro-based country like Pakistan spends around $300m every year on importing pulses. In the 1970s, we used to export cement plants and sugar plants.
The export of engineering goods now merely comprising electric fans and transport equipment etc has declined consistently over the past three years.
Last year, more than $1bn was spent on the import of motor vehicles. Tightening the control of imports is another choice available if we choose to exercise it.
The writer is President, Institute of Banking and Business Learning.
Published in Dawn, Business & Finance weekly, November 16th, 2015
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