Reviving Pakistan’s exports

Updated April 28, 2017


THE country’s declining export receipts over the past few years has been in the public spotlight. However, as I have pointed out in a number of opinion pieces in this newspaper, the issue is much deeper and more structural in nature, with Pakistan’s exports in secular decline for far longer than realised, especially when benchmarked against a range of relevant parameters.

The global market share of Pakistan’s exports has been relatively miniscule, and has declined further over the past decade. Most tellingly, Pakistan has an extremely low ‘export orientation’, with the size of the merchandise export sector in the overall economy declining from around 14 per cent of GDP in the early 2000s to barely 7pc now. So what can be done to revive Pakistan’s exports? Before suggesting any policies or measures, one has to examine the factors that have been a hurdle in the long run to creating a vibrant and dynamic export sector in the country.

Psychology: With the country’s export sector shrinking from an already low base (relative to the overall economy) since the 1990s, the lack of urgency, the level of apathy and inattention shown by successive governments speaks volumes.

Changing policymakers’ mindset is part of the challenge.

While in the case of almost all developing countries that have become export powerhouses since the 1960s, the highest leadership of the country has played a major role in guiding exports higher, in Pakistan the country’s leaders have been preoccupied with everything other than exports. (The recent resignation statement of the chairman Trade Development Authority of Pakistan is telling where he speaks about the prime minister ‘not being able to give time’.)

Apathy at the highest level has been compounded by a deep-seated anti-export bias in policies as well as attitudes. Two areas where this is showing up since 2013 is in the tax regime in place (which has viewed the export sector as a revenue spinner for the government), and in the overvalued exchange rate (which is cross-subsidising imports at the expense of exports). Unbelievably, since 2008, the PPP government as well as its PML-N successor have released virtually no funds to finance the country’s Strategic Trade Policy Framework, despite budgetary allocations each year.

Politics: There are four channels via which politics — domestic, regional as well as global — have undermined exports from Pakistan. First, Pakistan has borne the brunt of the fallout from post-9/11 developments, with a diversion of foreign investment as well as export orders due to the perceived security situation within the country. At the same time, India has made consistent efforts in a variety of ways to throttle Pakistan’s economy including by squeezing its exports and undermining the ‘made in Pakistan’ brand.

The last two channels are both internal. For the past few decades, ‘capture’ of Pakistan’s trade policy framework by a segment of low value-added exports has been a significant factor in preventing a diversification of export products as well as markets. This state of affairs has been compounded over the past decade or so, by a shift in the ‘centre of gravity’ within the PML-N from its erstwhile constituency of manufacturers to traders and real estate developers. Hence, the slow and anaemic response of the prime minister to the exports crisis.

Power: The continuous energy crisis in Pakistan since 2008 has also hurt the export sector. However, more than availability of energy, what has hurt exports has been the steep increase in gas and power tariffs over this period, which has priced out many exports from Pakistan.

Productivity: Overall, and barring a few areas, Pakistan fares poorly with regard to productivity, especially in comparison to many of its regional competitors. (However, the generalised description usually proffered about Pakistan’s private sector as ‘rent seekers’ and lacking in effort or innovation is far from the truth in many cases, and is a subject I will deal with separately).

Given this backdrop, what can be done to reverse course for Pakistan’s exports? In the short run, the government should undo all of its ‘predatory’ and anti-exports taxation measures of the last four years, as well as release all blocked refunds of the export sector and provide duty drawbacks. It also needs to provide relief to the export sector from the highest electricity tariffs in the region. The exchange rate should be made competitive over a period of time. Pakistan should also re-negotiate its free trade agreement with China which has surprisingly not provided the same level playing field to a strategic partner as to the Asean countries.

Beyond the immediate steps, the government can take much more potent structural as well as institutional measures designed for the long run. The prime minister should designate himself the ‘champion’ for the country’s exports, and should chair a high-powered commission or strategic group that will provide a vision and framework for the country’s export sector for the next 30 years, and will also oversee implementation.

This commission or group should also study and provide recommendations on how to restructure the trade regime to make it more export-friendly, as well as how to reduce the cost of doing business in the economy. In this regard, an ongoing ‘strategic dialogue’ between policymakers and the private sector needs to be fostered. The productivity challenge needs to be tackled also by taking stock of the ‘gaps’ in the entire edifice of the government’s skills development effort — which is likely going to require restructuring of the existing institutional framework.

Finally, a more concerted effort needs to be made to leverage the opportunities under CPEC by partnering in regional value chains with Chinese industries. By instituting these first steps, the government can begin the arduous task of reversing Pakistan’s export decline. Whether it is able to do so in its current state of disarray remains to be seen.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, April 28th, 2017