Courting for exports

Updated May 22, 2017


After recently signing a memorandum of understanding with Alibaba for promoting exports of small and medium enterprises, Pakistan has taken an initiative that requires a lot of perseverance to turn its dreams into reality.

Jack Ma’s oft-quoted belief is: “We’re never in lack of money. We lack people with dreams, who can die for those dreams.”

“If Prime Minister Nawaz Sharif (who along with Jack Ma, executive chairman of Alibaba group, witnessed the signing of ceremony of the MOU), shares Ma’s belief, if we share it, then our SMEs’ exports will definitely grow. Otherwise not,” opines the president of a large local bank.

E-commerce giant Alibaba can work wonders for boosting SME exports. There are no two opinions about it.

The group does have big data on trading patterns… If it helps us in selecting SMEs for training, it can really revolutionise the sector

“But then our SMEs need to come up with products that can compete with cheap Chinese and Indian products,” remarks a former head of a foreign bank. China is a manufacturing giant. Indians are smart marketers. And both enjoy economy of scale. “It’d be interesting to see how our SMEs’ compete with theirs.”

Under the terms of the MOU, Alibaba, its affiliate payment platform Ant Financial and the Trade and Development Authority of Pakistan (TDAP) have agreed “to foster growth of worldwide exports of products of SMEs in Pakistan — through e-commerce.”

According to media reports, Alibaba group will conduct online and offline training for SMEs to get on-board it’s online trading platforms, and help them boost their exports through e-commerce. TDAP will identify suitable SMEs to participate in such training programmes.

Alibaba group will, in return, provide the TDAP with industry analysis to assist in the selection process.

Alibaba, Ant Financial and TDAP will work jointly to promote growth of financial inclusion in Pakistan in such areas like mobile and online payment services. The parties have also agreed on adopting cloud computing services to support online and mobile e-commerce businesses of SMEs in the country.

On the face of it, if the promises made in the MOU are fulfilled by all parties, realising export potential of Pakistan’s SME sector would be quite a possibility. “But many ifs and buts will come our way. We’ll have to get past them,” admits a senior TDAP official.

For example, handling online and offline training programmes for SMEs can prove quite difficult. But, according to officials, TDAP will seek help from business lobby groups, SMEs representatives, banks and provincial governments in reaching out to those SMEs that already have a presence in export markets or have been catering to export houses directly.

For this, SMEs working in such non-traditional but export potential areas, will be prioritised, like furniture and home décor, personal care, fintech and agritech, along with ICT-related SMEs and SMEs in key traditional export areas of rice and seafood processing, textile, leather, sports and surgical goods manufacturing and light engineering.

Special efforts will be made to revive the carpet industry through promotion of SMEs, officials claim.

A senior official well-versed with the background of the MOU with Alibaba told this writer that lots of details still have to be worked out on how Alibaba would help TDAP in selecting SMEs for the training programme.

Alibaba truly has global experience in providing B2B (business to business), B2C (business to consumers) and C2C (consumer to consumer) online trading platforms.

Businesses from America, China, India, Indonesia, Thailand and Pakistan are already using Alibaba online trading services extensively. The group does have big data on trading patterns, strengths and marketing strategies of SMEs of said countries.

If it helps us in selecting SMEs for training, with the purpose of enabling them to boost exports via e-commerce, it can really revolutionise our SME sector, according to officials of Karandaz, a financial and technical solution providers for SMEs.

But they fear that bureaucratic red-tape in Pakistan, a general lethargic attitude of SMEs and lack of patience in working on innovative ideas plus slow growth of SME financing in the country may bring us some initial disappointments.

In Pakistan SME financing (as of end-June 2016) stood at just 1pc of GDP. “That will have to be raised manifold if we’re really interested in getting the best out of the TDAP-Alibaba deal,” one of these officials says.

“The good growth we see in SME finance (5pc per quarter as of June 2016) comes in the wake of a very shallow base. Volume wise increases are still very low (Rs14bn in Q4FY16). Besides, as percentage of private sector credit, too, SME lending is very low (only 7.3pc as of June 2016). All these numbers will have to be raised dramatically to make our SME sector efficient enough to benefits from Alibaba-facilitated e-commerce.”

Since the MOU signed between TDAP and Alibaba and Ant Financial also stipulates that the three would jointly work for fostering growth of financial inclusion in Pakistan, “this cooperation should result in development of models for improving our payment system besides taking onboard microfinance institutions to boost their lending,” hopes a senior executive of a microfinance bank.

“Besides, the agreement (between TDAP, Alibaba and Ant Financial on adopting cloud computing services to support online and mobile e-commerce businesses of SMEs) should create extensive opportunities for third and fourth generation tech start-ups in the country.”

Federal government officials say exposing our SMEs sector to changing e-commerce dynamics through government-level engagement with Alibaba group is expected not only to expand our merchandise exports, that are currently stagnant, but also lead to streamline services exports.

Of late, Pakistan’s services exports have shown a rising trend but issues related to proper recording and inflows of export proceeds clouds future growth. “We hope that services sector SMEs, particularly those in the IT sector, can do a lot better with greater opportunities coming their way through Alibaba and Ant Financial. They can help our state institutions better record services export proceeds,” according to an official of the Ministry of Information Technology and Telecom.

Published in Dawn, The Business and Finance Weekly, May 22nd, 2017