International trade has undergone some dramatic changes as a direct result of Covid-19. Going forward, these changes will likely become permanent features of a post-pandemic world — if new variants of the novel coronavirus keep popping up as many virologists are predicting.
So far, Covid-19 has caused volatility in the international prices of both food and non-food commodities, made shipping more expensive and vulnerable to sudden halts and delays, brought the tourism industry to its knees and inflated air freights for perishable items.
At the same time, it has caused a surge in demand for healthcare products and services, expanded the scope for IT and IT-enabled services, particularly in e-commerce, distant learning, freelancing of all kinds and financial technology apps. Most notably, the pandemic has exposed the follies of trade wars between the top two global economies, established the urgent need for a more harmonious international trade regime, brought under a new focus the issue of the protection of intellectual property rights in vaccine manufacturing, the economies of intra-regional trade and trading with neighbours and highlighted the necessity for countries to participate in regional value-chains.
Pakistan needs to revisit its external trade policy keeping these and other caveats of the post–Covid-19 world of international trade. For the last seven months, the country has earned $2bn-a-month merchandise export revenue after witnessing an initial slump following the breakout of the pandemic last year.
Poor development of engineering industries keeps export-oriented sectors dependent on machinery imports
But as the economy starts recovering, imports are growing even faster. (In the first 10 months of this fiscal year, merchandise exports grew 13.5 per cent to about $20.9bn and imports swelled 17.7pc to more than $44.7bn). The trade deficit stood at $23.8bn. For handling a trade deficit of this magnitude that is sure to expand even further, much depends on how effectively Islamabad contains the fallout of the ongoing third wave of Covid-19 on the entire economy and how prudently external trade policy features are redefined.
Apart from meeting the short-term challenges of the growing trade deficit — which is more than 100pc of our merchandise exports — Pakistan does require fundamental, forward-looking changes in its medium-to-long-term external trade policy to avoid an abrupt rise in the overall trade deficit or acute shortage of staple food items in the domestic market.
As Covid-19 has deepened the links between international trade of goods and of services, it is advisable to frame a comprehensive trade policy with targets set for imports and exports of both merchandise and services trade in the medium-to-long term.
That is important for better balance-of-payments management — as well as for reallocating resources at a given time for the promotion of selected sectors of goods and services exports, keeping international demand and domestic production capabilities in mind.
According to recent media reports, Amazon has decided to include Pakistan in the list of seller countries. This means further pressure on our import bill. But at the same time it also means well-assured timely supplies of imported raw materials for industries — particularly in the services sector. This and similar developments should, therefore, be taken into account while formulating a combined policy for foreign trade in goods and services.
Pakistan’s domestic base of industrial raw materials is shallow and the country’s elite and the middle income groups are equally fond of imported finished consumer goods. Besides, the country’s agricultural output remains dependent largely on weather in the absence of productivity-boosting tech innovations and suffers from mismanagement.
Exports of surgical goods and medical instruments plus pharmaceutical products grew only 13pc in July-March
As a result, it has to frequently import even wheat and sugar. Surplus sugar or wheat, on the other hand, are hardly exported at the optimal prices due to delays in decision making.
All these factors collectively keep the food trade deficit high, often create shortages of wheat and sugar and contribute to a general rise in food prices year after year.
Years of over-patronage of the traditional export sector without linking the incentives to the actual rise in its performance have made exporters complacent. And poor development of heavy and light engineering industries keeps export-oriented industries dependent on imports of machinery of all kinds. This is also a big reason for the expanding trade deficit.
In the future, export incentives must be made conditional with the meeting of export targets assigned to individual export firms. Similarly, the local engineering industry should be supported at all levels so as to reduce the import bill. Pharmaceutical and healthcare products’ manufacturing has seen a surge in output and exports during the past one year after the outbreak of Covid-19. That is a welcome development. But to help these industries become big foreign exchange earners in the near future, the government will have to provide them with the kind of support that has traditionally remained reserved for textiles. Here too, the policy should be to link all incentives with the actual performance of industries.
Our exports of surgical goods and medical instruments plus pharmaceutical products together grew past $530m in the first nine months of this fiscal year, up about 13pc from $470m in the year-ago period, data released by the Pakistan Bureau of Statistics shows. Doctors’ protective gears and masks and medications used in the early stages of Covid-19 are all included within these two categories. As such, a mere 13pc increase in their exports is far less than what the country could have achieved. Clearly, more needs to be done.
It is heartening, though, that in the services sector, export earnings of telecommunication, computer and information services surged 44pc to $1.51bn in July-March of 2020-21, from $1.05bn a year ago. This sub-sector of services’ exports holds great promise in the Covid-19–defined world of trade. Lockdowns and physical distancing and other limiting factors cannot hold young minds and experienced hands from developing computer and mobile software and apps and from offering online consultancy services.
Published in Dawn, The Business and Finance Weekly, May 10th, 2021