The strong resilience of services trade

Published July 26, 2021
The country’s exports grew 18.2 per cent over 2019-20 to $25.3 billion from 21.4bn a year before. — AFP/File
The country’s exports grew 18.2 per cent over 2019-20 to $25.3 billion from 21.4bn a year before. — AFP/File

PAKISTAN trade performance in 2020-21 endorsed the positive projections of Commonwealth trade experts’ who predicted early trade recovery in the country. The Covid shock rattled the economy but it bounced back quickly on the strength of timely containment measures, confidence-building policies and the generous stimulus package.

The country’s exports grew 18.2 per cent over 2019-20 to $25.3 billion from 21.4bn a year before. In June 2021, export proceeds reached $2.7bn from $1.6bn in the corresponding month last year, steep growth of 70pc, reveals the current official data.

The 2021 ‘Commonwealth Trade Review’ released this month noted: “Pakistan’s service exports showed a strong resilience during the Covid-19 pandemic…by September 2020 Pakistan’s services exports had already rebounded to December 2019 levels (despite falling by 20pc in April 2020)”.

The strengthening of information communication technology (ICT) infrastructure, reducing the costs of digital devices and acceleration of training programmes for skilling professionals and youth can help capitalise on the increasingly digital world. The report shared some interesting data. Between 2010 and 2017, the Commonwealth attracted a cumulative total of $355.6bn of investment in telecommunications services, of which a mere $7bn was invested in Pakistan.

Citing multiple factors the report did not find the prospects of foreign direct investment promising. The FDI inflows are projected to decline by 18pc in 2021 and a further 7pc in 2022 in Commonwealth countries

The Commonwealth represents a key market for ICT services exports. The Commonwealth advantage is likely to play a key role in encouraging intra-Commonwealth trade in these services, with a common language, similar legal systems and other factors potentially aiding the interoperability of ICT services across Commonwealth borders. More than one-quarter of ICT services exported by Pakistan is destined to Commonwealth countries.

The report notes that economies highly dependent on services trade that requires in-person interactions, such as tourism, have seen steep and sustained declines in their exports (Kenya, Uganda) during the pandemic, while those exporting ICT-related services such as India and Pakistan have performed better.

The report argues that the prospects of Pakistan’s quick trade recovery are strong.

“Major export markets (UK, EU and the US) have provided generous support to businesses and firms during the pandemic; they have also delivered large stimulus packages to revive the economy. As a result of this substantial financial support, consumers in these countries have accumulated more than $3 trillion in excess savings, which is fuelling demand in these countries,” the report observes.

The biennial review surmises that the Commonwealth countries have lost up to $345bn worth of trade in 2020, including $60bn in intra-Commonwealth trade. As the Covid-19 tide begins to recede, based on detailed study and analysis the report predicted fresh opportunities to foster more diverse and resilient trade and investment relationships among members, laying the foundation for more inclusive and equitable future development. The report foresees intra-Commonwealth exports to rebound and exceed $700bn by 2022.

Citing multiple factors the report did not find the prospects of foreign direct investment (FDI) promising. The FDI inflows are projected to decline by 18pc in 2021 and a further 7pc in 2022 in Commonwealth countries.

The delays to the implementation of existing investment projects caused by the pandemic led to the deferral of decisions on fresh investment, fall in profits and suppressed capital flows. Commonwealth Secretariat calculations, based on the United Nations Conference on Trade and Development’s 2021 World Investment Report data, show overall FDI inflows to Pakistan were $50.7 million lower in 2020, a drop of 2.4pc compared to the annual pre-pandemic average for 2017-2019.

Greenfield investment has been hit hard. In Pakistan, the value of announced greenfield FDI from Commonwealth nations was $243m, 92pc lower in 2020 compared to $450m annual average pre-pandemic inflows for 2017-2019. Announced greenfield investments in Pakistan from the rest of the world were similarly affected, falling by nearly 95pc (representing a $3.8bn drop in capital investment). Greenfield investments into the renewable energy, coal, oil and gas, communications, and transportation and warehousing sectors in Pakistan registered the steepest declines in absolute terms when measured against pre-pandemic averages.

Fifty four Commonwealth nations account for around 25pc of the world population and about 15pc of global trade. Around one-fifth of this trade is within the group. Commonwealth is not a formal trading bloc, but these countries have the advantage of common language, historical linkages, similar legal system and large diaspora network. These factors enhance the scope of stronger trade ties and investment flows in these countries.

They are key trade partners of Pakistan. About 20pc of exports worth $5.5bn were directed to Commonwealth members. Merchandise trade constitutes around 85pc while the share of services was15pc of these exports. The trade relationship grew deeper over years as the percentage of total exports destined to the group nations increased from 15pc in 2005 to 20pc in 2019.

Covid-19 has adversely impacted FDI inflows to many Commonwealth countries. The pandemic has caused delays to the implementation of existing investment projects, resulted in the deferral of decisions on new investments and led to reductions in reinvested earnings and declining equity capital flows.

The world economy contracted by 3.3pc in 2020, further marginalising women, youth, the poor and the informally employed. Overall, Commonwealth countries suffered a $1.15tr GDP loss compared with the pre-pandemic estimate. During this time, 45 Commonwealth countries fell into recession, only 9 developing members posted growth — namely, Bangladesh, Brunei Darussalam, Ghana, Guyana, Malawi, Nauru, Tanzania, The Gambia and Tuvalu. By contrast, when the global financial crisis hit more than a decade ago, less than half of the Commonwealth membership went into recession.

Published in Dawn, The Business and Finance Weekly, July 26th, 2021

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