Commenting upon the exports performance of $6.626 billion during July-Nov05, higher by 22.90 per cent compared to same period last year, Federal Commerce Minister Humayun Akhtar Khan in a recent TV interview said that $17 billion earnings will be achieved by the close of the FY06.

In his speech on trade policy in July last, he had given an export target of $20 billion. The trimming the export target came on the back of the ground reality that the GDP growth target and the output in commodity producing sectors were not likely to be met.

The SBP, in its first quarterly report (July-Sept) has also indicated that the performance of the economy during FY06 will be weaker than in the preceding year.

Let us now examine the probability of achieving the revised projections for exports during the second half of the current FY in the framework of the ‘rapid export growth strategy’ (REGS) cited in the policy.

The focus of our analysis will, however, be confined to the two out of five pillars of the REGS i.e., diversification of exports and access to markets and regions that were hitherto neglected.

As per the international practice, the succeeding governments have been making sustained efforts to modernize the economy by bringing about structural changes in the GDP. During the past six years, the share of manufacturing sector in GDP (at constant factor cost of 1999-2000) increased from 14.81 in FY00 to 18.27 per cent in FY05 with a corresponding decline in the agricultural sector from 26.17 to 23.09 per cent in the same period.

The services sector which is largely composed of transport & communication, wholesale and retail trade and finance &insurance increased from 51.21 to 54.43 per cent of GDP during the same period.

Since the quantum of merchandise export surplus was derived from the manufacturing sector, the same sector should have been expanded at a faster rate than the services sector and that unfortunately did not happen.

The main reasons for the slow growth of the manufacturing sector were: first was the lack of adequate finance for fixed industrial investment. The Musharraf government has been claiming ‘political stability’ and firmness in ‘macro economic’ conditions - the two fundamental prerequisites for increasing fixed capital formation - has not yet been able to bring about a positive and significant change in the ratio of fixed investment to GDP which remained almost unchanged at 15 per cent during the past six years.

Another important reason is that the focus of all the succeeding governments including the present one has been on the growth and improvement in one industry i.e., the ‘textile industry’ for all purposes.

As per SBP annual report, the disbursement for financing fixed industrial investment to the private sector amounted to Rs33,388 million per annum during the past five years ended FY05.

The highest share of 41.92 per cent of total disbursement was availed of by the textiles sector followed by services and miscellaneous (26.08 per cent), cement and other non metallic minerals (11.38 per cent) and chemical, pharmaceutical and fertilizers (5.88 per cent).

The concentration of bank financing for fixed investment purposes in one industry i.e., the ‘textiles’ was detrimental to the growth of other export-oriented industries like ‘electronics,’ ‘machinery both electric and non electric’ ‘leather & leather products’ and food, tobacco & beverages’.

It is feared that similar phenomenon of uneven distribution has been prevailing in the case of short-term finance provided to the exporters under the concessionary financing scheme namely, Export Finance Scheme (EFS) which has been in existence since 1973.

Since the SBP has not been publishing the break-up of EFS funds provided to various group of exporters, industry-wise, both under Part I & Part II of the Scheme true picture about the pattern of disbursements of funds under this highly concessionary scheme remains blurred.

The SBP hierarchy and also the MoF should take a note of the anomaly as the EFS, (the government sponsored scheme) was initially tailored to adequately increase the share of non-traditional manufactured goods and the emerging exporters in total exports and not for the benefit of the select exporters belonging to a particular industry only.

There is no denying the fact that EFS has never been helpful in enhancing the total exports which almost remained unchanged at $8 billion till 2000. Moreover, the incentive under the EFS has not even been assisting in diversification of exports which is imperative under the international free trade scenario.

As per the data available for three years ended FY05 on the web site of Export Promotion Bureau (EPB), the pattern of our export trade, destination- wise showed that more than half of total merchandise exports were restricted to USA (27 per cent) and the EU countries (28 per cent) which are the dominating political and economic powers on the forum of WTO.

The countries falling in Asian region and Middle East countries captured the share of 20 and 16 per cent of total exports respectively during the same three years. It is essential that the MoC should make a long-term plan to find more markets in countries other than the USA and EU countries to help diversification of exports both product wise and destination wise.

The future strategy should be based on the following ground realities: First and foremost, action should be taken to restrict the existing policy of import liberalization to imports of capital goods and industrial raw materials.

The import of consumer durables mainly automobiles and other luxury goods, should be the barest minimum as such imports have been retarding the growth of the local manufacturing sector.

The country’s economic managers should take concrete measures to further increase the share of manufactured sector to GDP as that will ensure absorption of more skilled and non- skilled labour force relieved from the agricultural sector on account of the modernization of the economy.

The local manufacturing sector has to be given due protection to create a confidence amongst the domestic investors as the flow of local fixed investment together with the foreign direct investment would help in enhancing the sustainability of the GDP growth rate between six to seven per annum.

The second important area is to gradually increasing the share of non- textile exports while fixing the annual target for overall exports. The dependence on the exports of textile sector has to be shifted to non-textile products keeping in view the growing emergence of other textile-producing countries in the region like China and India with which our textile manufactured exports cannot compete in the international market.

According to the EPB website, thet sub- target for export of ‘textile and garments’ has been fixed 62.46 per cent of total export target of $17 billion for FY06. The sub- target could have been fixed around the actual share of textile and garments which was 58.8 per cent of total exports during FY05 thereby releasing more share for exports of non- textile exports in future.

The MoC has to work hard to change the present mindset of the exporters to make them believe that the government seriously intends to encourage the export of non – textile products.

In the area of diversification of exports, both product-wise and destination-wise, the efforts so far made by the MoC seem to be self-contradictory. More than half of total exports largely of cotton-based goods have been already locked up in US and EU markets.

In the current policy, it has been laid down that more diplomatic efforts will be made to enhance access to these two markets. Taking stock of the results of various rounds of WTO negotiations held so far it is imminent that developing countries like Pakistan can get nothing more from US & EU without giving them reciprocal access to our markets by further slashing the existing rate of tariffs on industrial products which has its own adverse impact on our economy in general and particularly on the growth of country’s manufacture sector.