Export promotion is an important instrument of job creation, improvements in the balance of payments (BoP) position, accelerated economic growth and increase in the level of incomes and standard of living. Like other developing countries, Pakistan is making efforts to increase its exports.

The present level of exports, however, is unsatisfactory. The share of exports in GDP is less than 15 per cent. Though the country's exports have exceeded to $12 billion, they constitute only 0.13 per cent of total world exports ($9.1 trillion).

From 1999-00 to 2003-04, our total exports stood at $50.29 billion. This makes average annual exports during last five years $10-05 billion. During 1999-00, exports receipts were $8.56 billion - which increased to $12.27 billion during 2003-04.

This means during last half decade there was 43.37 per cent surge in exports. In 2002-03 exports were worth $11.2 billion, which means exports in 2003-04 increased by 9.94 per cent over the last year.

Compare this with 16 per cent increase in global merchandise exports from $6.3 trillion in 2002 to $7.3 trillion in 2003. In 2002, Pakistan's share in world merchandise exports was. 0.17 per cent, which has fallen to 0.16 per cent this year.

To delve deep into the export pattern and performance of Pakistan during last five years, let's look at the country's major export products and markets. Tables A-C summarise this information.

As the above data show our exports have a narrow base as they lack diversification with respect to both products and markets. Take lack of product diversification first.

As table A shows, in 1999-00, only 10 products made up 90 per cent of Pakistan's total exports. Of these 10 products, the share of five textiles and garments, leather, rice, sports goods and carpets and rugs-in total exports was 85 per cent. And nearly 65 per cent of total exports consisted of only one product category, textile and garments.

After five years, the position remains the same. At present, only 10 products make up 90 per cent of Pakistan's total exports. Of these 10 products, the share of five-textiles and garments, leather, rice, sports goods and carpets and rugs-in total exports is 85 per cent.

And nearly 68 per cent of total exports consist of only one product category, textile and garments. Importantly, Pakistan's trade pattern is diametrically opposed to the world's.

Engineering goods make up nearly 60 per cent of the total global trade, while textile and garments constitutes only 5.8 per cent of the total world trade In contrast, in exports, engineering goods are not even among the top 10 products and their share in total country's exports is less than 1 per cent.'

Now take lack of market diversification. In 1999-00, more than 75 per cent of exports were-destined to four regions the European Union (EU), North America, the Middle East and China including Hong Kong.

Only two regions, the EU and North America-contributed nearly 56 per cent of the total exports. Even within these two regions, there was lack of market diversification.

More than 90 per cent of our North American exports were purchased by the USA, while within the European Union (EU), four countries - the UK, Germany, Italy, and the Netherlands - accounted for nearly 62 per cent of total exports to that region.

Again, the situation remains the same after five years. At present, the same four regions make up 77 per cent of the exports, while the EU and North America remain the top two markets whose share in total exports is 55 per cent.

More than 90 per cent of our North American exports are still purchased by the USA,, while within the EU, four countries - the UK, Germany, Italy, and the Netherlands - continue to account for more than half (56 per cent) of total exports to that region.

At present, 10 countries account for more than 61 per cent of Pakistan's total exports. The USA remains the single largest export buyer taking nearly 24 per cent of total exports.

Pakistan's exports to the Middle East are 16 per cent of its total exports. However, even within Middle East market, there is lack of diversification. For instance, of total exports to Middle East, the share of only Dubai is nearly 47 per cent.

The share of Saarc countries in Pakistan's exports is merely, 2.53 per cent, while that of the ASEAN is 3 per cent. The share of Eastern Europe and Central Asian Republics (CARs) in our exports is negligible.

Thanks to Afghan reconstruction and Pakistan's role in ousting the Taliban, exports to Afghanistan constitute 3.23 per cent of total exports compared with 1.69 per cent between 1999 and 2001.

Pakistan is the member of two regional trade blocs, namely the Saarc and the ECO. However, with the exception of Afghanistan, no other member of these two blocs is among Pakistan's top 15 export partners. Similarly, none of our major buyers is from, Central Asian Republics, Oceana region, African continent, Europe excluding the EU or South America.

Export diversification offers a number of advantages. - However, on account of a narrow export base, Pakistan cannot utilize the same. First, export diversification is a safeguard against price fluctuations.

If a country has a narrow export base and relies on a few products, reduction in unit price of those commodities may adversely affect the monetary value of exports. However, if a country exports a large number of products none of which has a major share in its total export earnings, reduction in international market price of a few export items will not much affect the monetary value of its exports.

Secondly, export diversification protects a country against demand fluctuations in international markets. In case 'a country exports only to a few markets, reduction in demand for its products will substantially affect the volume of its exports.

This possibility looms large when political relations between importing and exporting countries worsen or the exporting country's image in the importing country deteriorates.

However, in case a country has a large number of export markets none of which contributes a substantially large portion to its total export sales volume, the repercussions of fluctuations in international market demand can be minimised.

Thirdly, diversification is a check against market saturation. A country with a limited number of export markets and products may experience a reduction or stagnation in its market share if the markets become saturated.

Fourthly, diversification is an effective strategy against product life-cycle. The four stages in product life-cycle are introduction, growth, maturity and decline. Profits and sales are highest when a product is at the growth stage.

Conversely, when a product enters the maturity stage, sales and profits fall leading to the decline and replacement of the product. What is important about the product life-cycle from export point-of-view is that the same product can be at different stages of life-cycle in different markets.

Take. the example of mobile phones. This product is at growth stage in Pakistani and many other developing countries' markets. However, it is in the maturity stage in the markets of the USA and the EU.

One advantage of having a large number of export market is that the same product may be at different stages in different markets. Thus fall in sales and profits in a mature market can be counterbalanced by increase in sales and profits in a growth market.

Finally, diversification is an effective weapon against problems in supply chain. Suppose a country's export earnings are heavily dependent on textile products. However in a particular year there is a bad cotton crop, and raw material needs for textile products cannot be adequately met from the domestic market.

To overcome this problem, the country has to import cotton. However, imports may not be supplied in time or supplied at a higher price, which may make the final product expensive or less price competitive. In either case textile exports will be seriously affected, which in turn will substantially reduce the country's total export earnings.

Pakistan's exports are open to all the risks associated with. lack of diversification. Take lack of product diversification first. Textiles make up nearly 64 per cent of the country's exports.

Textile trade has so far been subject to quantitative restrictions or simply quotas, which ensures a specific share of Pakistani products in the markets of North America and the EU.

However,, under the Agreement on textile and clothing (ATC) of the World Trade Organization (WTO), all quotas will be phased out by December 31, 2004 and from January 1, 2005, there will be open textile trade.

It means our textile exports will face competition from other textile exporters, particularly ~our neighbours India and China. Both these countries are more price competitive than Pakistan.

Hence, successfully facing competition from textile exporters of India and China will be a big challenge for our exporters. Countries or firms can compete, on the basis of either price or quality.

Since price wise both India and China are more competitive than Pakistan, the only way Pakistan can maintain or increase its market share in textiles from 2005 onward is to produce better quality products, which is a big task.

Since Pakistan's exports are largely comprised textiles, loss of market share in this category will struck at its export performance. Moreover, our economy being agrarian is overwhelmingly dependent on nature. A bad cotton or rice crop simply means a big shortfall in total export earnings.

Now take lack of market diversification. The EU and the USA are the two largest buyers of our exports. Since political and economic relations go hand in hand, deterioration in our political relations with the USA or the EU is likely to affect trade relations with them.

In particular relations between Pakistan and the USA are inherently instable. Another relevant factor is national image. Bad national image, particularly in the context of fundamentalism, terrorism or human rights abuse, may cause consumers in the EU or the USA to reduce purchases of Pakistani products.

It follows that we need a broad export base in terms of both products and markets. Instead of relying merely on what are called core or traditional products, avenues for the export of other products, such as engineering goods, furniture, cutlery, furniture and gems and jewellry, need to be explored. This should be accompanied with search for new markets.