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Going East, a tough option

September 09, 2002

President Pervez Musharraf has exhorted Pakistani exporters and investment seekers to go East, including China which is making rapid strides in the development of its economy along with soaring exports.

Of course, that is the normal course for Pakistan to follow in its determined bid to expand its exports beginning with $10.1 billion from $9 billion last year. But the handicaps that stand in the way of a radical increase in exports to the Asian tigers are the sane as those that deter us in exporting far more to others.

The President is not the first Pakistani leader to ask our exporters to go East. Benazir Bhutto as Prime Minister who was impressed by the remarkable economic performance of Malaysia issued strident calls for Pakistanis to go East. After that she visited several East Asian countries. But the trade did not increase substantially after that and then followed the East Asian economic meltdown of 1997-1998 with its repercussions the world over.

Complicating the issue further is the persisting economic recession in Japan, which has continued for over 12 years’ after what the West describes as Japan’s economic bubble. Several stimulus packages by the Japanese government have not been persuading the ultra cautious Japanese consumers to spend more and re-float the economy.

The president says ruefully that around 1960 Pakistan stood very close to China, Malaysia and South Korea in respect of their annual exports of one to $2 billion. But China has now an astronomical export figure of $240 billion and South Korea which has joined the rich man’s club of OECD, $150 billion or so. The reason he said was those countries concentrated on high tech industries, engineering goods and small and medium industries. We are making a significant beginning in that direction now after modest performances earlier.

Pakistan has come up with an engineering vision for 12 years at the cost of $10 billion. But when we rely on exports of engineering goods what is absolutely important is the quality of the products, their precision, their durability and clearly competitive prices. For that the engineering industries need real R&D and full use of the research to improve the end-products to increase their marketability.

For want of these qualities in our engineering products, Pakistanis prefer Chinese products in the areas of water equipment, electrical equipment, which are marked for their quality and competitive prices.

But what matters is the zeal and dedication of the private sector in opting for the development of the engineering sector and also make quality products at attractive prices and it is the duty of the government to help them develop such products and sustain them. Meanwhile, they have been advised to stay in touch with the research institutions in the country and higher educational institutions which too are expected to reach out to the private sector.

The deeply rooted or wide spread belief that foreign goods are superior to Pakistani goods must be rooted out through the positive merits of the Pakistani products and a certain pride in patronizing our own products. The exporters have also to be truly enterprising and explore new areas and markets for new products in familiar areas and earn far more by exporting value added products. We have the best of political relations with China, and Beijing wants to help us in every way, even by buying large volumes of goods which it may not necessarily need. But the trade exchanges are a sorry story. In 2000-2001 Pakistani exports to China were Rs17.7 billion but imports from China were Rs30.6 billion.

The situation has improved from what it was in 1990-91 when exports were Rs1.36 billion and imports were Rs8.6 billion. The increase in volume could also reflect the devaluation of the rupee but our exports to Hong Kong which we use as a store house for re-export were Rs2.95 billion while the imports were four billion.

The exports to South Korea in 2000-2001 were Rs16.3 billion while the imports were Rs20.8 billion. The exports to South East Asian countries in 2000-2001 were Rs19.3 billion while the imports were Rs66.3 billion. With Malaysia we have a large deficit because of import of palm oil; in 2000-2001 our exports were Rs 2.8 billion while the imports were Rs 19 billion. Similarly with Singapore the exports in the same year were Rs2.8 billion while the imports were Rs19 billion.

It is only with the Saarc states that we seem to have some kind of balance with exports in 2000-2001 as Rs15.7 billion and imports as Rs18 billion and with Sri Lanka we have a favourable balance of two to one and even better is the case with Bangladesh when the exports in 2000-2001 were $7.8 billion and imports were $1.9 billion.

The President wants Pakistan to have trade agreement with China as with Sri Lanka and Bangladesh. But China is a fast developing country which is able to export a great deal to the world ($240 billion) and it may soon be the strongest economy in the world. It has certainly been able to maintain a stable currency defying the East Asian economic meltdown of 1997 and defying the dire predictions of the western financial experts.

And it has been investing a great deal in modernizing and expanding its textile sector and becoming increasingly self-sufficient in cloth. It may be difficult for Pakistan to have a free trade agreement with China unless that comes in phases or on the basis of selected products. Mean while Pakistan has to make determined and sustained efforts to modernize and upgrade its industrial sector particularly with emphasis on exports.

For that the industrialists ought to have cheaper electricity along with a steady supply of oil and water they need. If the inputs cost more, the output will cost far more and that includes the high interest rates. The labour should also be more disciplined and more productive to enable the export engine to move more smoothly.

Industries Minister Razzak Dawood now talks of a chemical vision,following the engineering vision. But all these are official visions with the blessings of the top men of the private sector. But what really masters is how the public sector makes it a lasting reality. Without that going east may be as frustrating as going west or south.