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Providing impetus to domestic trade

September 23, 2012

CHINA is rolling out export-boosting measures and India is making similar moves. Pakistani exporters are waiting for a new trade policy framework which may offer something that they can rely on for competing with rival exporters.

Officials of ministry of commerce say the policy framework may be made public anytime soon.

It is not clear whether the policy framework would provide an impetus to domestic trade. Regardless of how soon it comes or whether it contains the kind of concessions that exporters are looking for, one must appreciate the resilience of the domestic trade.

“The private sector has kept domestic trading alive in a tough environment and with a little support from the government we can build upon it a new, forward-looking export strategy,” says an executive member of the Federation of Pakistan Chambers of Commerce & Industry.

Industrialists, importers, wholesalers, semi-wholesalers, contractors and sub-contractors, distributors and semi-distributors—and retailers of all size and shape—all are linked together under the countrywide web of business activities.

Business activity spread over this wide spectrum constitutes a big chunk national income and accounts for a sizable segment of the economy. In FY12, the retail and wholesale sub-sectors had a combined worth of Rs3.574 trillion at current prices or about 18.4 per cent of GDP.

And since transport, storage and communication services depend much on retail and wholesale sub-sectors expansion in the two segments is largely interlinked. The estimated worth of transport, storage and communication sectors was no less than Rs2.477 trillion in FY 12 or 12.74 per cent of GDP.

Expansion in these components of the services sector plays a key role in our overall economic growth as they cater to the needs of the domestic economy as well as external trade, which will be supported by and is dependant upon its growth. So, there is a clear need for improving the current state of these sub-sectors. Very little has, however, been done over the years in this regard.

“The government talks about retail sector only as a potential source of increasing its revenue,” according to Mr. Atiq Mir who leads a caucus of retailers’ lobby groups in Karachi. “It has never bothered to see what is required to facilitate this important segment of the economy.”

Nobody knows exactly how many shopkeepers cater to Karachi or Lahore or any city of our country. “There must be at least two hundred thousand retail outlets in Karachi alone,” says an official of Nestle Pakistan, Karachi, who oversees Nestle bottled water sales in the city.

In order to strengthen domestic trade, a beginning has to be made in the area of policymaking. In mid-2000s the ministry of commerce had held a conference wherein renowned economists and academics had identified issues that affected domestic trading. The list included issues in tax and tariff policy and regulation by federal, provincial and local authorities, urban zoning required for promotion of domestic trading, and the availability of land and space.

A document then commissioned by the ministry and authored by the current head of the Planning Commission, Dr. Nadeem-ul-Haq, had also pointed out that “retail is the front end of business activity. It has to be supported by competitive markets for wholesale, warehousing, real estate development, storage and transport etc. Growth takes place when specialisation occurs in each of these businesses and capital is clearly allocated to core business.”

Developing competitive markets for wholesale, warehousing, real estate, storage and transport not only requires allocation of resources but also strict enforcement of competition laws. And both are destined to remain elusive unless we change the paradigm of domestic trade from that of government-led to consumer-oriented.

Or, simply put, instead of trying to reinvigorate domestic trade through supportive government policies alone, efforts are required to increase domestic demand at the grass root level. . “We have to keep in mind consumers of all tastes and liking including both rural and urban consumers and facilitate growth in their demand,” say a researcher at Applied Economic Research Centre of Karachi University.

One now witnesses an accelerated movement of printed lawn-suits produced in Karachi and Faisalabad to the rest of the country; faster penetration of bottled water to hotels and eateries of even semi-urban and rural areas; rising sales of fine quality shoes made in Karachi and Lahore to elsewhere in the country; spread of chain stores offering processed meat, poultry and fish in big cities; growing interaction between rural and urban traders in relation to marketing of packaged rice and wheat products in cities and that of second-hand agricultural machinery in towns and villages.

“But lack of documentation makes it difficult to read into new trends and to build upon them,” says a mid-level official of Metro-Habib Cash & Carry chain of stores. “Both Macro-Habib and Metro Cash & Carry (when they had not merged) had prepared data bases of consumers’ spending and choices and we are now using them to get the benefit of the economy of scale.”

That domestic trade has been growing fast enough, despite all odds, is evident from the rise of the chain stores and super stores in major cities and now their advances towards medium-sized cities and urban centers.

But this has created tougher competition for smaller market players. Some of them have ended up as suppliers of the chain stores and super stores instead of working for organic growth of their own businesses.

However, this is true for a limited number of wholesalers and semi-wholesalers and the majority of them are very much in the old-fashioned business of top-down distribution of goods across the country.