Freight subsidy: a step in the right direction

Recent research published in the Pakistan Business Review concluded that there is complimentary relationship between export growth and productivity in the country; i.e. Improvements in one directly benefit the other.
Unfortunately, academic research has traditionally been far removed from policy decision making. There is no evidence that the gap is narrowing but an alignment of policy and research, albeit coincidental, is a refreshing change.
The central bank recently announced a subsidy on inland freight to manufacturers in regions that are far away from the ports. Pakistans geography inhibits the competitiveness of factories in the North of the country. In a sense, the subsidy provides a level playing field to all involved in export based industries.
Initially, it was the cement manufacturers in the North who felt marginalized because of their manufacturing plants location, but the subsidy has been extended to a host of other sectors as well. Cement manufacturers will receive a 35 percent break while other sectors are scheduled to be relieved of 50 percent of their freight expenditure.
The procedure for manufactures to redeem the subsidy involves a rather cumbersome, yet necessary process of documentation that must go from manufacturer to trade association to TDAP and then to the central bank before it will reimburse the subsidy amount.
Control measures must be tight as a massive misuse of Pak-China FTA was recently uncovered. Importers were submitting fake certificates of origin to clear non Chinese made good from Pakistans ports. The government can ill afford such lapses as they cost the economy dearly.
Industry participants, including Sultan Ahmed Chawla, President FPCCI, welcome the subsidy. Chawla is of the view that bulky items, such as cement and marble that are freight heavy, will become competitive as a result of the subsidy.
His opinion echoes in the halls of Karachi chamber of commerce. Appreciating the governments decision, Vice President KCCI, Rasheeduddin Rashid points out that many of Pakistans indigenous exports were low value and that encouraging exports would open up new sectors. "Development of remote areas of the country would be aided as a result of the subsidy," says Rashid.
Going a step further, there is a need for a subsidy on container freight as well to make international shipping of Pakistani goods more competitive. Rashid says that since exporters contribute to the export development fund, the government should reinvest the money in areas that would boost trade competitiveness of the country.
Whether or not the government is going to extend its relief to international transportation as it did to domestic freight is a question only the authorities can answer.