In pursuit of exports

BR Research July 26, 2019

Resolution of Pakistan’s perennial macroeconomic woes depends on growing exports and sustaining them on a high level. Almost everyone in the policymaking community recognizes that. The business community is also seen harping on the need to multiply exports and for incentives required thereof. Yet, several inter-linked factors continue to exist and hamper the objective of growing exports. It is time to have a holistic discussion on this issue and address the inter-dependent variables across the economy.

Firstly, Pakistan’s economic governance still favours tax collection over business outcomes. This behaviour gains intensity during economic stabilization, such as the current era. When import tariffs are revised every year with a view to increase tax collection rather than ensure lower input prices for importers-cum-exporters, it leaves little room for value addition. Then there are unintended consequences; for instance, the July 2018 ban on advance payments for imports has apparently affected exporters more than the current account deficit. The now-qualified ban doesn’t seem to address genuine exporters’ concerns.

Secondly, policy coordination has been missing. But don’t blame it on exports being cross-cutting in nature. Several economy-facing ministries – such as Commerce & Textile, Industries & Production, Planning & Development, Power & Petroleum, Water, Science & Technology, Food Security, Maritime Affairs, etc – develop their own policies that affect exports but they don’t necessarily coordinate with each other. An Export Coordination Council is badly needed, with federal and provincial ministries on board.

Thirdly, public and private stakeholders still fail to demonstrate a reasonable appreciation of the central role that a country’s “quality infrastructure” can play in enhancing the scale and scope of exports. The Ministry of Science & Technology, under which three national bodies relating to quality standards, accreditation and calibration have been operating for decades, does not seem to have an influence with other economic ministries to the extent that it can affect export-related policies.

Meanwhile, in a serious conflict of interest, the public sector is running its own production certification programs, testing labs and inspection facilities. These facilities suffer from technical and human capacity issues; therefore, it is no surprise that many countries demand Pakistani exporters to secure quality-related compliance from overseas labs. Then there are exporters who treat “quality” as a cost rather than an investment, resenting compliance-related procedures, fees and delays.

Fourthly, despite Pakistan’s inherent comparative advantage lying in agriculture, the federal and provincial governments have yet to take steps that help realize some of that potential. With policy focus skewed towards major crops, what has been repeatedly ignored is raising the capacity and productivity of small-scale players in fruits, vegetables and fisheries sectors. Donors can give advisories on value-chain development, but it is the government’s job to implement targeted horizontal and vertical interventions.

Even within major crops, promising sectors have been ignored. Rice, which is Pakistan’s largest export commodity outside of textile, has repeatedly suffered from policy indifference. As a result, share of high-value basmati rice has been on a consistent decline over the past decade, while others such as wheat and sugar have increasingly become subsidy-dependent due to perverse politico-economic incentives.

And lastly, little if any discussion happens of inherent weaknesses in the existing export-oriented businesses. One aspect is that sectors like garments fail to attract top marketing talent from top business schools. This is primarily a function of cost-thrift attitudes of seth-led firms; but it reflects itself in poor ability of garment exporters to compete in developed markets. And the other aspect is the relative attractiveness of domestic consumer market for the textile bigwigs, resulting in a loss of export focus.

In conclusion, the next time a minister, economist or chamber president starts ranting on the need for raising exports, perhaps they should be reminded that exports is a complex phenomenon, not a linear equation with two variables and a constant.

Copyright Business Recorder, 2019

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