Export growth is destined to remain weak

Defenders of faith have joyously celebrated the 24% jump in exports during March. To them this is confirmation that the steady decline of the last three years has bottomed out and things are now moving in the right direction.
What they are not telling us is how this small miracle happened. What exactly have been the factors underpinning this growth, and are they robust enough to maintain the growth trajectory? They have not put into public domain an analysis that might help us examine if this growth has been due to non-sustainable factors (such as firming up of global commodity prices; 'one off' exports of subsidized goods like sugar and wheat; perhaps an element of money whitening?) or sound policy initiatives that can be sustained.
There are only two 'pro-export' initiatives in public domain. Devaluation is too recent to allow an objective determination of its impact, even if one ignores the sound empirical evidence that devaluation not accompanied with genuine reforms does more harm than good. Our experience of repeated devaluations confirms that.
The jury is still out on the impact of the second initiative, the famed 180 billion rupee 'export package' of October 2017. It didn't go all the way - omitting packaging materials, for instance - but if this has been the driver is it sustainable? Will the state of our finances permit more of the same? Also, has the additionality of $1.8 billion been a good enough 'bang for the buck'?
It will be a pretty world if exports could fly on devaluation and 'packages'. Unfortunately, it is a tough world out there. No cozy relations or cartelization or friends in high places to help you there. You have to compete.
The problem with our export strategy is that all too often we prescribe pain killers instead of curing the disease. It is not that the government does not know what medicines will work. It is just unable to prescribe the right course of medicines because of the fear of 'side effects': contraindicative reaction of vested interests.
The total failure of successive (so called) strategic trade policies strongly suggests that the government is clueless. Notwithstanding the overwhelming evidence, we think otherwise. We are not sure if failure has been due to incompetence or intellectual bankruptcy in the Ministry of Commerce. We rather think they don't have the 'political strength' to counter the formidable opposition to their road map that threatens too many vested interests. You don't punch above your weight when your tool box has been hijacked and you are running on empty. 'Why get into a fight you cannot win' is not an illogical stance.
Fundamentals of robust export growth are fairly well known: exporters' input costs should not be higher than those of their competitors, there is need for higher import content in exports, you must get integrated into the global value chain, and FDI should flow into export-oriented industries.
Our tariff policy comes in the way of these fundamentals. Our high and multiple tariff rates, coupled with their cascading nature, translate into abominably high effective rates of protection. This serves to push exports out, make the domestic market far more interesting (albeit artificially), and discourage export-oriented FDI.
Astride the high tariff walls are the champions of procedures, making sure exporters do not sleep easy - unless they are willing to buy protection. Schemes like DTRE, Manufacturing Bond, Temporary Importation, were designed to take the sting out of the scorpion of import levies. They are not really working, thanks to the crushing weight of procedures. Refund claims, then, become the only game in town, and we know how that game ends. The real tragedy of non-payment of refunds has been the loss of government's credibility. This has eroded the moral case of government demanding compliance in areas like taxation and documentation.
But an anti-export tariff policy is not the only dragon in the room. The growing loss of competitiveness is the ultimate killer, even if it is aided and abetted by the tariff dragon.
In essence, export competitiveness is a function of productivity and managerial efficiencies, scale, policy support, trade infrastructure and trade facilitation. Pakistan scores low on all.
Productivity is a victim of education and health deficiencies of labour force combined with policy uncertainties, inadequate diffusion of technology, and a management style given to rent seeking at the cost of innovation and improved efficiencies.
Scale inadequacy is partly a legacy issue (permit raj) but mostly the outcome of a suffocating regulatory regime that forces you to 'stay below the radar'. You are obliged to resort to less efficient propositions like subcontracting. Economies of scale are understood but the maths is against it.
In matters of policy support, trade infrastructure and facilitation the enemy is within. Government policies are driven by 'suspicion syndrome'; a 'gotcha mindset'. Emphasis is on catching you rather than facilitating and solving your problems. Customs collectorates typify this. A small clerical error on your GD (goods declaration) can lead to your export consignment being withheld, despite your willingness to offer guarantees. Financial loss you can bear but not the loss of your buyer.
There were times when EPB was the friend effectively intervening with government agencies on behalf of the exporters. It will be unkind to say TDAP just does tourism, but, quite honestly, we don't have a clue what it does.
Those supporting high levels of protection rest their case on marginal costing: allow local manufacturing to thrive and over time they will build up sufficient surplus capacity to export on marginal cost basis. This is a weak one. In practice, you cartelize and produce below demand levels. The heavily protected automobile industry is proof enough. Also, don't forget the devil called anti-dumping (your export price cannot be lower than the domestic price). Clearly, it is a ruse to prolong their protection-based (tariff and non-tariff) good fortunes, as is their determined opposition to FTAs.
The world has learnt a lot from the experience of exporting tigers. In a nutshell, exports take wing only on the back of a commitment to export-led growth strategy. Nations that do not have such a strategy should not expect soaring exports. They should learn to live with an increasingly unmanageable current account deficit, unless they are oil rich or an attractive FDI destination or print the 'greenback'.[email protected]