Exports hurt by lack of value addition

Speaking at a seminar organised by the Centre for Rural Economy (CRE) of the Planning Commission in Islamabad on 17th May, 2018, Dr Azeem Khan, Member Food Security and Climate Change, highlighted another dimension of the country's exports, saying that Pakistani exports have not been able to enter in high-value market and fetch good returns due to lack of value addition in exports and describing it as one the factors of the country's balance of payments problems. "Value addition in Pakistan currently is around 2-3 percent, but ideally it should have been around 12 percent to find a place in high markets with good returns," he stated. All that we know is that these are huge challenges although some positive signs were seen in terms of growth level achieved during the last few years. "But if we want to compete, we are far behind and need to produce in a competitive manner what we are producing," Azeem Khan added. While Pakistan cannot have viable and ideal products, value chain was another challenge. The country is always struggling to export raw materials at very low cost. It was not possible to have presence in high markets and get higher prices and that is why the country is confronted with balance of payments issues. Another speaker said that sustained growth, economic development and poverty reduction were vital for the economic, social and political viability of Pakistan and the achievement of these goals was constrained by near absence of an effective national strategy and public policy, manifested in a pervasive lack of necessary infrastructure, well-functioning institutions, profitable opportunities and skill-oriented capacities.
Although enhancement in the economy's productivity and the right/competitive exchange rate of the currency are believed to be the major factors behind the expansion in exports, yet the observations of Azeem Khan and his emphasis on value addition, in our view, also deserves proper attention by the policymakers. This is especially so when stagnation in value addition in the export sector had become one of the key challenges facing Pakistan and causing balance of payment problems. It is very sad to note that value addition in Pakistan is merely a 2-3 percent at present instead of 12 percent ideally required to secure a place in high-level markets offering good returns. The country is generally constrained to export low-cost raw materials instead of creating an efficient enabling value chain with back and forth support to related products. This could be one reason why during the last few years, Pakistan's exports have either stagnated or recorded a negative growth. Although exports have posted a double-digit growth during the current fiscal after a long period of 7 years, this is mainly attributed to the export package of Rs 180 billion, improvement in energy supplies, recent depreciation of the rupee and a significant recovery in the global commodity prices. No mention is made of improvement in quality of the exportable products which could fetch handsome returns and help diversify the export markets. This could not be done in the absence of a necessary environment. Some of the factors which are very important for value addition include sound educational background, practical research, high level of skills and dedication to work, adequate investment, availability of venture capital and abundant entrepreneurship. Pakistan also lacks the necessary infrastructure to innovate and move ahead. It could be argued that value addition is a difficult proposition in a country which has been even unable to diversify its markets and products at the international level for a long time. However, as highlighted by Azeem Khan, we cannot belittle the role of value addition in this modern age to expand our exports. It needs to be mentioned that Planning Commission is about to finalise its 12th Five-Year Plan and it would be in the fitness of things if it devotes enough resources to give the needed attention to this issue.