EDITORIAL: Good things have already started coming out of the Karachi Chamber of Commerce and Industry's (KCCI's) initiative of organising a series of webinars to promote trade and cooperation with countries all over the world. In the first webinar, which was held in collaboration with the Pakistani consulate in Shanghai, China, our consul general there pointed out the rather obvious fact that our exports to China consist mostly of raw materials whereas the market there is ripe for value added products. And he backed his argument with numbers, which must have made everybody realise just how badly we have misread one of our most prized export markets. It turns out that raw material like copper and other articles worth $551.2 million along with cotton yarn and fabrics of about $351.95 million were at the top of our exports to China in 2019, whereas value-added products like knitted and woven apparel fetched a paltry $47.49 million and $31.38 million, respectively. He also pointed out that the Yangtze River Delta (YRD) region, which includes a good four provinces and contributes the most to Chinese GDP, is the perfect market for Pakistani exporters to turn their attention to before it is completely taken over by other players.
It seems everything is just about right for Pakistan to begin adding more value to its export basket. There is a large market, practically next door, and the government there will even grant us some sort of trading concession if we ask them seriously enough; just like they grant and roll over all the loans that we need every now and then. There's just one piece missing from the puzzle. And that is that Pakistan simply does not have the kind of production capacity that can bring the kind of value needed to exports in time to take advantage of such opportunities. Even if the long process of turning around manufacturing and then exports starts tomorrow, it will at least be a few electoral cycles before any results can be seen. That is why most governments, after making all the usual noise about the need to overhaul the export industry, opt instead for high visibility projects like motorways and power plants because they tend to fetch more votes at the polls. That way they not only overlook a very crucial way of increasing revenue but their vote baiting mega projects also add to the overall debt.
Yet something will have to be done about exports or the country's dependence on debt will never be overcome. This government seems to understand this problem very well that is why it is trying to revitalise sectors with export potential and offering incentives like tariff relief for industries. But sooner or later it will have to accept the International Monetary Fund's (IMF's) conditions and raise the electricity tariff which will burden everybody especially households. So welcome as these steps are they will have to be taken alongside a deeper restructuring of the entire production and export sector. And the time to do it is now since no other source of revenue is going to do the job in the long run. A bulge in remittances helped pushed the current account into green just recently, but the World Bank has calculated that this spike would last only till 2023, after which we can expect a disturbing decline. Tax earnings, on the other hand, cannot be expected to improve substantially till the long process of Federal Board of Revenue (FBR) reform is first initiated, then carried out, and then completed; none of which has happened so far.
So exports must lead the way and the government does have a small window to get the ball rolling while the rest of the world is still reeling from the coronavirus, international trade is somewhat subdued, and there is an opportunity to capture fresh markets. Oil prices are also low, and looking to drop further, which should provide us with some additional fiscal space. The government must see where we need to add value to our exports in terms of potential buyer markets, and then provide direct help to specially selected sectors. And it must act quickly because half its term is already over.
Copyright Business Recorder, 2020
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