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Razak Dawood the Advisor to the Prime Minister on Commerce in an interview to a foreign news agency last week acknowledged that he is pushing the government to bet big on export industry adding that “people in this country don’t understand what the importance of exports … export-led growth strategy (is).”

Dawood was not asked nor did he define who were the ‘people’ he was referring to however as an unelected member of parliament one may assume that he was referring to members of the largest ever cabinet in the country’s history and/or the civil service engaged in preparing summaries/policy proposals for the Economic Coordination Committee of the Cabinet (ECC), the highest economic decision making in the country.

The general public no doubt did not enter the equation as they are neither major exporters nor importers though prioritizing and disbursing hundreds of billions of rupees of incentives to exporters is from the taxpayers’ money.

Those ‘people’ who may not have understood the importance of export-led growth strategy it is relevant to define it as speeding up the industrialization process by promoting exports of those commodities for which the country has a comparative advantage. And this strategy was very successfully implemented by Germany, Japan, East and Southeast Asia, way back in the 1950s and early 1960s – soon after the end of the WWII.

Ignored by old school thinkers is that an export-led strategy also requires opening domestic markets to foreign competition in exchange for accessing their markets. The key question therefore is whether this is doable in Pakistan given the existing state of industrialization in general (Dawood contended that Pakistan’s all important textile industry is at the centre of export-led growth) and the state of the economy in particular.

There are five major persisting lacunas in the success of such an export-led growth strategy today: (i) industry in Pakistan is still considered in a nascent state and there are serious concerns that after the establishment of export processing zones Chinese companies may have a greater advantage than local firms under the umbrella of the China Pakistan Economic Corridor that would sound the death knell of many local companies; (ii) fiscal and monetary incentives to exporters, not unique to the Khan administration, continue but as the utilities sectors have reached a critical stage in terms of debilitating financial constraints (particularly the energy sector) the need to subsidize utilities has been added onto the list of incentives to promote exports.

This in turn has raised the energy cost to the very taxpayers whose money is being used to subsidize industry; (iii) textile sector has been subjected to quota restrictions and other Non-Tariff Barriers (NTBs) by our major international buyers.

One reason for the upsurge in textile exports is due to the grant of GSP plus status by the European Union to Pakistan, effective 12 December 2013 in the aftermath of the devastating 2010 floods, a deal that was reportedly brokered by Punjab Governor Mohammad Sarwar (he also played a critical role in its recent extension till 2024); once it expires textile exports will come down unless export market diversification is successful; (iv) an Economic and Social Commission for Asia and the Pacific (ESCAP) study notes that “Pakistan’s global share in textiles has declined significantly since 2010 and it relies heavily on a few international markets such as the United States, China and the European Union.

Turkey was found to have the highest number of NTBs targeting textile products, followed by the United States. Additionally, not only do countries importing Pakistani goods impose NTBs, Pakistan’s own export procedures also hamper the trade. Interviewed exporters mentioned that they face difficulties in the costly and time-consuming acquisition of certification, whereas Government officials claimed the certification process improved competitiveness.

Exporters also complained about the high cost of doing business, which results in the shifting of exports to China, Bangladesh and India;” and (v) significantly unlike in other countries including our regional competitors China and India where a weakening currency promotes exports the massive Pakistani rupee depreciation has not made our exports more competitive. There is an urgent need to undertake a study to determine if such a linkage exists.

Dawood’s claim that exports have risen dramatically by 24.7 percent in the first half of 2021-22 with the country achieving the highest ever exports of 25304 million dollar exports in 2020-21 (textiles at a whopping 60 percent) needs to be looked at in the context of: (i) percentage rise is due to the extremely low base last year when exports registered 21,394 million dollars; (ii) 25304 million dollar exports compare slightly better than the 25110 million dollars in 2013-14 however imports at the time were 45073 million dollars while last year imports shot up to 56380 million dollars; and (iii) recent rise in exports is in value terms due to a rise in the international price of our major export items that in turn is attributed to Covid-19 and not to a quantum rise.

Dawood is also on record as stating that the Commerce Ministry cannot take responsibility for the bulk of the country’s imports, which is perhaps why he doesn’t tweet import figures, mainly because: (i) petroleum and products constituting around 24 percent of all imports are not within the purview of the Commerce Ministry - a claim that bafflingly ignores the fact that these items are major inputs to industry in general and our traditional export items in particular; (ii) cooking oil which again reflects the inability of the government, past and present, to establish domestic cooking oil industry able to meet domestic demand; and (iii) recent rise in food imports notably sugar and wheat which is attributable to flawed farm policies of the incumbent government though one would have assumed that Dawood as a member of the Cabinet should have taken responsibility for flawed policies.

One would have hoped that as Advisor to the Prime Minister Dawood had kept abreast with new trade strategies on the market and known that an export-led growth paradigm has been replaced with import substitution industrialization paradigm because by developing industry to lower dependence on imports (instead of gloating that machinery and raw material imports have risen which would fuel exports) a country can lower dependence on developed nations (as in India’s case) which in turn would allow for the possibility of actually implementing the recently released national security policy that has economic independence as its major pillar.

Copyright Business Recorder, 2022


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