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BR Research

Interview with Abdul Razak Dawood, Adviser for Commerce and Investment to Prime Minister

‘Export growth and tariff rationalisation are key objectives this year’ In his latest interview with BR...
Updated 31 Jan, 2022

‘Export growth and tariff rationalisation are key objectives this year’

In his latest interview with BR Research, Abdul Razak Dawood – the Advisor for Commerce and Investment - talks about the status of exports and the challenges that lie ahead; the need for diversification in exports; and thefederal government’s objectives in boosting exports. Below is the edited transcript:

BR Research: with the gas crisis in the country, where do we stand on the exports front?

Abdul Razak Dawood: As far as the exports are concerned, we have been on track till Dec 31, 2021. However, the challenge has now come because of the gas situation. The gas crisis is definitely affecting our exports now, but it’s difficult to say by how much at the moment. It will certainly not show up in January figures, but will start showing in our March numbers. My estimate is that there is 20 percent production loss.

If we take a five year horizon, we have to reduce our dependence on textiles. Worldwide, textile exports are only one trillion dollars. On the other hand, engineering is $5 trillion; chemical is $4 trillion; and IT is $5 trillion. We have to shift our focus to these areas. To me, the success of our exports-driven growth strategy is how well we are doing on diversification.

The next question is what are we doing about it? Our traditional products like rice, textile, leather, carpets etc., going to our traditional markets like EU, USA and China, are growing by about 15-20 percent. Our traditional products to non-traditional markets are growing by 4 percent. Non-traditional products in traditional markets have gone up by 81 percent, which means there is a shift. Non-traditional products in non-traditional markets are up by 100 percent, but these are small in volumes. Exports will get a big boost if we can keep this up with no disturbance and persistence over the next 5 years in following the diversification policy. We are on the right track, but there is a long way to go.

BRR: So after textile, what is the next big ticket item for exports from Pakistan?

ARD: It is definitely information technology. IT grew by 47 percent last year, and we have given them a target of minimum 50 percent growth. IT exports will have to grow by at least 50 percent for the next 5-7 years to challenge textile’s supremacy.

Then I believe the Pharmaceuticals are also doing well. Our prices are ideal for Africa, and then come the engineering and chemicals. And then, one segment that I must admit has not been given due focus is fisheries. International ships come and take away our products; I am trying to sit with the State Bank’s Governor for a special funding for our local players in fisheries. The other segment that is moving well is our fruits and vegetables.

Another element of diversification is the geographic broadening where we need to look at Central Asian Republics and Africa. We are now giving higher incentives to the exporters of traditional and non-traditional products going to non-traditional markets like Africa, Latin America, Central Asia, etc. Our exports to Central Asian Republics for Jul-Dec 2020 were $40 million. In 2021 (Jul-Dec), these have shot up to $120 million. We still don’t have all the agreements in place, but goodwill and our efforts have resulted in the jump in exports to the region.

By nature, Pakistanis are not long term players. But if we want to excel in exports, we need to stick to our strategy and long term planning.

BRR: What are you doing on the import side?

ARD: Another thing that I am trying to do to complement the export growth strategy is rationalise the import tariffs.

The higher the duty you put at the import stage, the bigger the anti-export bias. In the western world like Europe, USA, Japan, the total revenue they raise at the import stage is only 5-7 percent. Whereas, we get around 50 percent of our revenues at the import stage, because FBR doesn’t want to reach out to all the stores in the country and get their Sales Tax. Ministry of Commerce has done all that it could do by reducing the duties on raw material of textile, footwear, pharma etc.

Another big ticket item that I want to focus on this year is iron and steel, and I want to reduce the duties on raw material for this sector too. I want the prices to go down. Another area we want to rationalize is packaging. There are so many areas for packaging be it pharmaceuticals, food, garments etc. that can be rationalized.

BRR: What else are you focusing on in this year to increase trade?

ARD: Export growth strategy and tariff rationalisation are our two key objectives this year. The third is a sectoral financing facility. Temporary Economic Refinance Facility (TERF) was a brilliant incentive scheme for the exporters by the central bank, but the disadvantage was that it had no sector restrictions and 50 percent benefit of the scheme was taken by the textile sector. I am now talking with the State Bank that let’s have a sectoral refinance scheme.

Which areas should the funding scheme is launched for? If we want regional connectivity, we have to give funding to our trucking industry. The trucks that I saw in Uzbekistan and even Afghanistan are better than ours. We have to upgrade trucks and freight fleets. Second area that I already mentioned earlier is our fishing trawlers. Third one is a difficult one: ginning. The way Pakistan runs ginning is not an industry but an extension of trading. We have about 1200 ginning factories out of which 600 are operational. What we really need is 200 ginning factories with proper quality controls. Australia that produces almost as much cotton as Pakistan has 28 ginning factories only. I want to send some local ginners to Australia to see their ginning factories; their operations, processes and quality controls.

These are the three areas we want to focus on. We are waiting for the IMF to get done.

BRR: Tell us what prospects are there for smartphone exports now that Pakistan has started assembling mobile phones locally.

ARD: For me, the smartphone policy has been a wonderful policy. It’s not about local mobile manufacturing; it is local mobile assembling at the moment. We bring in the Semi Knocked-Down (SKD) condition, and assemble it here.

The advantage: you create hundreds and thousands of jobs. We can clearly see that the import of Completely Built Units (CBU) units is going down and locally assembled are going up. These local assemblers want to wait another few months before they can start exporting.

We have brought the raw material prices down by rationalizing duties. One thing that we didn’t do deliberately is bring down the duties on finished goods. But now in this budget, I am going to start bringing down the duties on finished goods. I’ve got to decide which two or three industries would have that. For example, I am thinking refrigerators, some areas of textile, iron and steel.

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