Pakistan’s basket of goods in terms of exports and imports has not changed significantly. (Read “Nothing much has changed”, published on July 24, 2018). Resource based goods are exported while valued added goods are imported. The changes that have occurred in the composition of exports, however, are more worrisome.
As countries transition up to higher income per capita and become developed, the contribution of the manufacturing sector to the economy increases, resulting in a higher proportion of manufactured goods as a percentage of total exports. Pakistan, on the other hand, has been witnessing a reversing trend.
In the last decade and a half, food’s contribution towards exports has nearly doubled from 10 percent to 19 percent in FY18. Within the food category, rice has been the largest contributor. But the share of premium-priced Basmati rice has declined over the years whereas the non-Basmati’s share has increased. The price differential between the two kinds of rice is nearly of 150 percent. (Read “Is Basmati the way forward”, published on June 26, 2018) Furthermore, non-basmati rice faces much fiercer competition than the high-end Basmati rice that is protected by IPR limited to this region. Yet its share has halved while non-Basmati rice’s share has increased by six times.
Exports of sugar as a percentage of total exports were at their highest point in FY18. This too at a time when global sugar prices have crashed downwards due to a glut in the market. Support price has been the primary incentive for cane cultivation despite the higher cost of production as compared to other countries. The export subsidy has prompted its growth in exports though it is a low-value water intensive crop.
Textiles as a percentage of total exports have declined by nearly 10 percent as food exports take up a bigger chunk of basket. Declining competitiveness and high costs of doing business is one part of the equation, lack of R&D and dependence on cotton when the world is moving towards synthetic fabrics, is another. Regardless of the reasons and the blame game that is played to account for waning global market for Pakistan’s textile exports, this downward trend indicates the country is moving away from manufactured goods. The one silver lining is the marginal increase in readymade garments as a percentage of total exports.
Chemical and pharmaceutical exports have doubled their shared since FY04 due to increase in plastics and other chemical exports. While this is one of the few positive movements witnessed in the country’s export composition, country’s nascent chemical sector and lack of a naphtha cracker means that further growth is not to be expected.
Pakistan’s exports composition is worsening. There are no movements on ground that could improve this trend other than stop gap measures such as devaluation and export packages that are band aids at best. Continuing down this path means a downward spiral into further debt and IMF programs.
Comments
Comments are closed for this article.