The central bank policy design is to make Pakistan an outward oriented economy by boosting exports and import competitive industries. The government’s intent is similar. But actions are not synced. In Jan-19, government had announced electricity tariff of 7.5 US cents per unit (all inclusive). In Jan-20, ministry of energy started charging add-ons to make the tariff at 13 US cents per unit, and it is being done in retrospect since Jan-19.
The SBP at one end is enhancing subsidized credit limits to exporters, government on the other is not able to remove frictions in refunds. There is a similar issue in tax credit on investment in plants and machinery. Investors are averse to uncertainty. They are getting options of investment abroad.
Bangladesh is getting traction of Pakistan textile exporters to startup venture there. Country’s Deputy High Commissioner is openly doing marketing to attract Pakistan investment in Bangladesh exporting sectors. There is nothing wrong in it. The point of concern is that Bangla tigers are hinting on securing an investment deal from a Pakistani operating textile player when Pakistan is focusing on export oriented domestic and foreign investment.
The investment of Pakistan players in Bangladesh started couple of decades back. Usually such investments are not fully documented. Earlier this week in an event in Karachi, Deputy High Commissioner announced that Pakistan businessmen are showing keen interest in investing in Bangladesh. He mentioned about Soorty Enterprise investment of $35 million (more than five years ago) has created over 6,000 jobs there.
Bangladesh is attracting investment based on higher points of competitiveness. The energy tariffs in Bangladesh and India are at 7.5-9 cents per unit. Pakistan policymarkets are finding it hard to keep the promise of keeping tariff at regionally competitive rates. Energy mess is too big and government is not attempting to correct the issues of capacity charges, theft (non-recovery) due to discos inefficiencies, and inadequate transmission and distribution networks.
The tariff policy in Pakistan is skewed towards revenue generation. New policy is aiming to reduce tariffs to zero in a staged manner (from 4-5%). But there are other taxes collected at import stage such as GST (17%) and WHT (10%). These are supposed to be adjusted and refunds are to be given on exports. But FBR has optimistic revenue targets and ministry of finance has stiff IMF target of primary fiscal deficit.
Pakistan needs to work on the internal mess. Exports should be single point of policy agenda. The target should be to take it up to 15 percent of GDP from existing 7-8 percent. The import substitution does not fit in the model. Exports create employment opportunities and earn foreign exchange.
For example, steel companies in Pakistan are planning on Hot-rolled coil (HRC) plants with a few hundred million of investment. The employment generation (direct) would be very limited. Plants will keep on operating on tariff protection. On the other hand, value added textile or other sectors create big employment. For example, $35 million investment by Soorty a few years ago is employing 6,000 plus Bangali workers today while an HRC plant would employ less people.
Pakistan as a nation has to develop export mentality. Bangladesh is doing marketing in Pakistan. What are our plans to attract investment in export oriented sectors?