Our country in general and our bureaucracy in particular have a strange bias against exports and a particular preference for imports. Wherever exports are concerned, roadblocks and difficulties shall be created to deter a business from exporting Pakistani products and produce.
“Where is the export surplus?” We are asked regularly by otherwise knowledgeable persons in authority. As if the exporter of sports goods will first produce half a million footballs, store them in a gigantic godown and then approach the organizers of the World Cup to try to sell them! A grower of tomatoes must first produce tons of tomatoes, store them, and then make an effort to sell them.
Meanwhile, they’ve rotted! However, the grower of tomatoes is sure that once he has developed a foreign market for his tomatoes, and there is the whiff of a shortage in Pakistan, exports of tomatoes will be banned!
Similarly, imported products are shown a marked preference by our consumers. They are also facilitated by the authorities. Imports and importers flourish even in periods of grave shortage of foreign exchange and our government makes every effort to flog our self-esteem and sovereignty to borrow billions of dollars to import cars, chocolates, pineapples and toys.
The SBP (State Bank of Pakistan) has issued FE Circular No. 1 dated January 5, 2022 in terms of which the period of realization of export proceeds has been reduced from 180 days to 120 days. Then the State Bank comes up with penalties for delayed payments of exporters.
This is Circular No. 02 dated 31st March 2023. It states that if an exporter does not receive payments for his exports within the stipulated 120 plus 15 days he shall be fined progressively. The fine is 3% up to 30 delayed, 6% up to 60 days delayed & 9 % beyond 60 days.
If for example there is a bad debt or a default by his customer then he not only loses his money but also lands up in jail U/s 12 (1) of F.E.R., 1947 Acts read with foreign exchange rules 1952 & notification No. FE 3/2001-SBP Dated 28-09-2001, which is punishable U/s 23B (4) of the said Act. First the firm suffers a bad debt and then the CEO lands up in jail.
Are we pretending that in business there are no bad debts or defaults? Exports like any other sales are often made on credit terms and thereafter the buyer pays within a certain stipulated period. Sometimes he may be delayed in his payments. When business or sales are slow, this happens very often.
Payments are often delayed and the supplier has to live with this. Are there no defaults, bad debts or delays in domestic trade? Pick up the balance sheets of most large companies and you will find bad debts and defaults. Government-owned bodies themselves are in huge default and have accumulated gigantic sums threatening to drown our economy by their scale.
Witness the circular debt, which has been built up by successive governments.
Pakistani exports of non-traditional items and to non-traditional markets are particularly susceptible to default. Our country has a bad reputation abroad for quality products. Our standards are often lower than those of the developed countries.
Moreover, the exporting industry is developing and finding new markets. To overcome the reluctance of buyers when buying from Pakistan for the first time the exporter often resorts to credit.
“Pay for the goods after you have received them,” he offers.
For some deals things may not go smoothly. For example, the consignment may not come up to the expectations of the importer. When he asks for a discount, the exporter cannot allow this legally unless he goes through the rigmarole of an unsympathetic State Bank bureaucracy.
First apply to them, explain to them the reasons for a discount and then, and if they so permit, which they never will, allow the reduction in the invoice. Meanwhile, six months, if not two years, will have elapsed and the whole consignment will have become out of date or rotted. The godown rents will have totted up and in any case, businesses do not have time to suffer such delays.
I will state a personal example. My company had exported towels to a customer in Sweden. When my customer received the goods, I got an SOS from our agent saying that there were stains on the towels.
Since it was a large shipment and this was potentially a very important customer, I took the first flight out to see things for myself. I found that the scotch tape used to seal the polybags was defective and had imparted a stain on the towels through the polybag. There was a stain on every third towel. (They were packed in bundles of 6 and so the top and bottom ones had a small stain.)
What do I do?
Settle a discount with the customer and get on with my life, or go back and battle it out with the authorities for the next six months and forget about the Swedish market for my company. Meanwhile, Pakistan gets a bad name too.
In businesses, as in life, there is always the unforeseen. The private sector including the exporters should be left to fend for themselves and they will do a better job of it than the huge bureaucracies we have built up to govern them. These laws emanate from a fear that if allowed, Pakistanis will transfer all their money and savings abroad! A realistic fear perhaps. The cure for this is not to make more and more rules to regulate foreign currency transactions, but to make it worthwhile for Pakistanis not to flee their country.
We are now effectively operating a dual exchange rate system. There is the “interbank rate” which is where all official export earnings and remittances are converted to the Pakistan rupee. This is hovering at around Rs285 to a US Dollar. Then there is the “open market” rate, which is at Rs305 to the Dollar.
If you are an exporter what would you prefer? If you are sending money from abroad to assist your family living here, what would you prefer to use? The choices are obvious. Why are we making open invitations to exchange rate violations and sabotaging those who prefer to operate within the ambit of the law? The answer to all these issues is that the State should allow its citizens to get on with their lives and livelihoods. The more it interferes the more of a mess it makes.
Copyright Business Recorder, 2023