Pakistan missed the industrial revolution. A decade after that mantra made rounds a consensus seems to be emerging: that manufacturing sector needs to be given the emphasis it deserves to ensure both economic expansion and labour absorption.
Earlier this year, the Pakistan Business Council (PBC) presented convincing arguments that manufacturing is a sin in this country. Be it due to faulty trade policies or tax, or other aspects of economic governance, manufacturing sector is taking the biggest brunt. Which is why LSM growth has remained weak for several years (save for FY17 onward), leading to a fall in Pakistan’s already fragile manufacturing exports. Consequently, foreign investors haven’t been eyeing Pakistan as a manufacturing hub for exports.
These very sentiments were echoed by Dr. Manzoor Ahmed, the president of Prime think tank and Pakistan’s former ambassador to the WTO. Presenting at a recent moot on trade policy organised by Prime, Dr Manzoor flagged that Pakistan’s share in world exports has fallen from 0.21 percent in 1980 to 0.13 in 2014. Over the same period, India’s grew from 0.43 percent to 1.7, Malaysia’s increased from 0.74 to 1.34, and Thailand’s rose from 0.37 to 1.35 percent.
Pakistan’s basket of exports has also remained little changed over the last 36 years. In 1980, Pakistan’s top exports included cotton, rice, soybean, textile fabric, garments, chemical and leather. By 2016, the basket of top exports isn’t changed, save for food processing replacing chemical and leather sectors. In contrast, Turkey’s similar raw and low value-added export basket in 1980 has graduated significantly with its top five items now including machinery, construction equipment and mining.
The underlying theme behind the arguments of Prime, PBC and other stakeholders is that global manufacturing has morphed into a value chain model, which is why over 70 percent of global trade is in intermediate goods. There is also a wider consensus that Pakistan’s weak trade facilitation, and wanting quality and efficiency of services is also responsible for falling manufacturing. However, this is where the agreements seem to end.
There is one camp, which the PBC champions, which demands a protection for those who want to Make in Pakistan. In a recent interview with BR Research, PBC’s CEO was very clear that Pakistan needs to provide protection to industries for a pre-defined period to allow them to gain scale and become competitive.
The second camp, championed by the likes of Prime, asserts that one of the key reasons why Pakistan has missed the GVC-led manufacturing growth is its irrational obsession with tariff and non-tariff barriers.
The first camp wants manufacturing growth through import substitution. The second camp maintains that equal importance should be given to imports, especially considering that Pakistan has significantly higher applied tariffs than peer economies and therefore she is much less integrated with the global economy.
Let the battle of ideas begin! Hopefully a consensus on at least broad principles will emerge out of this battle, because ‘unto your graphs, unto mine’ will only further the gap instead of bridging it. But if the consensus is not to be had, then let the battle lines of ideas be clearly spelled out to kick off further research and debates on the subject. May the best idea win!
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