Calling for a National Export Strategy

At a time when the government has set targets of $35 billion for exports by 2018, and commodity prices globally are bouncing back, exports have fallen by 12 percent in FY16 reaching $20.8 billion against $23.6 billion in FY15. This fall coupled with the increase in non-oil imports (9 percent) especially with an up tick in machinery and industrial item imports is pressing down hard on the current account.
Greater imports are not a bad sign since more non-oil imports indicate growth in the economy and industry, but continuously falling exports is evidence that subsequent trade policies are not working.
A perfunctory look at the PBS data shows exports for rice, cotton, cotton yarn, fish, fruits & vegetables, oilseeds, sugar, cotton cloth, knitwear, bed wear, towels, tents, silk and textile, carpets, sports, leather goods, footwear, cutlery, pharmaceuticals, electrical goods such as fans and cement have all fallen.
This column has at length debunked the notion that exports have fallen because of the falling trend of commodity prices since export in quantities have also fallen. In quantity, exports have fallen by three percent for Basmati rice, five percent for fish, 58 percent for sugar, 26 percent for tents and canvases, 6.65 percent for silk, 34 percent for gloves, 27 percent for leather tanned, 11 and 27 percent for leather garments and gloves respectively, 49 percent for plastic materials, 22.8 percent for pharmaceuticals and so on.
There may be some products that were impacted by global prices but a quick number crunching would paint a consistent picture of declining exports. Discounting for the fact that a chunk of quantity based data is absent in what is available to us, if per unit price remained the same in FY16 as in FY15, the impact on exports would be $0.5 billion i.e. keeping prices constant, exports would have been $21.3 billion (instead of the current $20.8 billion) which is still a 10 percent drop in exports for FY16 year-on-year.
And even so, the danger of relying on commodity exports is primarily this: that fluctuation in global prices would impact exports significantly. Pakistan is heavily dependent on agriculture and raw product exports, which are themselves dependent on yield, and which could instead be used here at home to add value but are exported out raw for cheap to Bangladesh and other countries that are using it to make value-added products for onward export. This is not helping Pakistan in any way.
Industry sources also say that exports have actually not fallen at all but exports figures have been historically overestimated and imports have been under invoiced, because of the ease that comes with manual customs procedures that make misevaluation of trade numbers. The new WeBoc that FBR launched along with electronic “I” and “e” forms now makes all incoming and outgoing payments and receipts automated at source, which does not allow for under or over invoicing and curbs the influx of fake and forged transactions. This actually indicates that over the years, exports may not have been increasing at all.
This column has talked about this many times over the past months, but it must reiterate that now more than ever, the Pakistani government needs to show solid commitment in wanting to make the countries’ industries efficient enough to export and be globally competitive. This means spending Rs6 billion every year will not be enough, and the three year STPF barely passing for a comprehensive policy will not cut it.
Pakistan needs a medium to long term (5-10 and 15 years) national export strategy that categorically gives targeted incentives for fix periods of time for select sectors that diversify, use vertical integration for cost efficiency and bring value addition to their products, where more incentives should be giving to those using indigenous inputs in production. The policy should disincentive raw product exports; rationalise tariffs across the board for all industrial machinery and inputs, and most of all, keep these incentives and concessions consistent through a policy order without making changes through SROs.
The high cost of production is the bane of all exporters that make products less competitive in the global market. Without solving energy related issues, this will not be possible. Government should be lending focus to supply side distribution network issues that would be able to supply the mammoth energy Pakistan will apparently be producing soon, thanks to CPEC. This promise too should be part of the national export strategy. Once sectors gain a certain level of scale, they can reinvest profits into power generation and energy efficiency to cut down costs further.
Lastly, a major part of the export strategy should be connectivity. Over 95 percent of the Pakistani trade is sea borne primarily routed through KPT and Port Qasim, while the Gwadar Port in all its glory will be fully functional by 2017. The last Maritime Policy in the country was produced in 2002. Given that 90 percent of all international trade traffic goes through the sea, the government should come up with a comprehensive trade facilitation and transport policy that would integrate ports and the shipping sector with industrial areas, export processing zones, rail and road networks across all provinces. The existing ports cannot be forgotten just because of Gwadar.
This is the sector where investments are key to overhaul the shipping and transport infrastructure, increase existing capacity of ships, containers, warehousing etc., and introduce new technology for more efficient transport and transit. More on maritime transport in this column in the coming weeks.
Of course, these are not the only areas that the strategy should cover, but one thing is for sure, offering patchwork solutions under a highly deficient and short sighted three-year trade policy is not sufficient for a sustainable growth in the exporting sector.