What are some of the most frequently heard words in export growth strategic exercises taken up by Pakistan’s commerce, finance or planning ministries; or by business chambers, think tanks, donors and the academia? Exchange rate, power and gas, law and order, tax refund and tax policy, cost of doing business, SME credit, and trade facilitation. What you don’t hear is this.
Simply put, export is about what you are good at (that comparative advantage thing) and produce or can potentially produce in excess over domestic consumption at prices that are internationally competitive.
Seen from that lens, the story goes that Pakistan is very good at textile industry, employing nearly a third of labour force, and accounting for about half of total exports. Yet few ever wonder why Pakistan has been unable to attract in FDI in textile or other sectors from the top five export-oriented sectors (textile, leather, carpets, surgical and sports goods). If Pakistan was indeed good in these sectors, then foreign players should have sought stake in these sectors, right?
A detailed answer to those questions is not out there in any kind of formal publicly availably study. But one oft-repeated reason stands out. Sans a handful of exceptions players in export-oriented sector are infamous for maintaining two books of accounts which no foreign player is able to trust. Recall that the same players used the export refinance schemes in yester years to take cheap loan in the name of exports and use that money for punting in stock and real estate markets.
Another sector in which Pakistan reportedly has or can develop comparative advantage is the likes of red and white meat, dairy, and farm produce especially fruits and vegetables. Yet to this date, Pakistan has failed to develop this sector giving credence to the view that the word potential, like talent, is overrated. In the last few years, a host of meat and frozen food processing companies have emerged. But neither the federal and provincial governments are coming up with actionable sectoral policies, nor are these areas part of the discourse.
In some countries, labour is a good export, explicitly as labour migration, or implicitly as cheap and efficient labour that can be an advantage in some technical industries, such as electronics, or light scale engineering. (See also BR Research’s “Labour export losing steam” published September 11, 2017).
There is no denying that Pakistan produces a lot of labour; after all human production is our national pastime as per the latest census results. That labour is relatively cheap as well. But they are not sufficiently trained. A lot of hoo-ha has been raised over lack of education in this country, and rightly so. But there is an insufficient realization over the lack of technical or vocational training of workers, a subject that rests largely with the provinces.
Similarly, some countries export its resources. Most patriotic zealots can highlight Pakistan’s potential in natural resources - from copper and gold to marble, chromite and so on. These can be exported, surely.
But in order to realize the full export potential, these resources have to be extracted and processed, for which any country would need the right kind of skilled labour, the right kind of technology, capital and management skills. Pakistan has none of these, which is why only foreign players have ventured into these areas. Yet at the same time, this country has managed to shoo away these investors, and then found it selves losing in international courts as well which sort of rubber stamps the notion that Pakistan is no country for FDI.
A country may also implicitly export its capital. For instance, one major reason China is able to export so much is its high household savings with which it is able to finance its mega projects for exports or to provide the right infrastructure needed to export. Pakistan’s small sized domestic savings mean that the country also lacks the right capital.
Lastly, there is also a need to re-think the price of exports. For instance, when Pakistan is exporting rice it is also exporting water, because despite being a water-stressed country, water for rice production is priced terribly low. Now it is true that countries subsidize various business sectors, but should we really subsidize rice exports with water which is already in short supply or at least shouldn’t issues like these be discussed publicly.
Granted that exchange rate, energy shortages, tax issues and the likes are keeping Pakistan’s exports from taking off. But even after fixing these issues, export take off would still be limited to a low and limited possibilities; without significant efforts to boost labour, technology and capital whatever ‘potential’ Pakistan’s land provides will always only a potential. With demographic window sharply closing in, the time to start realizing that potential is already past; crash course catching up is the only option.
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