The culture of smuggling

Smuggling has seeped into Pakistan and has become a form of culture. This month the President of Lahore Chamber of Commerce and Industry Malik Tahir Javaid highlighted transit trade with Afghanistan for smuggling with the usual arguments of it being a big threat to economic growth and imposing heavy costs on the national exchequer. APTTA may be the vanguard of moving goods illegally into the country but it is just one conduit among many.

In a recent interview with BR Research, Zubair Tufail, Chairman of Pakistan Chemicals Manufacturers Association and ex-president of FPCCI, mentioned that a lot of illicit activities take place over the Pak-Iran border. The volume of smuggling is to tune of millions of dollars with truckloads of chemical transported illegally. Since banking restrictions on Iran had made formal trade difficult, what used to be traded formally is now being smuggled in.

In a chat with BR Research Saeed Mazhar Ali, Chairman of All Pakistan Gems Merchants & Jewelers Association nonchalantly accepted that all the gold seen in the market in the form of jewelry is made from gold smuggled in. A report by TDAP indicated that local gold demand is about $1.2 billion per year whereas gold imports in FY17 were $44,000. Empirical evidence for gold smuggling is easy to find. A stroll through Saddar market in Karachi shows no lack of sparkling gold jewelry shops although gold is not being imported and Pakistan’s gold resources are not mined.

Nor is the movement of goods one way; many of Pakistan’s goods get smuggled out and significantly impact their respective industries. For example, SBP’s report highlighted some of the issues faced by the leather sector. Leather exports have been declining because of the industry faces supply side pressure. High rate of smuggling of live animals to Afghanistan is causing a decrease in availability of quality hides and skins.

Another SBP report on gems and jewelry discusses smuggling as one of the challenges faced by the sector. As Pakistan’s gems reserves are untapped, unexplored, and unquantified, miners and traders find it much easier to sell uncut unpolished gems informally rather than utilize the nearly non-existent formal channels.

As much damage as smuggling has done to the economy, it pales in comparison to its scope under CPEC. 40 to 75 percent of goods transiting via APTTA are estimated to be smuggled. CPEC envisions China’s trade to increase by more than $1 trillion. Smuggling of even a small percentage of that volume of trade could cripple the economy.