Despite improving energy supplies and better law and order situation in the country, the big business looks worried. The Pakistan Business Council – which is the representative body of some 67 large Pakistani firms (among them 25 MNCs) – has been sounding the alarm over gradual deindustrialization of Pakistan into a trading country for some time now. Now the calls are growing louder.
Yesterday, the PBC’s bigwigs unveiled a proposal to reverse a trend which they feel is turning Pakistan into “a nation of import-reliant traders”. The big idea is termed ‘Make in Pakistan’. The PBC is advocating for reforms to motivate industrial investments, which will help local manufacturing gain a critical mass in this market of 200 million+ consumers, which in turn will boost Pakistan’s international competitiveness.
Given Pakistan’s perennial balance-of-payment woes, there is a dire need to boost manufacturing at home to cater not only local consumption that is increasingly import-led, but also provide for value-added exports to help beef up the forex. Also, being labour-intensive, more local manufacturing will reduce unemployment. Besides, it can boost the tertiary sector in the long run.
Much of what the PBC has put out in ‘Make in Pakistan’ is common-sense reform that needs prompt action by the government to broaden the country’s manufacturing scope and scale. For instance, Pakistan must get smart negotiating its foreign trade agreements to promote local manufacturing. Under-invoicing and smuggling must see crackdown, including the Afghan transit treaty.
Additionally, PBC urges that import duties shouldn’t discourage local manufacturing – instead have cascading tariffs on raw materials, intermediate goods, and finished goods to promote local production. Industry must get energy inputs – electricity and gas – at regionally competitive rates. Tax policy and procedures should increase corporatization, encourage startups, and reduce cost of doing business. More bank credit must flow to SMEs, affordable housing, and long-term project finance. Export packages must focus on capacity building.
This column has a few observations, however.
One, will it be easy to replicate ‘import substitution’ (IS) – which is basically replacing foreign imports with domestic production – in an era of growing free trade and industrial overcapacity in the region? PBC has clarified that it doesn’t mean to usher in protectionism, so one wonders how IS will come into play. Perhaps, more details need to be shared.
Two, will ‘scaling’ within a 200-million-consumer market necessarily lead to better export prospects later on? Can competition from foreign products not force local firms to improve on their cost, quality and time/delivery dimensions? Absent external competition, will consumers not be the real casualty of inadequate and inefficient local production that faces no sunset clauses to phase-in external competition?
Three, instead of a blanket IS policy, will it not be more prudent for policymakers to focus on selected exporting sectors where Pakistan can build and sustain a competitive advantage? At the PBC event, one panelist highlighted three sectors: engineering goods, petrochemicals, and information technology. There can be a few more sectors, or different sectors. But having a focus may lead to external competitiveness.
Four, it is the bugbear of China that looks more like the real bother for local manufacturers. Part of the dread could be explained by the mayhem that has been visiting local producers in the wake of the Pak-China FTA. And part of it could be attributed to CPEC and what its special economic zones could mean for the existing manufacturers some years down the road. Such suspicions can be alleviated through joint-production and a clear-eyed industrial policy by the government.
And last, the prospects of ‘Make in Pakistan’ proposal materializing by the next budget – something the PBC Chairman desired – look dim. The Prime Minister, who also spoke at the forum, agreed with the recommendations, but he didn’t clearly commit on an implementation timeline, such is the political uncertainty these days.
So, the PBC will likely have to wait for the next government. In that time, it can strengthen its case by conducting in-depth research to assess the impact of ‘Make in Pakistan’ on GDP growth, job creation, tax revenues, and consumer surplus.
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