No clear-cut export strategy two years later

ARTICLE: The second full year of the PTI Government has come to an end. While the government is lauding its achievements the people are still wondering what happened? Most do not perceive themselves as better off in the last two years, many feel much worse off. The fact is that the search is still on for a path out of poverty that overwhelms our country. Where is that magical path, and who knows how to take us there? The PTI government is not clear at all. Does this path lie in the hands of our rich friends in the Middle East, who will bakhsheesh us into wealth? Or could our hard working well wishers from over the Himalayas build us a 'Naya Pakistan'? Then present it to us as a fabulous gift and meekly go back to the other side of the Himalayas? Or could it be the rulers of the modern western world, they also hold the purses of multilateral aid agencies? They will once again take our finger and lead us into fresh restructuring programmes which will unleash such an amazing economic recovery that we will join the ranks of the successful? We run back and forth, from one to the other, but find no way out of our current morass. Then Covid-19 struck, eclipsing all other activity, and now we are back again, at square one.

Like all other countries that have developed over the last fifty years, we have to rely upon our own ingenuity and our own resources, to find our own solutions. Others can only assist; they will not do our work for us. If we can promote our exports particularly value-added textiles, leather, foot wear, sports goods and most of all value added agricultural products, we have a good chance to ignite the engine of growth in the economy and create fresh jobs and earn foreign exchange. Before the Nawaz Sharif era our exports were growing at a reasonable pace despite the over valuation of the Pakistan Rupee. Then Mian Sahibs desire to make the rupee exceptionally strong, and overvalued. The object was price stability at any cost as this buys popularity. So imports became cheap, and exports were discouraged for the ten years of his reign. Our new masters have put in an independent Governor at the State Bank who maintains that the value of the Rupees will reflect the market. As the rupees were "freed" a massive devaluation took place and lo and behold exports are feasible again.

Just when a bewildered export industry was getting its house in order to win back lost customers the government imposed a 17 percent sales tax across the board. Knowing fully well how difficult it is to get back sales tax refunds from the government the industry despaired. Only those with deep pockets could carry on. The new government said that they will fix it and export refunds will be processed within 72 hours! As expected the FBR could not get its act together and by October 2019 the situation was desperate. The industry was on its knees, pleading for a life-line. A Towel Manufacturers Association study in November 2019 showed that only fifteen percent of the refunds applied for had been paid. Regarding the rest: there was no news. Even worse 30 percent of the towel manufacturers had not even applied, hoping to apply once the path had been cleared by the "Big Boys."

The result at least in the towel industry was a blood bath. Most of the small scale manufacturers went bust, many of the medium scale ones could only keep going partially and even the big boys were suffering. Islamabad was full of frustrated industry representatives begging and pleading for the sales tax refunds the government had promised in 72 hours. Then in mid-January this year a miracle occurred! The government changed course and decided to start paying the refunds due to the exporters. The applications were suddenly processed and payments sent off to the exporters: just as promised but six months later. Nobody could believe their luck! So those who had survived really revved up their engines and started exporting aggressively. Those who had died got a present to ameliorate their pains. Then, wonder of all wonders the export refunds and incentives promised by the previous government also started getting paid!

Unfortunately all these efforts were put on hold by Covid-19 and now we are backing again to square one.

Fortunately, there are two positive developments over this summer. The State Bank of Pakistan has generously funded the Covid-19-affected factories to pay their wages with soft loans. This has worked and many factories that would otherwise have gone for massive layoffs have not done that. Such factories are in a far better shape to restart production and exports as demand builds up again. Perhaps this explains the burst of exports in June and July. Possibly firms in other countries took much longer to restart than we did. The effects of Covid-19 in Pakistan have been less severe as well than in our direct competitors, India, Bangladesh and even Turkey. Now as they restart, the going will get tougher.

The effects of incentives, especially on exports are not immediate. It takes months to put mothballed machinery back into shape, get the old workers together or to get extra shift work. Most importantly, the foreign buyers are loathing shifting suppliers frequently. So if they are to shift they have to be convinced that we are there for a period, and this is not just another whimsical measure of the Pakistanis. Unfortunately, we do not enjoy a very good reputation in the world markets as reliable suppliers.

If the government can hold its promises to the exporting industry to allow it a level playing field as compared to our competitors we will find a space in the world trading pattern for Pakistan. The PTI Government had promised us

1) Quick and fair sales tax refunds without heavy speed money,

2) Inputs of energy at regional prices,

3) As much energy as we need and no winter rationing for industry,

4) A price of cotton and other inputs which should reflect world prices: and not above that.

All these are not pro-export policies; these are just neutral policies.

GAS INFRASTRUCTURE DEVELOPMENT CESS

It has been decided that this will be levied on the industry. The Supreme Court has validated the decision. It is not for us to question the basic principle, but just to remind the government not to burden the exporting industry with extra levies in one guise or the other. The price of our energy, be it gas or electric, must be similar to what our competitors are paying. It must not be jacked up by extra levies.

In fact most governments promote their exporting industries. The intentions of all Pakistani governments, except a handful, have also been the same. In actual practice, these intentions remain lip service and no measures except cosmetic ones are ever implemented. Pro-export policies can be short term and long term and that is a separate debate. At the moment all that we exporters are asking for is just a continuation of the measures that the PTI government started implementing in February this year.

Not much to ask?

(The writer is Chairman, Towel Manufacturers' Association of Pakistan)

Copyright Business Recorder, 2020