Pakistan finds itself in a region where more than half the world's population resides. The region is also home to the world's second and tenth largest economies. If you change the measure to purchasing power parity you have a serious consumer base here. Plus, there are these wealthy states, separated from us only by a narrow strip of water, that are short of almost everything.
The gravitational theory of trade tells us this kind of a neighbourhood is God's gift: large markets, rapidly growing economies, proximity. But the numbers tell us something else. Apart from Afghanistan, which in many ways is part of our domestic market, Pakistan's share in the imports of these countries is miniscule: 0.2% of the (combined) import bill of China, India, the UAE, Saudi Arabia, Qatar, Iran, Bangladesh and Sri Lanka.
How do these figures reconcile with the Engineer's strenuous campaign to have us believe that our Export effort has been dealt a fatal blow by global recession? With respect, it is not recession but the lack of a serious export effort that has laid us low. We now wait for the Strategic Trade Policy Framework, whenever this phantom chooses to appear, to see if it is the Messiah we have been waiting for.
This is not the occasion to rattle sabres with our favourite Minister on the virtuous impact of recession on a price-driven supplier like Pakistan. Surely, the Minister is not unfamiliar with the concept of Market share, that 'levels out' demand fluctuations. If Bangladesh or Vietnam's share of the market has gone up, and ours has gone down, clearly we need to look beyond recession.
It is our near zero penetration of the regional markets that is disturbing. It could well be argued that our approach of seeing Pakistan's exports as a percentage of regional countries' imports is flawed. After all we are a small bit player, accounting for only 0.13 percent of global trade. We should see it more in terms of the share of our exports going to the region. Fair enough. Here are the numbers: 4% of our exports go to the 'sub-continent' (India, Sri Lanka, and Bangladesh), 10% to the UAE, Qatar and Saudi Arabia (we have to be careful here - bulk of the two billion plus that we export to the UAE is re-exported to the US, EU, and Africa), 0.4% to Iran, and 9% to China with whom our trade deficit continues to balloon.
No prizes for guessing where most of our exports go. A full 45 % go to the US and EU, countries that, in a reversal of roles, we want to 'do more'.
So is the gravitational theory wrong, or we have other problems?
We are the first to admit that the globalization phenomenon has taken the shine off regional trade. 'Mass' has become more important than 'distance'. Germany's biggest trading partner is no longer next door France but across the Atlantic, the US. MERCUSOR, the gigantic Latino trading bloc, looks more towards the US and China than within. Notwithstanding the several thousand miles of water separating them, all eyes are on the possible Free Trade Agreement between the EU and the US.
Indeed, the internet of things and the great advancement in payment systems and transportation have diluted the proximity advantage. China, with its belt and road philosophy, seeks to mitigate the distance disadvantage, and the US wants to knit together the Pacific Rim economies, that account for 40% of world trade, into the TPP.
The erosion of proximity advantage should not blindside us to the sheer size of the regional market. We have a 2.5 trillion dollar market at our doorstep. Even if we secure one percent it will double our exports.
The neighbouring markets also provide an exceptional opportunity for export of services. Sadly, here too the Ministry of Commerce (MoC) can't walk its talk. For years we have been hearing of a Services Export Council whose proceedings seem to be a state secret. Trade policy after trade policy has promised an EXIM Bank. Another secret? Software export is one area where, rumour has it, we are doing quite decently, but the taxation regime pushes much of it out to off-shore jurisdictions.
We are not unmindful of the interplay between trade and bilateral relations, but we draw sustenance from our belief that trade is a hugely powerful CBM (confidence building measure).
Columnists by definition are critics, not consultants. Their job is to point out why things are not working; not fix them. Our fondness for the Engineer, however, tempts us to stray from the straight and narrow and risk the cardinal sin: offer suggestions.
First, recognize that we are in a 'mature business' (if not a declining one) for our traditional products (eg textiles, leather, carpets) as well as our markets (the EU and the US). This calls for policy realignment. Export growth will come from the regional markets and not the aging EU-US combine or distant FTAs. To penetrate the regional markets we would need to restructure our production base: produce what they want and not try to sell what we produce. This will require a pro-export industrial policy.
Second, learn from Japan, Brazil, South Korea, etc, that comparative advantage is sheer man-made. Unless global supply and value chains are integrated into our Export base we will always remain a commodity supplier. This would require a major overhaul of our import infrastructure and redesign of that heirloom, the pioneer industry policy. Brush it out of the closet and embroider it all over with exports.
Third, lower the tariffs - and jettison the cascading principle of tariff setting. It is perverse. It militates against value addition and promotes unconscionable levels of effective protection rates. The answer to protection needs of local industry is not tariff escalation. It is 'technical' barriers and exchange rate. You need look no further than India to see how it works.
Fourth, disband TDAP. It is delusional to think it has what it takes to 'develop' trade, which is a function of inter-ministerial effort led by the MoC. Replace it with a lean and mean, stakeholder led, organization dedicated to the export of services.
Finally, learn the difference between a growing market and a stagnating one. Call us if you can't.
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