Let us praise the Lord, and raise one to our Editor. The Editor for his perseverance: giving us space, week after week, to vent, and to wonder if anyone is listening. The Lord for the miracle: the Engineer listens! On Wednesday the 27th we got our comeuppance. He more than listens; he is singing our song! On Wednesday the 27th he unveiled measures that puts paid to all our wailing in these columns. Chairing the Federal Textile Board, straight out of the Budget meeting of the Cabinet that preceded it, he shared thoughts that quickly made the participants forget their two-hour wait for the meeting to commence.
First, the exporters' refunds shall be resumed forthwith and settled in a month's time. Frankly, we wouldn't mind even two months, as long as they give back to us our liquidity. Second, electricity will be charged at Rs 8 per unit, and there will be uninterrupted gas supply billed at around Rs 500, inclusive of infra-structure development surcharge. Third, the fundamental principle of zero rating of exports shall behonoured. Fourth......oh it is quite a list, from Technology Upgrade Fund, to Brand Pakistan.
But the jewel in the crown is the exchange rate policy. It is now intended to peg it to REER (Real Effective Exchange Rate that factors in the inflation differentials). What is going on? Is the Accountant trying to make it up to the IMF for privatisation slippages, or has he finally decided to surrender the Trade tool box to its rightful owners?
Has Eid-ul-Fitr come early? Or are we hallucinating? Have we become a Fabulist, giving wings to fact and form to fiction; conflating Trade Policy with Alice in Wonderland? Have we become afflicted by the columnists' curse: 'we have been heard'?
But for once let us indulge ourselves and believe in the Golden Legends, and go beyond Ash Wednesday to sprinkle some more dust. The Wednesday package, real or imagined, is necessary. Is it also sufficient? Not by a long shot. Like duty free access to major markets is not. It will improve profitability of some exporters, keep the head of some others above the water, but it is not going to get us the export target of $35 million. A major and sustained Export breakthrough will come only when we reduce anti-export bias, enable integration with global value and supply chains, and make ourselves competitive through productivity gains.
If the Engineer has a private conversation with 'genuine' exporters he would learn that it is tariff policies, and not demand contraction in world markets, that is hurting exports. The atrocious rates of effective protection serve to make the domestic market far more attractive than export markets. Naturally, Investments and focus flow to where the rewards are greater, even if the exporters are smart enough to keep a foot in exports for such 'intangibles' as tax advantages, junkets, and a place at the table.
To reduce the anti-export bias we need to drastically reduce the import duties, revisit the current cascading character (duties increasing proportionate to value addition) of our tariff policy and reduce the number of slabs - we had promised to come down to three way back in Shaukat Aziz days. There is sufficient empirical evidence that high tariffs hurt exports - besides breeding inefficiencies and making the discriminatory SRO regime inescapable. It is also inimical to consumer interests, but guess that's at the bottom of the government's totem pole.
We hope the tool box that the Engineer has got back is not without the tariffs tool, which under the government's own rules belongs to Commerce. Use it Sir, and don't let the FBR tell you it will mean less revenues - every time duties came down the collections went up.
Exports need foreign presence. Arguably, China and Vietnam are not comparable, but can't we match Bangladesh, that was derided as a 'basket case' not too long ago? To get hooked into global supply and value chains it is again tariff policy and procedures that hold the key. Clean it up. A simpler Code, supportive trade facilitation, and skilful management of FTA's, will usher in the kind of B2B partnerships that we have been yearning for. Of course, Customs and their fellow travellers, the clearing agents, will resist - they have too much riding on it - but that's a battle to be fought. For trade facilitation the Ministry can do with capacity building, and TDAP has to learn that caravans and 'meena bazaars' is not the answer. They need to be looking at dwell times, port charges, and shipping times and costs -besides the inordinate burden of 'compliance' imposed by the buyers. Our port charges are about ten times the regional average, dwell time about four times that of Far Eastern ports, and our export cargo destined for Europe has to detour through Mumbai, etc. Further, the winner in Free Trade Agreements is the one who converts them into a vehicle for export-oriented FDI. This requires a lot of skill - and for the various Ministries to play as a team (are you listening, Mr Prime Minister?)
Dr Shamshad Akhtar makes a compelling case for productivity enhancement. Absent that we cannot be competitive at home or abroad. Unfortunately, Islamabad thinks productivity gain is a function of labour productivity. It seems to be nonchalant towards Total Factor Productivity, embracing policy environment, technology, innovation, and sharp managerial acumen. We are sadly lacking in all. Our manufacturing base - unmindful of technological diffusion, economies of scale, state of the art management tools - is crumbling. We need a brave new Industrial Policy - yesterday.
In the perpetual tug of war between Finance and Commerce the former always wins. Aid trumps Trade, revenues get the better of exports. Finance has difficulty understanding there is more to Exports than just dollars. It is time to give Exports a leg-up. We hope the Accountant has not swiped a tool or two before returning the Trade tool box to the Engineer.
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