Declining exports

Pakistan's trade deficit from July to October 2016 has increased to US $9.3 billion and the annual deficit for FY 2016-17 is estimated to jack up to $28 billion which is one of the highest trade deficits in the recent history of Pakistan. In 2014 and 2015, the total trade deficit exceeded $20 billion. Much of it is on account of declining exports.
In the year 2013-14, the total exports were at $25.1 billion of which textile exports were at $13.8 billion. Whereas, for the year FY 2016-17, the exports are estimated to decline to $19.5 billion of which textile is $11.6 billion, meaning a reduction of $5.6 billion in total exports and $2.2 billion in textile industry. Textile is the main component of our exports and All Pakistan Textile Manufacturers Association (APTMA) is a strong body which protects the interests of its members. In a front page advertisement published this week in leading newspapers of Pakistan, APTMA has drawn the attention of the Prime Minister, Minister of Industry and the Special Assistant to the PM on industries to the plight of the industry.
The prime issue cited by APTMA for the decline of the industry is the ever-increasing cost of doing business in Pakistan which it claims has rendered the export sector globally un-competitive and unviable and unless the cost of doing business of industry is reduced the exports will continue to decline. The trade body urges the government to announce an export-led growth policy. Their demand list includes the notification of Nepra to determine multi-year tariff for the industry without the incidence of surcharge for provision of electricity at regionally competitive rate of Rs 7 per kWh, whereas, system gas and RLNG rates be equalized across the country and the availability of new gas and RLNG connections for captive and process use. Their demand includes graduating drawbacks of local taxes on exports of yarn, greige fabric, processed fabric, home textiles, made-ups and garments, withdrawal of customs duty and sales tax on the import of cotton, duty-free imports of manmade fibres not manufactured locally, extension of long-term finance facility to indirect exports and input tax adjustment on packing materials. The industry is also widely protesting against the import of yarn and cloth from India, which is far more competitive than the locally produced one. Also, a protest is being organised by the industry against the gas price disparity that has been affecting the industry in Punjab.
It is now much of a standard phenomenon that the industry under pressure escalates their issues through media, meetings with high government functionaries and protests. The government inevitably comes with a relief package for the protesting industry, much under pressure than any financial wisdom, and in the process yields to the demands and the industry in turn secures or squeezes out some due and more of undue advantages.
The issue of declining exports is far more complicated than the petty demands put up by the trade bodies which is more or less repetitive and the carbon prints of the previous ones. It may have provided an ad hoc relief on selective basis but is not a strategic solution in the interest of the country nor that of the traders and industry.
There is a need for structural and governance reforms - demanding from our state managers a great amount of diplomacy, statesmanship, political and economic wisdom and courage to take on strategic decisions.
China has now come up as the leading trade partner of Pakistan and the trade between the two is governed under a Free Trade Agreement (FTA). The FTA has turned out to be much in favour of China with exports from China to Pakistan being eight times higher as compared to Pakistan's exports to China. While respecting the China-Pakistan Bhai Bhai relations, Pakistan should aggressively renegotiate FTA with China in the second round of talks under way. Federal Board of Revenue (FBR) and the local industry consider the FTA, in its present shape, not much in its interest. Considering the trade pull through expected from China Pakistan Economic Corridor (CPEC) there is greater urgency to renegotiate the FTA with China.
Pakistan's free trade agreements with other countries are also reported to be not in its favour and are undermining the local industry. The FTA planned to be signed with Turkey is also reported to be tilted more in favour of Turkey. Japan is also considering proposals for signing an FTA with Pakistan to boost trade volume between the two counties.
Pakistan's trade with its strategic partners like the US and Europe has declined largely on account of credentials and trust deficit, country's perception issues and un-competitiveness. The trade concessions awarded by these countries in favour of Pakistan could not be effectively exploited by our industry. The space so vacated has been seized by Bangladesh and India.
Pakistan's trade with its neighbouring countries continues to be dismal. Trade with Afghanistan continues to be restricted to traditional commodities on need basis devoid of any strategic trade relations. Same is the case with Iran which is now coming up as one of largest global trade markets after 'lifting' of sanctions. All roads therefore lead to Iran, notably from Europe and India. Pakistan is still not on the mark despite the fact that exports from Pakistan to Iran can be most viable and competitive - being a bordering country.
Pakistan has suspended cotton imports from India on ground that the shipments failed to fulfil phytosanitary certification threatening the $822 million annual trade. The real reason appears to be the large-scale protests from the textile trade bodies of Pakistan who find it difficult to compete. In recent years, the relations between Russia and Pakistan have warmed up. It's a great market which offers tremendous trade opportunities to Pakistan and with the gap created on account of Russia's cold relations with Europe and Turkey the opportunities are even greater.
But, so far there is no strategic Russia-oriented trade policy to effectively address this opportunity although some trade missions randomly visit Moscow. Pakistan is isolated from Asia-Pacific Trade corridor and also much from Central Asia Trade Corridor.
Pakistan's foreign missions abroad are passive and doing little to improve country's perception and provide business leads. While the trade bodies of India have jointly set up a business hub and lobby house in front of the EU headquarter in Brussels to influence trade, Pakistan has done nothing to have its presence felt. It is no doubt a fact that the ease and cost to do business in Pakistan is now worse than ever when benchmarked to global rankings, thereby rendering Pakistan to be uncompetitive. The concerns of traders and industry in this regard are legitimate.
The role of the Ministry of Industry and Commerce is more that of a bystander. While the Ministry of Industries is creating new industrial zones, the ones on ground are suffering from lack of good governance. Just to cite an example, the much hyped Korangi Creek Industrial Park (KCIP) set up recently at Karachi by National Industrial Park (NIP) operative under Ministry of Industries is hardly populated on account of lack of amenities notably the availability of electricity. Most alarming is the fact that the approval of work commencement drawings submitted by over 70 industrial units of the park to Korangi Creek Cantonment Board Karachi (operative under the Military) are awaiting approval for the last over two years on petty internal issues. This has resulted in delays in setting up of 70 industries thereby subjecting the industrialists to suffer cost over-runs and depriving the nation of its revenues and exports. This is one glaring example to place on record the lethargy and indifferent attitude of the government functionaries to the national cause. There are many more such examples of poor governance which is crippling our Industry and export potentials. The fact is that Pakistan has no strategic export policy in real terms. It's more of ad hocism driven under the pressure of trade lobbies.
The long-term solution to boost exports is not in providing time-to-time concessions to exporters in tariffs, duties and taxes and other concessions. The fact that our exports are sliding rapidly, in spite of these concessions, makes it clear that this practice is not working and there is much more to it.
Both the government and exporters need to move out of a mindset of short-term concessions and instead work out a sustainable strategic export plan. The nation needs to enter new markets, work out FTAs favourable to Pakistan, work on improving country's global perception, shake up the government out of its syndrome of lethargic and non-responsive behaviour. Pakistan's economy has to be well pitched to the global markets. This requires a high-level of diplomacy, business wisdom and above all a will to perform and deliver.
Pakistan, with declining foreign remittances and increasing burden of local and foreign debt and liabilities, is entering the red zone of financial crises. Declining exports and declining foreign direct investment (FDI) constitute an ugly add-on to the looming danger.
Pakistan's internal and external debt and liabilities have recorded a phenomenal rise in the last 10 years. The debt and liabilities added to the stock in the last 3 and a half years are unprecedented being almost equal to what the county has borrowed from 1947- 2007. The practice continues. It is reported that Pakistan has taken an additional $3 billion in foreign loans in the last four months to finance budget commitments and bolster foreign currency reserves.This is a wake-up call for the managers of the nation.
(The writer is former President - Overseas Investors Chamber of Commerce and Industry)