Commerce is our most important Ministry; or should be. The case for Commerce's paramountcy in government's pantheon is self-evident. Trade balance, the Achilles' heel of our economy, depends on how Commerce acts or doesn't. Without a major breakthrough in Exports we risk 'selling our soul to the highest bidder'.
Breakthrough requires Commerce Ministry to consist of the ablest and working the hardest; not giving a chance to the Prime Minister to wonder 'hamara woh export kidhar hai'.
Is Commerce the best and the most diligent of the Ministries, notwithstanding the feeble competition? It is a tightly guarded state secret. All we hear is lofty export targets fixed and not met. It has, amongst other things, kept us waiting so long for the oft-promised Strategic Trade Policy Framework that we have lost appetite.
We have started to feel sorry for that perfectly fine gentleman, Razak Dawood, donning the robes of the official apologist. To be fair to him, the arsenal at his disposal is devoid of the weaponry needed to combat export stagnation. The poor fellow can't even secure for us our held-up refunds, despite being deeply sympathetic!
In being fixated on market access Commerce puts the cart before the horse - no amount of concessions from the EU or China is going to make a material difference if our exports are not competitive.
The penny seems to have finally dropped. Commerce has started to work on competitiveness. It has 'outsourced' the function!
It is another matter that the body to which it has outsourced doesn't have the expertise. Some may even accuse this body of conflict of interest: it is led by people who might make the right noises for exports, but in reality drool over a heavily protected domestic market which is antithetical to export growth.
In today's highly competitive world of exports (exacerbated by the likely contraction in world trade that the IMF estimates at $700 billion) the weapons of choice are exchange rate, an 'open economy', high productivity levels, and preparedness for the fourth industrial revolution.
The trick is 'interconnectivity'. All these drivers have to work in tandem. A single weapon on its own is not enough, as we discovered with export non-responsiveness to our massive devaluation.
Ministry of Commerce has no control over any of these levers.
It is represented on the Fiscal and Monetary Co-ordination Board but doesn't have much of a say on Exchange rates. That is now the exclusive domain of State Bank, with some nudging from Finance Ministry. The point of high import content of our exports (indeed, it needs to be much higher if we are serious about global value chains), and how sudden and large exchange rate adjustments impact competitiveness, is lost in the battle to shore up reserves.
Open economy - the pathway to FDI (particularly export-oriented), value chain integration, greater productivity and a subdued anti-export bias - requires trade liberalization. We are doing the opposite. Commerce has little influence. Tariffs are set by the FBR - at egregious rates of effective protection - and SBP, Customs, even Standards and Quality Control Authority, combine together to unwittingly foster anti-competition behaviour.
Legatum Institute's Global Index of Economic Openness places Pakistan at 116. In comparison, India, no paragon of openness, is ranked 57. On ICC's Open Market Index Pakistan is placed at 72, ahead of only Ethiopia, Sudan, and Venezuela.
We are not making a case here for a wholesale reduction in import duties. Industry needs reasonable levels of protection. It is how much is 'reasonable' that the policymakers should wrap their minds around. You give too much protection and you pay for it through inefficiencies, which not only hurt consumer interests, but, more worryingly, have a spillover effect on exports, making them less competitive.
On productivity one can do no worse than quote Nobel Laureate Paul Krugman: "Productivity isn't everything but in the long run it is almost everything". In our case both labour and total factor productivity levels have been falling and Commerce has nothing in its armour to reverse the trend. Providing direct subsidies to compensate exporters, rather than work on productivity enhancement, is a sure way of letting uncompetitiveness fester.
The fourth Industrial Revolution (IR-4) is poised to redefine Productivity. Its tools - Artificial Intelligence, Robotics, Internet of Things, 3-D printing, Quantum Computing - are being employed at a rapid clip to reshape the competitiveness landscape. We have a long, long way to go, but surely we need to start taking it seriously, or else we are condemned to being commodity suppliers.
The biggest stakeholder in IR-4 context is Commerce. It will be hard to stem Pakistan's consistently declining share in world exports, or protect the domestic market against foreign onslaught for that matter, if competition gets a huge edge on the strength of technological advances. Commerce is neither mandated nor equipped to advance our IR-4 readiness. Is it even on government's radar?
The future of world trade is trading blocs. The EU has done FTAs with Canada, Japan, Singapore, Vietnam, and South America. Africa has launched the 52-member Africa Continental Free Trade. Far East has the 11-member Comprehensive and Progressive Trans-Pacific Partnership (after Trump ditched the TPP). Then there is Asia's evolving Regional Comprehensive Economic Partnership signed by 15 countries (India demurred).
But to get invited you need to open up your economy. You can't ask and not give. Our mollycoddled manufacturers won't allow that. Witness the hullabaloo about FTA with China.
Our most remarkable period of export growth was from 2000 to 2006 when exports doubled. The growth stimulus was spurred by measures taken under Razak Dawood's stewardship. At the heart of these measures was Trade liberalization. We have since reversed the process and, unsurprisingly, Exports have atrophied.
We have no idea why Razak can't do today what he did in his first incarnation. Is it because the champions of a highly protectionist regime are stronger? Is it because he had a better team then? Or is it because Hafiz Shaikh is a more dominant force than Shaukat Aziz was?
Was it a coincidence, or a message, that the export concessions allowed this Monday were announced by Advisor Finance and not by Advisor Commerce?
There is something seriously wrong if the government 'outsources' its functions, whether to task forces or an 'advocacy group'. Is it an acknowledgement of government's inadequacies?
Comments
Comments are closed.