Announcing the trade policy 2006-07 on Monday, Commerce Minister Humayun Akhtar set the export target at $18.6 billion with a growth rate of 13 percent, while imports are to stay at the existing level of $28 billion.
According to our report, the Commerce Ministry's proposed export target was $17.8 billion, but it underwent an upward revision on the direction of the Cabinet. Setting high standards of achievement, of course, is a good way of creating challenges in any field, and the result usually is increased efficiency.
That, though, should not lead to self-delusion like it did last year when, encouraged by a significant rise in exports during the first half of the fiscal year, government leaders had started predicting that the export projection of $17 billion would soon be crossed to reach the $18 billion mark. In the event, between January and May of the last fiscal, our exports grew by only 9 percent and the overall performance fell short of the earlier estimates and expectations.
Whereas the new policy aims to attain 13 percent growth, it seeks to contain the trade deficit through enhanced exports and by keeping the import bill at the current level. New imports are to comprise mostly used machinery for the construction, mining, petroleum, and health sectors as well as used mobile cranes for industrial units and refrigerated vehicles for transportation of perishable commodities.
The most important task at this point in time is to achieve and sustain the 13 percent growth rate. Towards that end, the Commerce Minister announced a plan to boost non-traditional exports through steps that include support to the gems and jewellery sector; setting up of carpet centres in Lahore and Karachi and Expo Centres in Islamabad, Quetta, and Peshawar; modification in freight subsidy schemes; establishment of a "Textile Skill Development Board"; simplification of temporary export procedure; facilitation of the SME sector; setting up of a modern warehousing city in Karachi; support to footwear industry; and promotion of 'halal' meat export.
All these steps are important for exploiting the country's full export potential and diversifying economic activity. Nonetheless, these projects will take time to come to fruition and make a major contribution to our export earnings.
What is to play a key role at the present point in time is higher production of surpluses in the traditional commodity and services sectors as well as better market access.
Last year's export performance failed to meet the target as there was not enough surplus to feed the foreign demand. Agricultural production during the last fiscal dipped considerably, with major crops, which account for 32.5 percent of agricultural value added products, registered a 'negative' growth of 3.6 percent.
More to the point, the mainstay of our exports, the textile industry, suffered a serious setback because of lower cotton production that went down by 13 percent. The cause of low production was bad weather and lower availability of water. How come all the other policy measures and expenditure on canal lining and irrigation projects did not seem to produce any beneficial results? Next, it goes without saying that good infrastructure has a lot to do with higher economic performance.
As it is, gas and electricity shortages still continue to adversely impact production in both the agricultural and industrial sectors. While our economic managers have been obsessing with macro indicators of economic growth, they have done little to meet the ever-increasing energy requirements. During the last three years, for instance, not a single thermal power station has been installed, with the result that energy shortages are a persistent problem, especially for those engaged in exports-related economic activity, who have to meet specific schedules.
As regards the market access issue, with the advent of the WTO regime and the disappearance of quotas, our exporters have to compete in the open markets of two major economic blocs, US-dominated North America and the EU. The EU still offers tariff reductions to 50 least developed nations. Pakistan, fortunately, does not belong to that category.
It is good to note that the new trade policy contains the decision to set up 'Trade Development Authority of Pakistan' in place of the Export Promotion Bureau "for better marketing of Pakistani goods in other countries". However, considering that better access and terms of trade require sustained contacts and discussions with traditional as well as potential trading partners, the government must also appoint a full-time trade negotiator who should, as a specialist with rank of Secretary-General in Commerce Ministry, fully concentrate on seeking trade agreements with major importing nations. The trade policy for next year carries a list of machinery and equipment allowed for import in second hand/used conditions.
This would also help in relocation of serviceable machines from abroad, which should be welcome. Obviously, Pakistani industry does not have the financial strength to procure new technology from abroad as it is too expensive and its products with less margins cannot but be at lower spectrum of the world market. The danger in this case, however, is that in the process we might turn our country into a junkyard. Therefore, verification of the age and condition of the used equipment and machinery is essential.
The Commerce Minister has rightly observed that growth of exports came under strain due to relatively weaker performance of the real sector, ie agriculture and industry. However, if the exports to Afghanistan are taken out of the total export figures the performance would appear still weaker. Continuation of a liberalised policy is already turning the country into a consumer based society. We are not a trading nation and need to remain focused on increasing both agricultural and industrial output.
This requires enhancement in the investment to GDP ratio to nearly 30 percent. Besides, capital there is also an urgent need to upgrade the skill level in the country to improve productivity. How can non-cotton producing countries outperform Pakistan in garment exports? Obviously, the education system is not delivering the kind of manpower we require for our industry. Poor road network, limited, expensive and uncertain electricity supply, poor quality controls and inadequate domestic standards, weak contract enforcement are all hampering the supply chain development.
Negative perception of law and order leads to 'advisories' from foreign governments prohibiting their nationals to visit this country. All these adverse factors are cumulatively affecting our export efforts.
Commerce in agricultural commodities has been a neglected sector. Other than rice (which earned a billion dollars last year) and cotton no other crop is a major export earner. Establishing local brand name requires high volumes of capital. Government policies are not supportive nor are banks receptive to the financing needs of agri-business. Large scale manufacturing benefits from bank credit in line with its share of GDP, while the share of agriculture and SMEs - representing 60 percent of GDP get less than 10 percent of credit, while consumer loans constitute 23 percent of bank advances.
Both our tax policy and our monetary policy provide a strong disincentive to financial savings. Under our tax laws interest income is taxed, while capital gains is tax exempt and the monetary policy has led to a negative real rate of returns to depositors - a strong disincentive to financial savings.