ARTICLE: There is a deep set bias against export's, and a marked preference for all things imported, ingrained in our society. It is inherited from the colonial era when the British Sarkar actively promoted British goods and discouraged Indian made products. The "desi" always lost out to the "valayti." This hangover persists despite a passage of over 70 years. Our approach to development has also been imperial rather than people-oriented. Development consists of making new dams and power stations, roads and canals but seldom schools, colleges, universities or vocational institutions. While the Indian government invested heavily in the newly developing field of information technology; we shunned this lowly profession of key punchers.
Exchange rates are the basis of international trade. The very basic step required to unleash the ingenuity of the people and our economy is to allow the Pakistani rupee to find its real open market value. We have never allowed the rupee to float freely, and come to rest at its market determined rate. It is normally the "powers that be" who decide the value of the rupee against the dollar, never the market. Somehow this value has also become a symbol of national pride. The higher the value of the rupee, the more powerful we feel as a country. In fact, to talk about the value of the rupee publicly is considered unpatriotic, and we as industry representatives have been admonished like little children for bringing up this subject in meetings with the bigwigs of economic policy.
In theory, and as demonstrated again and again, in practice, this is the basic instrument to control the demand for imports and promote exports. When the demand for the rupee (exports plus remittances/less capital movements) equals the supply of the rupee for imports and other foreign payments; the value of the rupee will remain stable. The balance of payments shall be in equilibrium. If exports go up, demand for PKR will go up too, thereby its value will also appreciate. In this way a free market mechanism, or some mechanism close to it, automatically regulates the imports and exports and maintains foreign currency equilibrium. Most of our governments peg the value of the rupee too high, then defend the false value with the might of all our borrowed national wealth, throwing our reserves at the false rate. Huge foreign exchange deficits develop, and then we have to go a begging once again. Witness the irrational persistence of our Ishaq Dar to hold the rupee to a benchmark of 104 to a dollar, no matter what the consequences. At one stage when the US Dollar strengthened against almost all of the world currencies, including the Saudi Riyal, the Swiss Franc and the Euro and the Pound; miraculously the rupee strengthened with it! The US dollar and the Pakistani rupee were the two strongest currencies in the world for a period of almost a year! No wonder the exports flagged, and the imports boomed!
All that the current government has done, as the very first step of its International Monetary Fund (IMF) imposed adjustment programme, is to allow the rupee to float and its value be adjusted as per supply and demand. The rupee was allowed to float freely and the Governor State Bank stated clearly that they will not interfere in the market. So the State Bank stood aside as the rupee slid dramatically from Ishaq Dars preferred 104 to the current 167 against the US Dollar. The steep adjustment of the value has already brought the current account into balance as of July 2020. A task that was considered well-nigh impossible in the first three years, took just 12 months to achieve. Imports were compressed, immigrant remittances boomed, and now the exports are also perking up. This despite the pandemic. If the current policy is allowed to persist and is not watered down, then exports will start booming too.
When we say exports, it does not mean textile exports only, it means the whole range of value-added exports that are now viable at the current exchange rates. All the traditional sports goods, surgical instruments, leather products, rugs and carpets etc. will see rejuvenation. The software industry will be the greatest beneficiary.
What can be the most lucrative export field for us is the field of agricultural products. By this I do not mean the export of rice alone, but also the value added agricultural products. The fruits, vegetables, flowers, plants, dairy and meat products. These require intensive use of labour and skills and do not require vast tracts of land. Their production takes place away from the big cities, and so does not produce pollution and garbage. In fact it improves the environment and will help in halting climate change. The employment generated will mostly be in the countryside and will not cause further crowding in the cities, like industry does. The investment required is very little and has already been done. We already have the land and the irrigation systems and the workers. All we do is keep the exchange rates market driven and not keep banning the exports of any vegetable which may be in temporary short supply. If tomatoes go to Rs200/kg for a month, let them, as production ramps up them will soon come down to Rs50. The whole of the Middle East is available to us as a market, apart from Iran and Afghanistan; and of course China. Despite proximity to these markets we have not been able to make any mark in them. Distant countries sell their agricultural produce to the Middle East like Australia and New Zealand: but not us.
One of the deeply ingrained biases in our establishment is the belief that we are incapable of responding to economic stimulus. The first question asked is: where is the export surplus? The argument being that if there is a surge in demand, we do not have the capacity to supply.
As if exporters or manufacturers the world over first produce goods, store them in their warehouses and then run around the world to sell them. Manufacturers no longer produce goods, store them and then try to sell them. Nowadays the world has got so integrated that goods are ordered by the retailers directly from the factories which they have chosen all over the world. The quality, prices, packing labeling and shipping dates are all set well before production starts. The factories "supply chain" systems are integrated into the computer systems of the big retailers. Some are so well organized that the sale of an item from the shelf is intimated to the supply chain system for re-order in minutes!
Whenever there is demand for their items the manufacturers or suppliers expand their factories or supply systems to meet additional sales. The driving force here is the desire of all to make money and build up thriving businesses. A surplus will be created when it is demanded, not before that. If a huge quantity of tomatoes can be sold, they shall be produced within weeks. Witness the demand for facemasks; in February we were importing them, in April the local manufacturers were asking to be allowed to export them! Idle capacity comes into production, additional capacity gets installed, lines are diverted; all to meet demand. If the bedsheet manufacturers get a good demand from overseas buyers for their products, they will divert existing capacity from other lines and produce more bed sheeting. If the demand persists they will install more capacity. This is a basic principle of economics.
The other corollary of the above argument is that exports will cause local shortages. While this may be correct in the short term, supply rebounds very quickly to fill demand. As our mangoes or kinnoos got popular abroad, more were grown and the shops are as full of them as before.
The realistic, or market driven exchange rate policy is yielding dramatic results and let us hope it will not be watered down by other considerations.
(The writer is Chairman Towel Manufacturers Association of Pakistan)
Copyright Business Recorder, 2020