Ravi Yatawara is a Senior Economist in the Growth and Competitiveness Program at the World Bank Institute. He is the manager of the World Trade Indicators 2010 project and has been working on the impact of the global recession on developing countries, and their policy responses to it. His research interests are in the political economy of trade reform, competitiveness, trade and poverty, gender, the interaction between trade and macroeconomic policies, and regional integration. He has held faculty positions at Columbia University and the University of Delaware, and has also worked for the government of Sri Lanka. He received a BA (Phi Beta Kappa) from Reed College, and a PhD in Economics from Columbia University.

<B>BR Research: Pakistan's exports have been falling for the past many years now, due in part to the high cost of doing business, but also due to lack of trade diversification. What are the main areas that a trade policy should focus on in the long term to get competitiveness?</B>

<B>Ravindra Yatawara:</B> One of the things I've seen is that the networks and the connections and relationships are so important. The standard policy is to diversify your markets and diversify your products. What I've seen is that firms are diversifying based on their buyer.

Peruvian asparagus has really hit the US, and Peru was worried that they've become so dependent on this one country. The standard approach was trying to get it to Europe. What actually happened was the buyers in the US said you're doing such a great job; you should make artichokes as well. Why? They had this strong relationship - they delivered on time, quality, met the standards, all the good agricultural practices, etc you have these long-term relationships and then you're willing to make the investments.

Even for Pakistan, you want to innovate so you have to make the investments. These can be firm-specific and costly, and you want to have the assurance that you have a big company backing you up with lots of finance. These long-term relationships matter a lot.

I've been working with Toyota. Not much is written on paper, but all its suppliers know it's a long-term company that will invest and stay with you. They are willing to make all the adjustments that Toyota needs for its parts. On the other hand, Ford has a relationship of switching to whoever produces the cheapest. You need to get suppliers to invest and have trust in them.

<B>BRR: You talk about micro level firm-to-firm interactions. But what would be the role of government? What kind of regulatory environment does the government have to provide to help establish these linkages?</B>

<B>RY:</B> One of the things is to reduce market uncertainty. Every businessman knows about risk. When something happens, there should be scope for action, avenues to address them, and resolve things. You don't need to fix everything or have zero risk; you just need to have resolution mechanisms. In terms of stimulating industry, generating jobs, getting technology, the investment environment is very important, for local as well as foreign firms. South Asia has top global firms. It's just that the rest of south Asia doesn't know it.

Moreover, in this intertwined global value chain, import restrictions are hurting your own people. We're all connected. All it's doing is adding cost and reducing competitiveness of your own people. An import restriction is an export restriction.

Uncertainty is a huge problem. You have an investor who makes significant investment but has visa regulations, you create uncertainty for when he will get the visa; you're sending something to India and you don't know how long it will stay in customs, all this is so bad for business.

Buyers want to know when your raw material is coming and when supply is going out because they don't want uncertainty. Pakistan's big problem is the uncertainty issue - be it security or whatever. If you can reduce it industry by industry or by a geographical space, you start sending signals that your place is good for business.

<B>BRR: What about the political dimension of trade? What about when countries' relationships with each other are poor, like in the case of Pakistan and India?</B>

<B>RY:</B> I think the action is at the micro level. Business and politics are connected, but I'm amazed at how some countries can separate them out. The Taiwan-China relationship is amazing. They had those animosities but kept investing in each other.

I'm a believer that politics does affect it. But the businessperson rides out the storm. Waves of good and bad bilateral political relationships affect it, but in south Asia it tends to be so strong that the businesspeople follow the political relationships.

<B>BRR: Some people say that the WB's Doing Business report is a significant impediment to attracting investors. What are your thoughts on it?</B>

<B>RY:</B> For investment intermediaries, there are three levels of recommending a country. This (Doing Business report) is the first cut - security and uncertainty. If you're not in there, it's a problem.
The second round is when they start visiting. At that level, the inter-linkages, incentive packages, the human capital, these things matter.

At the third level, it's the relationships. If it's the right investor, you need the PM to say, 'If you have a problem, this is my phone number.' That's what Costa Rica did to get Intel. One firm affects the national comparative advantage. Intel did that to Costa Rica for twenty years.

Samsung was looking for a place to invest. The location they were interested in was Bangladesh, and they were not well received! Now Vietnam is enjoying the glory of that. The problem however, is that they don't have too many Vietnamese suppliers. If you look deeper, who are the Vietnamese suppliers? Packaging; Vietnam is just helping with the packaging. You have to learn, you have to get inter-mingled fully to get the full benefit.

<B>BRR: On that note, what do you think the spillover could be from the Chinese investment coming into Pakistan?</B>

<B>RY:</B> I think it could be a massive game-changer. Right now, it's one of the big positives in the country. I think it's going to increase connectivity, make Pakistan more attractive, and investment opportunities will come.

With CPEC you're seeing new investment, but it's new investment to cater to CPEC; hence, it'll be steel-making or whatever. But at least it's new investment people are willing to make.

Export-orientated revenue is not what matters; it's getting the technology, the machinery, the management technology. There are benefits to upgrading - spillovers. That's what generates growth. You go into higher-end products, you have higher skills, these skills may be used for something else, etc.

Sri Lanka is a big women undergarment manufacturer. The suit jacket and these undergarments are the most technically complex garments to produce. There can be up to 50 components in the undergarment. You can't produce all 50, so you need to import. How can you import these components without an effective management system? That kind of complexity requires management complexity. Sri Lankans have become network managers and logisticians, and that can be applied in anything.

<B>BRR: How important is logistical proficiency in today's world?</B>

<B>RY:</B> In some industries, the timing is everything. The retail revolution is a massive industry. We sort of think of it as warehouses and getting goods there. I've seen amazingly high functioning warehouses, and it's crazy how fast things are happening. It's not about the factory, it's not a truck, it's everything. The starting point is ZARA; ZARA is a logistics revolution. They can get from design to store in 20 days.

ZARA has daily analytics of what is the demand, and from that the supply changes. You can never look at a ZARA item and think I'm going to save up and buy it later, because it goes away! You don't get big ZARA sales because they only supply what people want. Not everyone can have that kind of logistical excellence.

People are moving to full-package logistics players: someone who can act like a freight forwarder, warehouse, has connections with transport industry - air, sea, road, truck - and that requires IT. I'm excited about Pakistan's young people getting into IT, but I don't know why everyone isn't in logistics. That's what people need.

<B>BRR: So how can Pakistan come up with its own ZARA? What does it take to build a brand and enter the high-margin areas?</B>

<B>RY:</B> In textile, with a simple product like a t-shirt, you don't need a relationship with the buyers. With complex products, you have to carry out investments, and investments in management and logistics.

A Victoria's Secret undergarment sold for $50 is made for $7 in Sri Lanka and is $8 by the time it comes to the US. The rest is value-added, part of which is marketing. If you go into the retail industry and brand-making, you can get those profits. Sri Lankans have developed their own undergarment brand for south Asia - Amanté - and they do it with the body culture of the south Asian woman, with materials that are appropriate for this climate.

But just because you are a great manufacturer doesn't mean you are a great brand maker. That's a completely different set of skills. We met Turkish jeans-makers that supply Gucci. They get $100 for Gucci jeans, but it's sold at $900. These guys went into Europe with their own brand and got nothing. Even though it was the same trouser, without the branding it's nothing. Design school, marketing, branding, that is a science. You can't downplay that.

Pakistan has a lot of advantages - cotton, yarn. You have these assets. You don't have to be importing. But I've seen a Pakistani warehouse; you can't be in fast fashion with that kind of a warehouse. Take your assets and use it for what the globe wants. Knowing the latest trends, your ability to do what is globally demanded and your quick response to it is what counts.

Why don't you create more brands and make them grow here? One of the things is to focus on the domestic market. I have heard that Pakistani clothes are taken by stylists of Bollywood stars. You can have such niche markets!