It becomes a real challenge to craft an export-led economy for a country suffering from limited exportable surpluses, that too mostly raw materials such as cotton and leather and very low value-addition products such as yarn and at best towels and bed-wear. Pakistan is one such country. Over the last 70 years, Pakistan's official economic managers and its private sector have in their respective ways failed to enhance qualitatively - as well as quantitatively - the list of its exportable surpluses.
Pakistan is essentially an agro-based country so there should be no doubt that majority of the exports made by the country will be agri-based: oranges, mangoes, furniture, cotton fiber, cement, marble tiles, raw cotton, yarn, thread, knitwear, bed-wear textiles, clothing, carpets, sports goods, cutlery, surgical instruments, leather goods including belts and shoes, electrical appliances, software, carpets, rugs, ice-cream, white and red meat, chicken, milk, wheat, seafood, vegetables, processed food items, rice, maize and fruits.
All the incentives, both monetary and financial that the government periodically allows to the export industries, especially to the textile sector, have so far ended up making no difference to export promotion; these have in fact enriched a handful of exporters without causing any positive impact on export - volume-wise as well as in value terms.
After surrendering a significantly big part of international textile clothing market to its regional rivals, especially Bangladesh, since the abolition of quotas, Pakistan is now fast losing its cotton spun yarn markets to the much cheaper Vietnam.
Cotton spinning in Vietnam has more than tripled in the last four years, with the total use expected to shoot up to 5.1m bales in 2015/16. During this period, the country accounted for half of the total world's growth in cotton demand, according to a USDA's cotton report.
Vietnam's net yarn exports increased at an annual rate of over 40 percent between 2011/2016. This growth is paralleled by a large rise in China's investment in spinning in Vietnam alongside wholesale relocations of some firms.
Pakistan's cotton yarn exports, on the other hand, have been on the decline for the last couple of years owing to a surging cost of production on account of sharp spikes in energy prices and shortages. Yarn shipments tumbled by almost a one-third in the first half of 2015-16 as overall textile and clothing exports plunged by about 9 percent in spite of the EU trade concessions under the bloc's GSP+ scheme.
Cotton consumption for Vietnam's domestic yarn utilisation has also shown impressive growth, more than doubling since 2011/2012. Thus, more yarn is being exported to China by Vietnam, eating into Pakistan's share of yarn export to our big northern neighbour. International Cotton Advisory Committee (ICAC) estimated that Vietnam's cotton consumption had surged by 22 percent to 1.1m tonnes in 2015/2016 and Bangladesh's by 13 percent to 1.1m tonnes compared with a 12 percent decline to 2.2m tonnes in the cotton use by Pakistani factories.
The increasing cotton consumption in Vietnam and Bangladesh - both the countries grow very little cotton, and heavily rely on imports to meet their respective industries' demands - is attributed to the lower cost of production due to cheaper energy and labour in the two countries.
After crossing the $14 billion mark in 2009/10, Pakistan's overseas textile and clothing shipments have been on the decline and dipped to $13.47 billion at the end of 2014-15. Exports further fell well below $13 billion in 2015-16 with the basic textiles leading the downward trend because of rising cost of production and closure of almost 30 percent capacity in Punjab where 70 percent large-scale industry is located.
It's not that only exports of low end, basic textile products from Pakistan are going down, our home textiles have also lost their competitiveness because of higher cost of production.
Pakistan needs to diversify its exports not only in terms of commodities but also in terms of markets. Heavy concentration of exports in few commodities and few markets has led to export instability. Other issues which need to be addressed include low value-added and poor quality, obsolete use of machinery and technology, higher wastage of inputs adding to the cost of production, low labour productivity, little spending on research and development, export houses lacking in capacity to meet bulk orders, inability to meet requirements of consumers in terms of fashion and design, non-adherence to contracted quality and delivery schedule and a lack of marketing techniques.
Pakistan also needs to do some original thinking on the issue of exports by studying the needs and requirements of land-locked Western part of China linking Pakistan and the Western neighbour through border regions of Xinjiang (China) and Gilgit-Baltistan (Pakistan).
China's Western region contains 71.4 percent of mainland China's area, but only 28.8 percent of its population, and 19.9 percent of its total economic output, as of 2009. The main components of the strategy chalked out to develop the region include the development of infrastructure (transport, hydropower plants, energy, and telecommunications), enticement of foreign investment, increased efforts on ecological protection (such as reforestation), promotion of education, and retention of talent flowing to richer provinces.
The western development bureau affiliated to the state council launched 10 major projects in 2008. These projects included new railway lines connecting Guiyang and Guangzhou, Lanzhou and Chongqing, Kashgar and Hotan in Xinjiang; highways between Wanyuan and Dazhou in Sichuan Province, Shuikou and Duyun in Guizhou Province; airport expansion projects in Chengdu, Chongqing and Xi'an. They also included the building of hydropower stations, coalmines, gas and oil transmission tube lines as well as public utilities projects in western regions.
Chinese policymakers have allocated certain industries to core areas to match industries with local capabilities and resources. For example, parts of Western China have become a national center for science and technology research and development (R&D), as well as a base for high- and new-tech industries and advanced manufacturing. Other parts are slated for development as a base for new-materials R&D and production, and as a center for machine-tool manufacturing, heavy-auto manufacturing, non-ferrous metal processing, and retail industries. Some of the resource rich cities of the Western China encourage investment in the energy, coal-to-chemical, and agricultural processing industries. For the remaining areas that are largely rural, government's focus is on basic infrastructure construction and on fostering urbanisation.
Pakistani entrepreneurs as well as officials responsible for formulating economic policies need to visit at least the immediately adjacent Chinese regions to GB and try to meet the game changer at its own game for mutual economic gains. One cannot, therefore, rule out the possibility of existence of a slew of tailor-made opportunities for Pakistani entrepreneurs in these areas.
And if approached with an open mind, Islamabad can indeed at the same time that it is looking at the economic opportunities for Pakistan in the Western China, revive the Reconstruction Opportunity Zones (ROZs) proposed by the US soon after the second Afghan war had tapered off. This US proposal did not take off most probably because Pakistan at that point in time was nursing the desire to help the Afghan Taliban hiding in Pakistani safe havens to regain the political control of Afghanistan as soon as the ISAF presence there was reduced.
The ROZs were to be located in areas straddling the Durand Line. And in case they were established according to the plan then it would have become impossible for the Afghan Taliban, especially the Haqqanis, to operate from Pakistani sanctuaries. Now that Islamabad, especially Rawalpindi, has lost interest in pursuing such a mission and since the vibes that the incoming new administration in Washington is emitting vis-à-vis Pakistan it is perhaps the right time to re-engage with the US on ROZs rather than make a fresh request for the concessionary sales of F-16s.
The customs-duty free import of goods produced by industries, mostly textiles located in the ROZs as joint Pakistan-Afghanistan venture would give a significant boost to our textile exports. Both Egypt and Jordan have similar arrangements but separately with Israel and the produce of the goods manufactured by the Egypt-Israel and Jordan-Israel joint ventures located in the respective opportunity zones reach the US market without customs duty. This arrangement has not only precluded wars involving these countries but has also given a significant boost to their respective economies.
One is greatly encouraged to subscribe to this idea of reviving the ROZ proposals by the recent statements of the US defence secretary-designate James Mattis. He has said that the Trump administration would offer incentives to Pakistan to cooperate with the United States on critical issues. At his confirmation hearing at the Senate Armed Forces Committee, Mattis underlined the need to stay engaged with Pakistan while asking it to do more to eradicate terrorism from the region.
"If confirmed, I will work with the State Department and the Congress to incentivise Pakistan's co-operation on issues critical to our national interests and the region's security, with focus on Pakistan's need to expel or neutralise externally-focused militant groups that operate within its borders," Mattis told the committee while responding to a question.
The general's comments on Pakistan indicate that the incoming Trump administration will continue with the existing US policy towards the country. Mattis has complimented Pakistan for its action against terror groups in the country, but said that he would push for more effective targeting of groups that were aimed at neighbouring countries.
If confirmed, he promised to work to build the trust that the US needed for an effective partnership. Mattis said that Pakistan had "learned some hard lessons" from its dealings with the Taliban, as this caused widespread violence inside the country as well. He praised Pakistan's efforts towards to battling "internally-focused" militants. "In a sign of its commitment, its military has suffered significant casualties in this counterinsurgency effort," he said, and offered to help Pakistan in defeating these militants.