The 'export package', in the works for months, finally got unwrapped last week. For the PM it was an occasion to remind the doubting Thomases of the economic turn-around. He spent more time recounting his government's achievements than what the package will do for exports that the Strategic Trade Policy Framework (STPF) didn't.
The usual suspects dutifully hailed the package, as they did 18 months ago when the Engineer unframed the 'game changing' STPF, now buried and forgotten.
For something that has been on the cooker for so long the package is surprisingly short on details. The Engineer's follow-up presser added little. All we know is the duty exemption on certain insignificant imports, and generous drawbacks on mostly textile items. What we do not know is the arithmetic of it: how does it all add up to 180 billion rupees? Will someone please give us a breakdown? Perhaps the Accountant, who recently signed the Open Government Partnership agreement in Paris?
The Engineer has at least given us a number to work with. He pitches the package-induced additionality, over its eighteen month life, at $ 2.5 to 3 billion. Even if optimistic, is this enough of an additionality to make the Accountant part with 180 billion rupees? Surely, the skewed risk-reward equation was not lost on our sharp accountant- unless he has a trick or two up his sleeve, which he usually does (the recent gas price increase a trailer?) . Meanwhile, he has conveniently thrown the ball into the exporters' court: 'it is now the responsibility of the business community to increase exports'. Vintage Accountant!
But Christmas came late. The package coincided with Heimtex, the major textiles trade fair. Buyers made a beeline to the Pakistani stands, not to admire our samples but to demand half the bounty - literally jumping on the gravy train before it could leave the yard. Some exporters succumbed; the sharper ones ducked under the government's track record of being tardy with the settlement of refund claims: 'We will share it with you when we get it'.
We are not in the habit of looking a gift horse in the mouth. We thank the Lord for small mercies and have no time for spoil sports, who tell us the package is politically motivated rather than export-led. We also look the other way when told the package does nothing for diversification or for genuine value addition. As far as we are concerned textiles is the name of the game, and denim trousers are up there on the value-add totem pole. And if there is a bit of over-invoicing surely it is not going to break the bank. The likely spike in yarn prices will be a pain but with the cotton prices going up the value of our exports will also go up, jacking up our rebates.
We also like to come back for more.
Please, Engineer Sir, don't take the eye off the reforms ball. If we do that export growth will plateau out, weakening the case for future bail-out packages. Exports will be reduced to a side-show instead of being the economic centre of gravity. If we want serious export dollars, on a sustained basis, we need to put our house in order, fast as we can.
It is a long road to export reforms and we neither have the time nor the resources to pave it all the way. We need to prioritise. Luckily for us, we already have the 'mission critical' building block of a reasonable macroeconomic stability. A major disabler, the security situation, is getting defanged. Trade supportive physical infrastructure is being attended to in all earnestness, with the China Pakistan Economic Corridor (CPEC) booster in tow. An improved energy situation promises to improve further. Assuming these fundamental enablers to hold, what should be our priorities for exports to displace borrowings as the principal source of a robust and durable build-up of foreign exchange reserves?
From a long list of imperatives, we submit to the Engineer only one: generate new export capacities.
What will it take? First, the anti-export bias, a function of our stifling tariff structure, will have to be reversed. Exports will not attract investments if the domestic market remains more attractive. We recognise that a wholesale revision of protection levels, no matter how warranted, will be staunchly resisted. We therefore propose a gradualist approach. Let us pick say five industries (or even products) with fair export prospects and incentivize investment in them. The incentives could include competitive industrial finance, subsidised and assured utilities, efficient protection levels, and tax relief where helpful - all subject to three provisos: the incentives will be on a diminishing scale with a pre-determined sunset clause; they will be withdrawn if exports do not continue to grow; and to qualify you have to have a size that provides economies of scale, fully integrates competitiveness-enhancing technologies, and meets the prescribed value addition threshold.
Second, foreign investment in exporting industries is the key. This will contribute immensely to scale requirements, appropriate technological diffusion, enhanced productivity and efficient marketing. The government will have to take the lead in attracting foreign investment by proactively targeting a few realistic sectors and host countries. FTAs will help, if cleverly negotiated to ensure trade creation and not diversion; not to always look for benefits to our existing export capacities but to create space for foreign direct investment in new products.
Third, the roles and functions of TDAP and our overseas trade offices will need to be rewritten. TDAP should out-source its traditional promotional instruments - trade fairs, trade missions, display centres - and shift its focus from 'offshore' to 'onshore'. This would require working closely with export-oriented local industry, not just to trouble shoot but to act as proficient advisers on productivity improvement, product development, and technological innovation. The trade offices should be transformed into export related investment offices, rather than trying to sell carpets or household linen, for which we don't really need them. Their performance should be evaluated on the basis of the quality of B2B partnerships sponsored by them. Given that not in all cases they are well conversant with our needs, the trade offices can do with public-private partnership. The trade Associations should be incentivized to open their offices abroad that the trade offices can leverage. Money is most welcome, but without structural reforms, it won't buy exports.
shabirahmed@yahoo.com