No government has focused more on manufacturing and exports since the 1960s than ours; Prime Minister Imran Khan remarked during a recent interaction with business leaders. For sure, he must be having some solid reasons to claim so. However, irrespective of the claim which government of the past has focused more, the ground realities indicate that manufacturing and export sectors need more focus now than ever since the 1960s.
Starting with the latest; large scale industry registered a negative growth of 6.45% during the first four months of the fiscal year. Exports being largely an extension of industrial production have registered a meager 3.2% growth during the first half of the year. Pakistan exports are stuck in early 20s billion range since last six years.
Governor SBP Dr Reza Baqir has pointed out during a recent seminar "Firms and Growth' that one fourth of the emerging economies have growth at an average of seven per cent since 2001. "To reach this average growth rate it was critical for Pakistan to achieve significantly higher export growth," according to him.
What Pakistan, however, could achieve during the period is a dismal reminder that Pakistan economy has some fundamental and structural anomalies stretched persistently during various governments during this period i.e. 2001 onwards. Exports in FY 2003 stood at USD 11.16 billion whereas a negative balance of trade in goods was registered at USD 1.06 billion. Negative trade balance crossed a mammoth figure of USD 20 billion by FY 2008; exports stood at USD19.05 while imports at USD 39.97 billion. The same trend continued with varying speed to peak during FY 2018 when balance in trade in goods stood at USD 37.58 billion; exports at USD 23.21 and imports at USD 60.80 billion.
The growth story of industrial sector during the same period is also marred by fluctuating fortunes. The share of industrial sector in GDP was registered as 22.36% in FY 2003 which gradually declined to 18.17% by FY 2018. On a longer horizon, annual average growth rate (at constant price - 1999-2000) for large-scale manufacturing during 1990-2015 was 5%. However, long term growth trend turned out to be a meager 3.5%.
Many leading economists have been pointing out for many years that Pakistan's economy is in effect going through a premature de-industrialization process. A recent research report of the Pakistan Business Council while analyzing this disturbing trend of de-industrialization noted that this phenomenon is experienced by developing countries at an advanced stage of development. Premature de-industrialization is when economies at a nascent stage of development move away from the manufacturing sector. The importance of industries is immense in sustainable development of any economy as it acts as a cogwheel to generate economic growth.
What lead the economy to this low growth manufacturing trajectory? A plenty has been written, deliberated and debated. Most common obstacles pointed out include low value economic structure, erosion of competitiveness, inconsistent economic and fiscal policies, entrepreneurship deficit, cumbersome taxation regimes, bias towards exports and liberal import regimes, low labor productivity, etc., in addition to the fallouts of war of terror.
Competitiveness is a primary defining agent for industrial and export growth. Various studies have pointed out time and again that industrial and export sectors are consistently losing to the rival economies of the region. If only two most vital enablers of competitiveness are taken into account - electricity and gas - it reveals the odds the country's manufacturing and exports are facing. The cost of electricity as an input was USD 0.13/KWh in Pakistan whereas it was 0.11 in Bangladesh and India, 0.09 in Sri Lanka and 0.05 in Vietnam as recorded during 2018. Comparison of gas rates revealed the same episode; Pakistan offered at USD 0.23/m3, Bangladesh at 0.09, India at 0.13 and Sri Lanka at 0.10.
Economic policies of successive past governments have not varied much to provide an enabling environment for the manufacturing sector. With this worrisome manufacturing and exports handicap, PTI Government has to focus more and with immense sense of urgency on manufacturing and export sectors than any government since the 1960s.
The country has never experienced such grave economic challenges as it is facing now. Rising debt payments and overzealous revenue targets are hurting the manufacturing and export sector. Revenue drive is bringing all the tricks in the bag to practise; excessive taxation, repressive tactics, holding sales tax refunds on one pretext or other, passing on the losses and non recovery of power and gas utilities to the consumers and so on. This is burdening the already over-taxed manufacturing sector; a sector that has an over 58% share in tax revenue with a share of about 12% in GDP. Sure, it's a defining time to deliver on the claim made by PM that 'no government has focused more on manufacturing and exports since the 1960s than ours!'
(The writer is a political economist. The views expressed in this article are not necessarily those of the newspaper)