LAHORE: Advisor to the prime minister on trade seems to have realised that Pakistan’s lopsided economic growth will remain unresolved if instead of long-term strategy, planners continue to prefer short-term growth objectives that encourages investors instead of entrepreneurs.
Razzak Dawood assured businesses that from now on the trade regime would be favourable to the manufacturers instead of commercial importers.
The duties on all raw materials would be zero or nominal; while the finished products would be subjected to high tariff; and it would be ensured that they were assessed on actual value of the product and not the under-invoiced value. He bluntly told the importers that what he intended to do in tariff regime, would hurt all those that indulge in under-invoicing. This is easier said than done.
The advisor has challenged the entrenched importers, who in connivance with the bureaucracy were bent upon eliminating the manufacturing sector of the country, while ensuring that the loot they enjoyed through imports was inaccessible to new entrants. Entrepreneurs pounce upon the opportunities present in an economy and exploit them intelligently and efficiently. If he could deliver what he said, it would put the economy on the right path. Our dilemma is that we have marginalised our manufacturers, and due to that, so many of them have started under-reporting their production.
It would be appropriate if the government planners take simultaneous action against under-invoicing and under-reporting of production. Both deny entry of entrepreneurs in the economy. During high growth periods of Musharraf and Nawaz regimes, very few green filed projects were commissioned. The existing players enhanced their capacities.
The numbers of spinning mills have declined in last two decades, but the numbers of spindles have increased as the existing mills added new spindles. No new entrant dared to start a spinning mill even when the going was good.
There were 22 cement plants in the country and their capacity has increased five times from 9.9 million tons in 1998 to 55 million tons now, but only one cement plant was established by a foreign investor on huge advantage in duty and fuel that enabled it to compete with the cartel of 22 mills. In the same way, the production capacity of sugar sector has enhanced but the number of mills remains the same.
The absence of new entrepreneurs both in trade and industry tells us of a culture in which existing players cooperate with each other to deny entry to new comers. This happens only in Pakistan, where the rules are flawed with impunity to favour the vested interests.
This provides each player an opportunity to increase wealth without proper competition. The businesses are happy and the bureaucracy is well served under such regime. Dawood is out to break this connivance. There will be resistance from importers and the bureaucracy. The usual argument will be that higher duties increase smuggling.
The smugglers save 100 percent government levies by wetting the beaks of the bureaucracy. Those indulging in under-invoicing usually save 90 percent of government levies through low imported price, while simultaneously pleasing the bureaucrats who assist them in their cause.
In the same way, those that under-report their production, save hundred percent government levies though they have to be ‘kind’ to the bureaucracy. Under these circumstances, it would be better to control elements that could be easily nabbed and then go for the difficult ones.
That Dawood means business is proven by the fact that he has allowed export of one million ton of sugar without any subsidy. Sugar lobby is very strong and many PTI legislatures and leaders are sugar millers who have been accustomed to heavy subsidies on exports.
It seems that after the denial of subsidy, there will be no sugar export. In the same way, Dawood confronted the strong lobby of vested interests who wanted to import used tractors. Even the PM has promised the Punjab Assembly members that he would discuss this issue in the cabinet. But the advisor to PM was firm that he would not allow Pakistan to become the junkyard of used products.
He even hinted at curbing used car imports. In three weeks time, when the new tariff proposals are placed before the federal cabinet, we will know whether we are still going for revenue generating tariff or job creating import duties.