Money Matters

The Export Crisis

Money Matters
By Engr. Hussain Ahmad Siddiqui
Mon, 12, 22

Pakistan’s total exports of goods and services remain stagnant at average around $30 billion annually for the last ten years. In spite of tall claims and high target settings each year, the government has not been successful in increasing exports significantly in value and in volume. It is reflected in the fact that total exports registered $31.58 billion in 2022 compared to $30.70 billion in 2013. Exports during the first quarter of current year 2022-23 (July-September 2022) have amounted to $7.59 billion, nominally higher compared to $6.93 billion exports registered during the corresponding period last year.

The Export Crisis

Pakistan’s total exports of goods and services remain stagnant at average around $30 billion annually for the last ten years. In spite of tall claims and high target settings each year, the government has not been successful in increasing exports significantly in value and in volume. It is reflected in the fact that total exports registered $31.58 billion in 2022 compared to $30.70 billion in 2013. Exports during the first quarter of current year 2022-23 (July-September 2022) have amounted to $7.59 billion, nominally higher compared to $6.93 billion exports registered during the corresponding period last year.

The static trend of exports is likely to continue as there seems to be no signs of improvement in the near future given the economic conditions and political instability prevalent in the country. In fact, exports have been gradually declining in terms of its share in the Gross Domestic Product (GDP) of the corresponding period, represented as a percentage to the GDP that ranges from high 12.24 percent in 2014 to lowest 8.22 percent in 2017. Interestingly, exports in 2013 were 13.28 percent of the GDP, whereas it was recorded 9.98 percent of GDP in the year 2021 when exports surged to an all-time high of $34.57 billion.

There are a variety of factors for dismal export performance, which include poor governance, low productivity, high cost of production, and obsolete technology etc., besides the fact that export promotion has never been a priority for the government. But the most important factor impeding the growth of exports is the government’s lack of vision for long-term export promotion that results in the government's improper and myopic policies. Currently there is no export policy and the in vogue strategic trade policy framework does not focus on exports in real earnest. Likewise, there is no national industrial policy since decades and sectoral policies implemented in recent years, like for automotive and textile industries, were not able to strengthen the manufacturing sector, which is a major component of national exports.

Pakistan exports are much lesser in relation to its extensive potential, and also much lesser than those of the countries with comparatively lower natural resources, smaller area and much less population such as Vietnam and Bangladesh. Exports of Bangladesh amounted to $52.08 billion in 2022. Vietnam’s export growth is astonishing as its exports in 2021 were 105.8 percent of GDP. Vietnam’s total exports in 2022 are $368 billion. Amazingly, its monthly exports are equivalent to that of Pakistan’s yearly exports. Vietnam exported goods worth $34.92 billion in August, $29.94 billion in September, and $30.27 billion in October this year. Consequently, Pakistan is ranked low as the 55th largest export economy in global ranking.

Pakistan’s exports of major goods are not value-added items as reflected in its various components that are consumer goods 63 percent of total exports, intermediate goods 23 percent, raw materials 11 percent, and engineering goods & transport items just 3 percent of total exports of goods & services. Textiles & clothing remained the number-one export item for many decades, almost 60 percent ($18.52 billion) of total exports in 2022, though without much diversification and value-addition of products. Second largest export item is agro-based & food products including vegetables, fruits, rice, sugar, fish, mutton & beef, and other foodstuff items.

Total exports of vegetable products and prepared foodstuff amounted to $5.25 billion in 2022. Other export commodities are live animals and animal products (including raw hides, leather & its products), wood & wooden products (like furniture), animal & vegetable fats & oils, plastics & articles thereof, products of chemicals & allied industry, cement & other mineral products, and machinery & transport items. It is evident that Pakistan continues to rely heavily on export of traditional items which are dependent on the conditions of agricultural crops.

There are a variety of factors for dismal export performance, which include poor governance, low productivity, high cost of production, and obsolete technology etc., besides the fact that export promotion has never been a priority for the government. But the most important factor impeding the growth of exports is the government’s lack of vision for long-term export promotion that results in the government's improper and myopic policies. 

Globally, capital or engineering goods are termed as a major component of national exports strategically for the reason of high value-addition. Currently, Pakistan has a nominal --- less than 2 percent --- share of engineering goods in its overall exports. Engineering goods, including mobile phones, electronics, computers, automobiles and auto parts & accessories, are top exports of Thailand and Malaysia. Share of electrical machinery and electronic goods & other machinery in Malaysia’s total exports is as high as 36 percent of total exports. Likewise, Vietnam exports mobile phones, electronics, computers and electrical machinery having 33 percent share in its total exports.

Thailand exports of machinery, computers & electrical machinery, and motor vehicles are currently over 19 percent of its total exports. Indonesia exports electrical machinery, computers and vehicles that constitute 13 percent of its total exports. Machinery & equipment is the main item in global trade followed by pharmaceuticals, automobiles, and agricultural products. The analysis of regional countries that outperformed in exports in recent years demand that Pakistan learn from these success stories. Many times, engineering goods have been identified by the government as a new growth driver of Pakistan’s exports, with a yearly target in the range of $1 billion to $5 billion, but it was never achieved in any year.

Engineering goods exported during 2021 registered $325 million, constituting 1.27 percent of total export of goods (excluding services) valuing $25,639 million. In 2022, engineering goods export declined to $296 million that is 0.91percent share in total export of goods valuing $32,450 million. Various engineering goods exported include electrical machinery, vehicles & associated transport equipment, farm machinery, auto parts & components, home appliances, electronics & telecom, electrical fans, surgical instruments, and cutlery & kitchenware.

It is ironical that the government's Strategic Trade Policy Framework (STPF) 2020-2025 has proposed various short-term and long-term action plans for the growth of exports but remained on paper only, and were not implemented. The document has envisioned making Pakistan a world-class exporter of engineering goods by 2025 but this is not in sight given the performance of the engineering sector in the export market so far. Sadly, the policymakers have not recognised the critical role the export of engineering goods, in particular capital goods or industrial machinery, could play in diversifying and enhancing the total exports. Pakistan produces, in public and private sectors, plant machinery & equipment for sugar mills, cement plants, fertilizer & chemical plants and oil & gas sector, equipment for thermal & hydropower plants, industrial boilers, road construction machinery, machine tools, pumps & valves, and a variety of other engineering goods.

Pakistan has supplied and commissioned complete sugar mills in Indonesia, Bangladesh, Sri Lanka, and the African countries. Also, cement plants have been installed in Bangladesh and Iraq, whereas equipment, components, accessories and spares for various industrial plants have been supplied in the past to many countries. Nonetheless, the domestic industry could not export capital goods on a sustained and substantial scale primarily due to absence of institutional support. The situation has not improved yet.

“Pakistan Export Strategy –Engineering Goods 2023-2027” adopted by the government identifies engineering goods as a priority focus export sector for growth and development for the next five years, providing a roadmap and plan of action. This however covers only automobiles, tractors, auto parts & components, and electric fans, and there are no measures being suggested for strengthening the capital goods subsector which would be unable to effectively operate in the highly competitive and fast-moving environments of export markets globally. It is imperative therefore that the government works out a multi-pronged strategy to gradually replace traditional items of raw materials and intermediate goods with value-added engineering goods as the country’s main exports.


The writer is retired chairman of the State Engineering Corporation