Stalled concerns

TRADE

Despite growth in the economy the painful truth is that we are losing 0.01 percent share in global trade annually when our total share is less than one percent. The penetration of our products is also declining in the domestic market.

We have proved ourselves neither efficient manufacturers nor competent traders. Instead of analysing the flaws in our system and then take corrective measures, both the businessmen and the government have started blaming each other for this debacle. Our exports have been on decline for the last four years. The late improvement in exports in last six months would not be enough to even cover the exports we achieved in 2012-13.

It is inconceivable for a developing country aspiring to become the 25th largest economy by 2025 to register zero growth in exports in five years. Pakistan country has got a lot of potential. The country’s demographics demand creation of three million jobs per year. No other developing country enjoys availability of young workers to this extent. China, the country with the largest population is facing a shortage of workers too. Malaysia now has to bring in workers from other countries to run its industries. Pakistan perhaps is the only country in the region where Greenfield industrial projects in the last two decades can be counted on fingers.

Another point worth noting is that industries like cement and sugar have increased installed capacities substantially during this period. In fact, each expansion in any cement or sugar plant has been equivalent to a Greenfield project. But the difference is that in each expansion the already existing sponsors or owners invested. Why is it so that no new investor dared to step in these industries although the scope for expansion was very much there?

Cement industry was operating at 9.9 million ton capacity in 1997. Two decades later the capacity increased four and a half fold to 46.70 million ton, but the number of cement units remained the same. The 23 cement units in Pakistan have enhanced their capacity to 46.7 million ton and are minting money.

Did any economic planner try to find out as to why no new investors are coming in the sector despite hefty profits?

It makes no economic sense except that there is some invisible force that is preventing new investors to enter this profit making sector. It could be either cartelised behaviour or strong-arm tactics. There are no new investors in spinning and weaving sectors as well. The tractor industry is dominated by only two local giants. All other tractor units established in the past two decades folded or are folding after a few years operations.

All this indicates that we are indeed an elitist economy where there is no room for talent or a new face. The wealth is regularly concentrated in few hands. They operate without fair competition. We see few families owning banks, textile mills, power plants, garment units, cement units, aviation services and what not.

It is an economic rule that when wealth is concentrated in few hands the economy loses its competitiveness. Those with tons of money are not bothered whether they earn from exports or imports. They want higher profits come what may. The decline in our exports is accompanied with higher increase in imports. The increase is more in consumptive imports than in technology. The government plays lip service to control consumptive imports. They levy regulatory duties to curb luxury imports ignoring the fact that almost 80 percent of the wealth is concentrated in hands that need those luxury items and they would gladly pay higher duties.

Pakistan needs a paradigm shift in its trade policy. The state institutions have to be revamped. Trade in Pakistan is regulated by multiple institutions.

The Ministry of Commerce is supposed to look after trade affairs but is dependent on implementation of its decisions on numerous ministries. Although it is the mandate of the Ministry of Commerce to determine the import and export duties, this function is revenue. The Federal Board of Revenue (FBR) fixes duties not on the needs of the industry or trade but for revenue generation. Very few countries generate revenue for import or exports; instead they regulate duties to boost trade, which is not the case in case of FBR. The Ministry of Commerce that promotes trade has to assure the exporting industries of smooth power, energy and water supplies.

The ministry is powerless in this regard. Ideally the ministries of power and petroleum should allocate supplies to various exporting sectors in consultation with the trade ministry and then adhere to allocations. Instead the industries have to individually plead their cases with these line ministries.

The concentration of wealth in few hands has unduly powered the rich of this country. They have alternate plans to compensate decline in exports. The exports were expected to decline as concentration of wealth has made the rich inefficient. They compensated the loss in exports by developing extremely high priced products for the domestic market. Their profitability has in fact increased after decline in their exports.

Pakistan is handicapped by narrow base of both products and export destinations. In addition, its planners have proved to be incompetent negotiators. Pakistan has been at the receiving end in all the free trade agreements (FTA) it signed with some of its trade partners. There have been cases where the same product is being imported by our FTA partner from other countries at low duties while duties on the same product from Pakistan were much higher. This shows the non-serious attitude of our trade negotiators. Moreover, our negotiators have allowed zero rated access to few FTA partners on some products that are produced in Pakistan.

Pakistan needs long term solutions to shape its turbulent economy. Our export base is very narrow and only 10 products consume 80 percent of our import bill. In exports, 80 percent come from textiles, leather and rice.

Also, around 70 percent exports go to the USA, EU and Middle East. To increase our markets and also access to global markets, we need to increase our product base. We have neglected the African states, the Central Asian economies, Russia and our foothold in Far East is also very weak.

Crude oil and edible oil for instance are our major essential import items. Our public and private transport runs on petrol and diesel that has to be imported. Our power generators need furnace oil and gas to generate power. Luxury imports account for 20 percent of our imports.

We can shift to alternate and renewable sources of energy. Solar energy has emerged as the most low cost power in the word. Biomass and municipal waste which is available in abundance in Pakistan is a major source of energy in many developed economies. Instead of cutting down luxury imports, we can import them with a higher duty, as those who consume luxury items have deep pockets and have access to high disposable incomes.

The writer is a staff member