Nightmare of falling exports continues to haunt experts

LAHORE: Exports need special attention that currently account for only 7.4 percent of Pakistan's GDP, exactly the half of Bangladesh's exports that are equivalent to 14.8 percent of its GDP.

Pakistan is heading towards an unmanageable situation, as despite its improving GDP growth, its exports are declining creating a big trade deficit that even the remittances have not been able to plug. With a GDP of $271.1 billion (2015 estimates), Pakistan’s exports in 2016 were $20.96 billion. Pakistan’s external debt as on December 2016 was estimated at $604.04 billion. 

If we compare the performance of the other two large economies of the subcontinent; the Indian GDP has crossed $2.251 trillion and its exports in 2016 were $271.1 in 2016. These exports are equivalent to 12 percent of its GDP. Indian external debt stands at $507 billion that mean its exports are less than two times of its external debt.

Bangladesh, with a GDP of $226.8 billion, exports goods worth $33.32 billion, which is 14.8 percent of its GDP. Its external debt is $37.26 billion which is a little over 100 percent of its exports.

Experts say that a country is relatively immune from external shocks if its exports are almost equal to its external debt. A country is vulnerable to external shocks if its external debt is over 200 percent of its exports, and it is highly vulnerable to even minor shocks if its external debt is over 300 percent of its exports. Pakistan unfortunately falls in to the last category.

Declining exports are a dilemma for the experts, as all the macroeconomic indicators have improved vastly in the last four years. Pakistan is still considered a low cost economy by international standards.

However, there are many high and low cost economies around the world that are performing better than Pakistan in the same field that is considered our strength. Take for instance Bangladesh and Vietnam both of which excel in textiles.   One may argue that Bangladesh is riding on the GSP Plus status that it has been enjoying in the European Union for the last two decades. But then that status was also accorded to Pakistan two years back.

Then Vietnam, with much higher per capita income and much higher wages has surpassed even Bangladesh in textile export performance.

We must consider why we lag behind these economies?

The answer is simple.

We are into very low value-added textiles, where even in clothing we produce low-end products. On the other hand, Bangladesh that started with low-end garments is now producing medium-priced clothing, while Vietnam that started with medium-priced clothing, has graduated towards high-end products.

Even clothing accounts for a little less than 40 percent of our textile exports, while the rest are low value-added yarns, fabric, bed sheets, and towels.

In the current scenario, it looks difficult to make Pakistan a manufacturing hub. We need change of mindset both at the government and private sector level.

During the four years of its rule, the present regime has succeeded in taming inflation, stabilising rupee, and bringing interest rates down to a comfortable level. It has improved infrastructure. Telecommunication has connected almost the entire country with the outside world.

This government has failed to live up to its promises to the exporters on refunds and rebates. It remained concentrated on the five major exporting sectors, while neglecting sectors that hold promise for the future. It has lost creditability by backing off from the various actions it promised to the investors.

Exporting industries need energy and power that has been largely provided by the state. The energy and power costs higher than regional economies, which is a big disadvantage for our low value-added industries.

Absence of industrial clusters and common facility centres has also effectively barred the small and medium investors from entering the export arena.  Economy stands no chance of sustained revival without vibrant SMEs.