Exports will rise with improved efficiencies, not govt concessions

LAHORE: Pakistan’s economy is facing a dilemma as liberalisation has increased imports, while the protected domestic industries, after failing to improve efficiencies to compete globally are losing even the domestic markets to imports.

The policy makers have no clue how to respond. Instead of doing some in depth studies, they act on the presentations given to them by different stakeholders. Look at what happened in case of textiles after announcement of export package. They announced rebates for the entire textile value chain without realising that some of the sectors are suppliers of basic raw material to the value-added sectors.

Rebates were announced for yarn and fabric besides somewhat higher rebates for bed wear and apparel. The impact of that policy is now evident from the textile exports in the month of May. The exports of textiles declined in May by over 12 percent with value-added sectors accounting for a major chunk of the decline, whereas the reduction in exports of yarn and fabric was relatively small.

This was the result of the rebate provided to yarn and fabric that are the two basic raw materials of apparel and bed wear sectors. These sectors were incurring steep decline in exports that has slowed down appreciably.

The value-added sector on the other hand was slowly increasing exports – a process that has been halted after the export package. The reason is that their competitors are buying cheaper yarn and fabric from Pakistani producers, who pass on the rebate to fetch export orders.

However, since they do not get any rebate on local supplies they have not reduced their prices in the domestic market. The advantage provided to the apparel sector for exports has been nullified by higher input price of their basic raw materials compared with their regional competitors. The planners should have applied mind while announcing concessions for different value chains in textiles.

Increasing imports and declining exports clearly indicate that the cost of doing business is high. The factors impacting the cost need to be analysed.

Certain government policies, corruption, inefficiencies of the private sector and failure to upgrade technology are some of the factors responsible for the high cost of doing business.

Most of our industries are operating without energy audit and are wasting electricity unnecessarily to the tune of 20-30 percent. They are demanding reduction in power rates by 30 percent, but they fail to realise that they can cut their power bills by the same percentage if they improve efficiency of their power usage. The productivity of Pakistani workers is very low compared with that of a Chinese or Indian worker. Skill may be one reason, but working conditions at the production floors is a major factor that impedes productivity in various industries. They manage their production in inadequately illuminated and poorly ventilated halls. The workers get fatigued in such suffocating culture and steadily lose working efficiency.

In other countries, the efficiencies of workers increase as they gain experience, but in Pakistan the production efficiency remains stagnant. The white collar workers enjoy air conditioned rooms on the same production floor and this discrimination is resented at workers level. Private sector entrepreneurs generally tend to exploit their workers in case of monthly wages. They increase the salaries of their workers in line with the yearly minimum wage increase announced by the government that is basically meant for unskilled workers.

The exporters prove their compliance by giving the government announced minimum wage. But they do not pay for experience.