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Business

October 13, 2017

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Export industries need better technology to acquire global competence

Export industries need better technology to acquire global competence

LAHORE: Industrial growth without exports have not served Pakistan well  as industrialisation in the country is based on domestic consumption, and many exporting industries in fact  have closed down in the past decade creating a balance of payment problem.

The successful economies of Asia, Africa and Latin America reveal that they owe their success to exports. Manufacturing no doubt has been the powerful escalator of economic development for poorer countries in the last five decades.

They were able to acquire technology from developed economies with ease that generated high productivity jobs. The technology did not require high skills during this period. The excess labour available in agriculture was inducted in the production process with little training. Increasing productivity was not a problem as it could be exported to high income countries instead of depending on low income domestic consumers.

Our entrepreneurs unfortunately missed that opportunity. They started exporting low value-added products in 1990s and are still doing so with 90s technologies. It is a puzzling fact that during the same period, the manufacturers catering to the domestic market kept on upgrading their efficiencies and technologies, and most of them are flourishing.

Take for instance the cement sector. It has doubled its capacities in last ten years and replaced the older technologies. Today most of the cement plants have state of art technology producing cement at global efficiency.

The car manufacturers are producing double the number of units they were producing a decade back. The sugar industry produces more sugar than our needs. The home appliances manufacturers are posting high growth. All these sectors cater mostly to the domestic market only.

In textiles over 100 spinning mills have closed down with no chances of revival, despite export package announced by the government. Fashion fabric manufacturing units are doing a roaring business maintaining robust growth for the last five to six years.

Most of this fashion fabric is sold in the domestic market. The mills that were exporting fabric are in trouble because the fabric they produce from inefficient machines costs higher and cannot be exported. 

The companies serving the domestic market managed to upgrade their technologies as they soon realised that they would be booted out of the market if they fail to attain the efficiency of their other compatriots serving the same domestic market.

This realisation came too late for the exporters that looked towards the government for bailout as they lost the global markets. It will be an uphill task for the exporters to regain the lost markets because more efficient global competitors are now well entrenched in these markets.

It is now a well known fact that manufacturing has become increasingly skill-intensive in recent decades. The competition in global markets is very tough that makes it extremely difficult for the newcomers to attain the level of success that was achieved by China, Japan or Malaysia in the last half of the 20th century.

Except for a handful of exporters, many exporting industries in Pakistan have been experiencing premature deindustrialisation. It seems as if the escalator has been taken away from the lagging factories.

The planners must realise that the growth depending on domestic consumption would not take Pakistan out of the woods. We will have to substantially increase exports to wipe out the trade deficit.

We have labour that has been moving from low-productivity agricultural activities to higher-productivity activities, but the latter are mostly services rather than manufacturing. Service sector alone cannot create the number of jobs to absorb the unemployed youth. Manufacturing on the other hand can wipe out unemployment quickly.

The next phase of investment in textile sector should come in garments and knitwear. These subsectors of textiles should be facilitated to import inputs for exports at zero duty. Pakistani textile sector used to laugh at the Bangladeshi garment exports calling them tailors. But the garment sector created millions of jobs, many times more than the textile jobs created by low value-added textile firms in Pakistan.

Bangladesh is now a force to reckon with in spinning and fabric as well. Vietnam replicated the Bangladeshi model more quickly and is at par with them in garment exports while entering the yarn export market as well.

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