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August 12, 2018
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Fix the export mix

Opinion

August 12, 2018

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The Pakistani rupee continues its wobble. Once more, Pakistan has driven itself into an unhappy imbalance of rising imports and stagnant exports. Which way can we expect the rupee to go when annual earnings from exports hover between $20 billion and $25 billion and annual payments for imports are between $45 billion and $50 billion?

Remittances from overseas Pakistanis, gifts from friends and relatives, and inflows from international borrowing are never really enough to plug the gap. One would assume that Pakistan’s exports must rise to $40 billion or $45 billion dollars.

But let’s not sell Pakistan’s future short. Pakistanis want their country to stand tall on the world stage. What is required on the export front to achieve this? Let’s consider the year 2014, when Pakistan’s exports crossed 25 billion before sliding back down, and compare our performance during this period with that of two Muslim countries which Pakistanis aspire to be like: Turkey and Malaysia.

According to the World Bank’s World Development Indicators database, Turkey enjoyed a GDP of nearly $950 billion in 2014, which was about four times Pakistan’s GDP of almost $250 billion that year. But Turkey’s population was only 77 million at the time. So, its per capita GDP was nearly $12,000 while Pakistan’s was about a tenth of that at $1,300 per capita.

Although per capita GDP is only part of the picture, it does provide an indication of relative prosperity. Malaysia had a GDP of nearly $350 billion in 2014. This may not seem to be more than Pakistan’s GDP. But it was produced by only 30 million Malaysians while it took 200 million Pakistanis to produce $250 billion. So Malaysia’s per capita GDP was over $11,000 in 2014.

Both Turkey and Malaysia reportedly exported up to 10 times the value of Pakistan’s exports that year. Turkey’s exports were led by automobiles, vehicle parts, apparel, machinery, computers, gems and jewellery. Malaysia’s exports were led by electrical and electronic products followed by chemicals and oils, including palm oil.

What is Pakistan’s export mix? Well, it has long been the same: two-thirds of textile-based products with other usual suspects like rice and leather thrown in. Is it possible for Pakistan to solve its perennial external imbalance by increasing exports in these same sectors?

A telling pattern emerges if you pick five of Pakistan’s largest exports and check the global export market for each of them. These are five export items, which accounted for nearly 40 percent of our exports. And Pakistan has been a sizeable player in these markets for some time now.

The MIT Observatory of Economic Complexity’s category-wise export atlas presents the UN Comtrade data for Pakistan’s five top exports. The entire global export of house linens for bed, table, toilet, and kitchen was $19 billion in 2014, of which Pakistan exported $3.25 billion. The global exports of rice that year were $25 billion (Pakistan: $2.25 billion). Non-retail pure cotton yarn had a global export market of $14 billion (Pakistan: $2 billion). Then, the global exports of non-wool men’s suits were $46 billion (Pakistan: $1.25 billion). Finally, the global exports of denim were $8 billion, of which Pakistan exported $1 billion worth. Can Pakistan increase its exports tenfold by concentrating on these familiar markets?

Suspend disbelief for a moment and imagine an extreme scenario for 2014. What would have happened if every other country in the world agreed to stop exporting in these five product categories so only Pakistan could export these items? Pakistan’s 2014 exports in these categories would have risen from nearly $10 billion to the global sum of these five exports: $120 billion.

This would have been a net rise of over $100 billion that would increase the country’s exports five-fold – from $25 billion to $125 billion. Pakistan’s GDP in 2014 would have been $350 billion instead of $250 billion. And per capita GDP would have risen by nearly $550 to about $1,850 per capita.

Even if Pakistan conquered the entire global market in five of our biggest exports in 2014, it would be nowhere close to Malaysia and Turkey in terms of per capita GDP. Instead, Pakistan would have struggled to catch up with Uzbekistan, Laos, and Vietnam, which hovered around $2,000 per capita in 2014.

Pakistan needs a winning strategy to significantly increase exports, expand the size of its economy, and reduce poverty. So, let’s take a look at the sectors with the largest exports globally. When all the items exported in the world in 2014 were lined up in terms of value, the first and second largest exports were crude oil (at a gigantic $1,380 billion) and petroleum products (at $866 billion).

This is followed by items with some possibilities for Pakistan: global automobile exports ($700 billion); computer chips and circuits ($498 billion); gas ($428 billion); computers ($394 billion); auto parts ($362 billion); pharmaceuticals ($353 billion); gold ($321 billion); and communications equipment ($257 billion). Competition in these markets is tough but they are large enough to accommodate massive exports from various countries.

It is no wonder that Malaysia and Turkey export many of these products. Unfortunately, Pakistan is a net importer of these top 10 export items. This is where the problem lies. The product categories, which have been the mainstay of Pakistan’s exports, are certainly important for Pakistan. But they aren’t large enough globally for Pakistan to significantly increase the size of its economy and reduce poverty.

There is some hope. Pakistan does produce items that fall in the global top ten: automobiles, auto parts, and pharmaceuticals. The question is: why isn’t Pakistan a major exporter of these items? The reasons are a vile mix of persistent low ambition, industry capture of domestic markets, mixed-up strategic objectives, and policy inertia.

As Pakistan’s policymakers think about increasing exports, they must do what our exporters have been demanding through newspaper ads: stop delays in giving exporters resources; help exporters reduce their cost of doing business; fix import policies and trade agreements; and facilitate exporters. But with all this, Pakistan must focus on entering the world’s largest export markets and winning where wins are much, much bigger. This is the real ladder to the global stage.

Finally, it always helps to have a consistent economic partner when you are aiming to grow. This is where a lifetime opportunity like CPEC comes in. As CPEC enters its second phase, Pakistan must commence an economic partnership with China – the world’s leading exporter – to strengthen its position in the world’s biggest exports. We must learn the ropes of the big league by exporting basic items to China first. The time for ‘Pak-Cheen dosti’ has only just begun.

The writer is the author of a forthcoming book on how todeliver prosperity to every Pakistani home.

Email: [email protected] gmail.com

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