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February 23, 2020

Rudderless economy struggles to stay on course


February 23, 2020

LAHORE: The economy is being run like a rudderless ship by the managers, who are now panicking as to how it can be rescued.

Meanwhile, traders and industrialists are pushing for their self interests, instead of guiding the government towards a sustainable path.

We often hear businessmen making demands that may promote their cause but hurt the interests of other sectors. We have not heard of a suggestion where any sector has guided the state to take measures to boost our exports from other related sectors. Most of the businesses complain that corruption is very high. However, none has openly made any suggestion for rooting out corruption from their sector.

Exporters complain that they have to provide speed money to get their refunds from different government departments. They dare not point fingers or come out as a united front against bribe takers.

The duty tax remission for export is an excellent scheme that if transparently pursued could boost the exports of small exporters. But its implementation has been made so complicated and cumbersome that it is impossible for small exporters to avail this scheme. They have to make illegal payments to remove unnecessary snags in the scheme. The amount demanded is staggeringly high, so only large exporters can afford to avail it.

Almost all schemes in India and Bangladesh are operating smoothly, where corruption in export boosting schemes is strictly dealt with. All small exporters in these countries avail this scheme.

The private sector stakeholders also come up with some flowery suggestions about boosting exports.

For instance, a trade association has warned the government that if the power rates are not lowered, the country would lose $20 billion export opportunity in textiles created by China’s inability to export due to coronavirus.

This is hilarious as Chinese textile exports are in the high end sectors. Even their apparel exports are of highly value-added garments and knitwear.

Pakistan is at the low end of value-added textiles. The opportunity created by coronavirus tragedy in China would not come Pakistan’s way, as we do not produce those products.

It would naturally be grabbed by Bangladesh and India that have been positioning for highest value-added textiles for years.

Private sector should not misguide the government to get what it wants. They have been rightly pleading for months to bring power and energy rates in line with the rates in competing economies.

The government also has a point as it has provided power and energy to few selected sectors at regionally competitive rates for almost a year. There has been no visible improvement in the exports although the exporters were already enjoying the benefit of massive devaluation.

The trade association that cited coronavirus opportunity to get the power rates lowered should have instead asked the government to lower the rates for the readymade garments and knitwear sectors first, as the impact of subsidy would be minimal but exports of this sector would rise.

The best thing that the private sector could do collectively is to start a campaign against rampant corruption in the system that has increased their cost of doing business tremendously.

If we look at our wage structure, we will find that we have the cheapest workforce among all our competitors except Bangladesh that is almost at par with us in wages (in dollar terms). The industrial water rates in Pakistan are the lowest among its competitors. The land price is also the lowest. We are expensive in electricity and gas only.

The private sector has been pleading with the government over 10 years to lower power rates through subsidies. They never suggested ways to end corrupt practices in the power sector. Many of them are privy to the bribes they pay for uninterrupted power supplies. That adds to their cost.

The bribes paid to lower staff in power sector adds to the cost. The bribe they pay at import and export stages increase their cost.

When they grease the palms of different government officials they increase their cost. The cumulative impact of bribes is staggeringly high and makes them uncompetitive.

Instead of waging a war against corruption they ask for subsidies and waivers in duties (implicit subsidy). Subsidies and concessions are temporary solutions that would go on increasing if corruption is not controlled.

Businesses that indulge in huge corrupt practices like smuggling, under-invoicing and under-reporting marginalise the minority of businessmen who are honest.