Thursday January 27, 2022

Better horses to bet on

January 19, 2021

LAHORE: Pakistan should look beyond textiles to ensure sustained exports and economic growth because this industry, having only 5.6 percent share in total global trade, is in fact drastically limiting our chances of achieving broad-based growth.

When experts see Pakistan’s pathetic performance given the available resources, they wonder what is wrong with its economy. We have almost neglected more lucrative sectors in our economic planning like engineering, information technology, mining and fuel, and agricultural products. In fact they observe there is some basic flaw in our economic planning as even textiles that have been pampered in the last 5 decades have failed to make a mark in the global textile market.

We produce cotton that neither Bangladesh nor Vietnam nor Cambodia produce. We have a large spinning industry with capacity to supply yarn to both domestic and global markets. We have a robust weaving sector. The problem however is we produce yarn mainly from coarse cotton we produce through obsolete inefficient technology.

Our mills cannot produce blended yarn at competitive rates because the manmade fibers are subjected to high protective duty while the fiber produced locally is expensive. In order to protect the inefficiency of our fiber producers the government has levied anti-dumping duties on many global suppliers. The local producers sell their man-made fiber at a shade lower than the expected landed price of imported fiber.

This has limited the product range of our textiles. As a result, our share in the global textile trade is less than 2 percent. The policy flaws have played havoc with the textile sector growth. The countries that do not produce cotton or manmade fiber allow the import of commodities that are basic raw materials at zero rates. They start with an advantage over Pakistan with this low-cost basic raw material. The man-made fiber producing companies, on which we have slapped anti-dumping duties, are supplying their product to Vietnam, Bangladesh, and Cambodia at the same rate that they quote to Pakistan. These countries enjoy the advantage of zero duty on basic raw materials that translates in high value-added exports.

It would be impossible to operate our main exporting sector with subsidies. The higher the exports the larger would be the amount of subsidy. If we are not competitive in some sectors, we should let those sectors close and concentrate on those subsectors of textiles that are competitive. Make policies that ensure the raw materials are available to them at global rates. We should not worry about closure of some subsectors. They will rise from the ashes with the help of better technology and efficiency.

The other sectors of the economy are generally neglected by the economic planners. Engineering sector could become the largest exporting sector of the economy if the steel is available to the engineering concerns at competitive rates. For decades we slapped duties on different steel qualities to protect Pakistan Steel Mills (PSM). Since the steel products supplied by the PSM were expensive the engineering sector remained uncompetitive in global markets. Steel industry, called as the mother of all industries, failed to develop to its potential in Pakistan. It is from the steel products that all different engineering products are produced.

The auto-parts manufacturers import special steel to produce some parts. The import duty and sales tax make those parts expensive. This is the reason that we have not been able to produce precision and high-tech auto parts or for that matter parts of any other machine. Despite this protection the PSM failed to survive.

The protection is still on to protect the small mini steel mills that entered the market when the steel mill was closing. They are enjoying almost similar protection. These mills would take another two decades to go into oblivion if protection continued because there would be no buyer for their products in Pakistan. The engineering industry would not grow without availability of all qualities of steel at globally competitive rates.

The basic flaw is in the mindset of our economic planners who believe that if someone has established a factory to produce basic raw material for any industry it has to be protected. In some cases, the concerned factories do not even produce 5 percent of the raw material needed in the country but it makes remaining 95 percent expensive for the users. You cannot scale up or remain competitive if you procure raw materials at higher than the global rates. The protection should be only for the finished products.