Agreement with Turkey to deliver better if designed in line with input given by local industry and investors
Interview with Mr Ameen Jan – a strategy advisor
Mr. Ameen Jan has over 20 years of experience as a management consultant and strategy advisor to governments, international organizations and leading corporations in Europe, North America and Australia. He also worked for McKinsey & Company, United Nations, and UK government.
Recently, we had a discussion with him on ongoing Free Trade Agreement (FTA) with Turkey. His analysis will help us understand industry’s concerns in a better way. Following are details of chit chat with him:
PAGE: IN YOUR OPINION, WHAT WOULD BE THE IMPACT OF FTA ON PAKISTANI INDUSTRIES AND ECONOMY IN GENERAL?
AMEEN JAN: FTA should be focused on mutual benefits for both the countries and should consider existing players who have invested and brought FDI. FTAs are meant to boost trade between countries and open markets for your goods, but unfortunately, in Pakistan, all FTAs and PTAs have only resulted in increase in trade deficit. FTA with China led to an increase in trade deficit from $2.9 billion to $4.1 billion, FTA with Malaysia led to an increase in trade deficit from $1.6 billion to $1.9 billion and PTA with Indonesia led to an increase in trade deficit from $800 million to $1 billion approximately.
PAGE: DO YOU THINK FTA WILL ENDANGER LOCAL INDUSTRY AND FOREIGN INVESTMENT?
AMEEN JAN: We should understand that prior to setting up plant in any country foreign companies go through a daunting task to judge the feasibility and profitability of their businesses. They plan their investment and forecast profitability after grilling government policies. Their business growth depends on government policies in the country. Later, they take decision on establishing plants along with transfer of technology and providing hundreds of job opportunities. If policies are changed investors could face devastation.
On the other hand, if FTA with Turkey reduces duties on imports of the products which are produced locally then importers may benefit but local investment in setting up plants and producing goods could be harmed.
PAGE: WHAT MEASURES SHOULD A COUNTRY TAKE BEFORE PROCEEDING WITH PTAS/FTAS WITH ANY COUNTRY?
AMEEN JAN: We should protect our local industry and ensure its growth. I have already suggested that FTA should support import of raw material instead of finished goods that are already manufactured in Pakistan, as raw material would encourage local investors to enhance their productivity while taking the benefits of low priced raw material.
On the other hand, if government facilitates import of finished goods it may directly affect production by local industry and investors; as they will leave no space for local manufacturers to produce thus putting at stake thousands of jobs in the country.
PAGE: WHAT IS PAKISTAN’S TRADE BALANCE WITH TURKEY? WHAT ARE THE MAJOR IMPORTS AND EXPORTS?
AMEEN JAN: Pakistan exports more than it imports from Turkey; however, this gap has been declining since 2011. In 2015, products worth $235 million were exported and $205 million were imported, resulting in a surplus of $30 million for Pakistan.
As per some reports Turkey’s imports from the world had a low correlation with Pakistan’s exports to Turkey (0.08) during this period. Turkey’s exports to the world had a moderate correlation with Pakistan’s imports from Turkey (0.53) during this period. This means that in the years where Turkey increased its overall exports, Pakistan’s imports from Turkey also grew.
Imports from Turkey were lowest in 2008 and highest in 2015. While Pakistan’s exports to Turkey were marked by large fluctuations, imports from Turkey have remained relatively steady.
PAGE: WHICH SECTORS IN PAKISTAN WILL HAVE THE MOST BENEFIT FROM THIS FTA AND WHICH SECTOR MAY SUFFER THE MOST?
AMEEN JAN: Many new sectors in consumers’ goods segments have emerged very rapidly while creating more job opportunities in the country. The increase in household income, rising awareness on child hygiene and health, and consumer acceptance of using branded products are the key trends in recent years.
Diapers market in Pakistan has been growing at a rapid pace with a number of established brands (Pampers, Baby Master, Leo, Diapy, etc.) as well a number of relatively newer entrants. Mainstream segment contributes approximately 60% and discounted segment contributes roughly 40% which includes local and Chinese brands. In value, however in volumes it’s reverse. The category consists two main segment ; Mainstream segment – Tier 1/Premium, includes Pampers as well as newer entrants. Discounted segment – Tier 2, which includes Chinese imports and local production.
Moreover, it is to be noted that automotive and auto parts industry has apprehensions that the Ministry of Commerce is hastening the signing of the FTA. It is pertinent to mention here that many sectors have serious reservations over expected FTA between Pakistan and Turkey and Government must address them to ensure economic stability.
PAGE: WILL YOU SUGGEST SOMETHING MORE ON IT?
AMEEN JAN: We should follow the footprints of other countries where trade, export and import policies support each other to achieve target growth. We should support the policies which help us increase transfer of technology, FDI and sustainable job creation and export potential in Pakistan.
If we will not support our local industries then investors could roll back their investment and shut down their plants to import goods through FTA thus leaving thousands of people jobless.
‘This could discourage FDI and manufacturing, and damage industrialization in the country. It could also discourage other multinational companies planning to invest in country.’
Nevertheless, the FTA would deliver better if designed in line with the input given by the local industry and investors. Prevailing disharmony in the policies would diminish the benefits of the FTA, which would deliver better if designed in line with input given by local industry and investors.