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Boosting exports from Pakistan

Historically, Pakistan has suffered from adverse balance of payment, because its exports are not enough to finance imports. The policy makers have been fiddling with different policies, from import substitution to export-led growth, but all in vain. The policy makers have been following the mantra of multilateral financial institutions. The policies of these institutions keep on changing due to the global agenda of super powers, which very cunningly make the third-world countries follow their agenda to keep them subservient. A lot could be said if one carefully analyzes the changing policies of Pakistan.

Around the world countries exploit their competitive advantage, but most of Pakistan’s policies have remained contrary. Pakistan is agro based country. Therefore, the prime focus of policy makers should have been on boosting production and productivity. The harsh reality is that agriculture base has been destroyed over the years. Thousands of acres of land submerge under water logging ever year, reducing the cultivable land at a very fast pace. This also leads to salinity, which also renders land unfit for cultivation. It is often said that Pakistan suffers from shortage of water, which is partly incorrect. However, a visit to most fertile and irrigated areas shows that hundreds of acres are submerged in saline water. The problem has emerged because of not cleaning of water course. Overflowing of water from canals is common and often havocs are created due to breaches in embankments.

Yield of a crop in heavily dependent on quality of seeds. Sale of genetically modified seeds is the biggest reason for the gradual destruction of Pakistani agriculture. This could be best understood if one looks at the falling yield of cotton in the country. Experts are of the view that Pakistan is capable of producing minimum 25 million cotton bales from existing area under cultivation. The shortfall in cotton is attributed to virus and pest attacks, which is the outcome of using imported varieties of cotton seeds, which are not resistant to local virus and pest attacks. Farmers are also made big fool by advising to spray heavy doses of pesticides. This issue has proliferated and in recent past annual production on cotton has reduced to around 10 million bales.

Experts are also of the view that lower yield is a problem, but bigger and more contentious problem is post harvest losses. They say that nearly 15% of food cereals and 40% of fruits go stale before reaching the market. This not results in higher cost of production and lower income to farmers, but also deprives the country from potential foreign exchange earnings from export of surplus quantities. These losses results mainly from inadequate storage and logistics facilities. It is on record that nearly five years back the Government of Pakistan (GoP) announced Warehouse Receipt Financing Program to boost post-harvest lending to farmers. The success of this program was dependent on construction of warehouses and commencement of operations by Collateral Management Companies. Hardly any progress has been achieved because potential investors failed in realizing importance of construction of modern warehouses. Since there are no warehouses, no money could be lent against warehouse receipts.

 

At least three of the industries, crude oil refining, fertilizer (urea) manufacturing and sugar are capable of producing exportable surplus. However, export of these industries has remained negligible due to bad government policies. For decades crude oil refining remained under state control and devoid of BMR. Even after privatization strategic investors were not able to undertake BMR due to the circular debt issue. As refineries continue to produce limited number of products, they face the biggest impediment of high cost of production. Their miseries were added as local oil marketing companies imported furnace oil for consumption in power plants. With the latest decision of the GoP to run power plants on locally produced furnace oil, the refineries has to be supported for under taking BMR to widen their product suite and rationalize cost of production. Achieving greater synergy will help the local refineries to export surplus furnace oil and earn foreign exchange for the country.

Pakistan has an installed capacity to produce up to 9 million tons of urea, if plants get the required quantity of gas (feedstock). The domestic requirement is estimated around 7 million tons, leaving an export surplus of 2 million tons. In the recent past government allowed export of about half a million ton urea and also promised to provide subsidy, which was never paid. Also to the leading players, the GoP does not follow its own policy by supplying gas to a power plant from Mari gas field. The rationale is that power plants have to be run to curtail cost of electricity production. This rationale is totally incorrect because the power distribution companies suffer from blatant pilferage (T&D losses still hovering around 20%) and not because of high cost of generation. Experts are also of the view that foreign exchange earned from export of urea can be used for providing subsidy to power plants running on gas.

Ever since politicians and feudal lords attained control on sugar industry, the situation has gone from bad to worse. On one hand feudal lords keep on demanding hike in sugarcane support price and on the other hand, politicians running sugar mills siphoning funds. According to some experts if the government undertakes cost audit of sugar mills, the point can be proved that siphoning of funds is most blatant. If owners make billions of rupees off the book, posting of losses just cannot be contained. Even this year, mills are expected to produce 2 million tons surplus sugar. Therefore, the government must grant permission to export one million tons sugar export, which will help in earning around US$300 million.

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