DEVELOPMENT THROUGH TRADE
IMPROVING PRODUCTIVITY AND ACHIEVING GREATER SYNERGY HELPS IN BOOSTING PRODUCTION OF EXPORTABLE SURPLUS.
SHABBIR H. KAZMI
June 25 - July 1, 2012
There has been growing consensus that if the country has to accelerate its economic development, boosting trade has to be an integral part of the strategy. Ministry of Commerce has prepared the Strategic Trade Policy Framework (STPF) to respond to the emerging challenges affecting competitiveness of the local manufacturers. It is hoped that the successful implementation of STPF can enable Pakistani exporters to produce and export more sophisticated and diversified range of products.
The six pillar of STPF are: 1) Supportive Macro Policies and Services, 2) Enhancing Product Sophistication level in Pakistan's Exports, 3) Enhancing Firm Level Competitiveness, 4) Domestic Commerce Reform and Development, 5) Product and Market Diversification and 6) Making Trade Work for the Sustainable Development in Pakistan.
SUPPORTIVE MACRO POLICIES AND SERVICES
Reducing anti-export bias in tariff policy has become a key because wide ranging structural reforms aimed at liberalization, privatization and de-regulation since late 80s' have brought about a marked shift in dependence from trade to domestic taxes and removal of protective duties/taxes on industry to foster competition and increase exports. However, within the ambit of fiscal policy, the existing tariff structure and the concessionary tariff regime have anti-export biases. The need to formulate a long-term tariff policy can hardly be over-emphasized. A rational tariff policy and structure with short and long-term tariff measures aimed at making the industry competitive and moving up the sophistication ladder is the priority objective of STPF
Monetary policy is another crucial component of macro policies. Interest costs specifically in times of tight monetary policy, as being pursued by the government for a long time, has raised the cost of production, affecting competitiveness of the exporters. Though interest policy at macro level is more closely aligned with the status of aggregate demand, inflation, budget deficit, and exchange rate policy, it affects cost of production. In case of export industries, the scheme of export re-financing and sectoral credit allocation parameters need to be re-designed, fine-tuned and reset to focus on high value sectors, more sophisticated export products and non-traditional items.
Stable exchange rate helps in promoting exports and managing imports. In case of Pakistan, the rate is dependent on stable internal and external macro environment that includes medium-term stability in oil prices, food commodity prices, predictable flow of FDI and foreign assistance, exportable surplus and steadily growing world demand.
Positive or negative shocks in any of these elements have impact on the nominal and real effective exchange rate that in turn determines the profitability of exports versus imports.
In a regime of managed float, it is essential for promoting exports and controlling speculative imports, that exchange rate trends, though mostly governed by free market mechanism, are managed by the State Bank to avoid wide fluctuations and promote orderly and smooth adjustments to reflect and incorporate the changing macro-environment.
Effective Trade Facilitation is a must. The benefits of reduced costs could be far greater than greater market access and removal of tariff and non-tariff barriers. Various studies suggest that the goods shipped from developing countries have comparatively high transaction costs as compared to the developed countries. All the stakeholders in trade facilitation need to face the ground realities and the common challenge.
In Pakistan, an added challenge is that the transaction costs to import are significantly lower than exportation. There is an urgent need to take necessary measures to facilitate the provision of lower cost, more efficient and reliable trade support services in promoting exports, without which Pakistan would not be able to reap the benefits of expanded exports base.
ENHANCING COMPETITIVENESS OF FIRMS
Pakistan despite having a potential demographic dividend has not been able to enhance the labour productivity as compared to its competitors. STPF would coordinate and leverage the skill upgradation programs in the priority sectors and strengthen the institutions entrusted with the skilling.
Enterprise and entrepreneurship development is the key to achieve overall competitiveness of firms and a reflection of entrepreneurial capability. Pakistan's performance on this account has been rather weak, as compared to the international businesses, which have embraced major corporate changes during the last few years to stay competitive, proactive, and customer-focused. More competitive exporting firms have been fast adopting the low cost efficient practices and new technologies, which not only helped leaner and efficient production lines, but are more cost effective in terms of wastage reduction, efficient consumption of utilities and manpower requirement.
MAKING TRADE WORK FOR THE SUSTAINABLE DEVELOPMENT
The objective of the enhancement of export competitiveness is to make exports an engine of growth. It is equally important to ensure that this growth does not come at the cost of environment, exploitation of margizalised sections in the society or SMEs. The strategies of competitiveness enhancement need to be closely aligned with the legitimate concerns of sustainable development so that the future generations could also benefit from the fruits of export enhancement.
Trade for poverty alleviation is another important pillar. The government is aware of the need to address the possible negative distributional aspects of globalization, manifesting in the form of unemployment, wage decrease of unskilled labour, informalisation of labour, etc. Ignoring these factors could reduce the benefits of globalization and unleash protectionist sentiments and resentment against the free market regime.
The government is aware that the protection and promotion of Geographical Indication (GI) products is also an effective way to link international trade with poverty reduction as most of the GI products in Pakistan are made by cottage industry or poor, rural households. The Ministry would have to expedite promulgation of GI Law and allocate sufficient resources to assist the producer organizations to benefit from opportunities in the international market.
ENHANCING PRODUCT SOPHISTICATION LEVEL IN EXPORTS
Achieving export sophistication is linked to upgrading local industry's capacity to integrate into the global supply chain. This depends on factors such as technology intensity, income index (per capita measure), capital intensity in the production process, value-addition, entrepreneurial abilities, returns to factors of production, etc. With a view to help Pakistan attain higher sophistication level, various initiatives have to be undertaken. Many of the developmental sectors, e.g. sports and surgical goods, have failed to establish their brands in foreign markets due to lack of resources and entrepreneurship. Consequently, manufacturing in these sectors is largely done under the brands of foreign companies.