A YEAR IN REVIEW
Defence production, exports may take a new turn
By AMANULLAH BASHAR
Dec 04 - 10, 2000
Export growth of course is the key element of the
government strategy for revival of the economy. Although concerted
efforts have been made to keep Pakistani exports competitive by
pursuing a market based exchange rate policy, serious efforts are
still needed to remove non-price impediments, improve efficiency in
production of exportable items and enhance the outward orientation of
The textile sector, which is the leading player in
the national economy, contributes over 65 per cent of the total
exports of Pakistan. Since the national economy revolves around cotton
and textile right from the beginning no other sector has been able to
reach the number two position in the list of exportable items. The
textile is the only sector which earns around $5 billion a year while
other players in the export sector have not been able to reach the
mark of even $1 billion export a year. Other prominent export items
after textile are including rice, leather and leather products,
fisheries, fruits (Mango and Kino) etc.
IDEAS 2000 Defence exhibition and seminar recently
held at Karachi has demonstrated Pakistan's capability for producing
quality defence equipment has caused a stir around the world. Gen.
Pervez Musharraf while inaugurating the exhibition announced that
Pakistan will soon start mass production of weapons and intended to
export them in the international market. The Chief Executive Gen.
Pervez Musharraf also clarified that the two-year sanctions imposed on
Pakistan following nuclear tests in May 1998 would have no effect on
the country's defence and export of weapons.
US sanctions will not stop Pakistan building its
own defence products and exporting them to the international market,
said the Chief Executive. He said, "we have demonstrated a poor
nation's option for acquiring required weapons". We have reached
a stage where we find that the defence production is worth showing. He
said that he could not quantify the earnings from export of defence
equipment. Pakistan however has developed not only the best battle
tank Al- Khalid symbolizing Pakistan's capability in defence but has
developed advanced electronic devices, guns and other weapon system
through reverse engineering. Business community feels that export of
defence equipment is likely to elevate Pakistan's image in the
international market in terms of money as well as quality of products.
The private sector is however willing to invest in defence production
at a large scale if the policy makers comes out with a proper package
in this regard.
About 60 foreign companies participated in the
first of its kind exhibition held in Pakistan. The presence of
delegates from more than 40 countries with a combined procurement
budget of over $15 billion was being interpreted by the organizers as
confidence booster. Pakistan had a large defence production sector,
which not only had the surplus capacity to meet the needs of friendly
countries but was also in a position to manufacture quality products
for global defence industry.
Pakistani exports registered a negative growth rate
(-2.6) during financial year 1997. The declining trend was stabilized
to some extent and the export sector attained 4.2 per cent growth rate
during 1998. This was not a sustainable stability as the growth rate
sharply declined to (-10.7) per cent in 1999.
As a result of good economic decision the sector
performed well next year showing an 8.4 per cent growth rate against
the target of 10.9 per cent during the year 2000.
The projected 15 per cent export growth is
certainly ambitious and in sharp contrast to actual outcomes in the
last five years, but the attention given by the policy makers to boost
traditional exports and encourage non-traditional exports should make
While the agriculture sector has performed strongly
as a result of bumper crops of cotton and wheat and noticeable
increase in production of rice led to agricultural growth of 7.2 per
cent which consequently improved self sufficiency in food and the
quantitative exports. Unfortunately, the manufacturing sector did not
rise to the occasion to strengthen and support.
The cushion provided by the agriculture sector to
the ailing economy. Although some resurgence is expected in the large
scale manufacturing particularly in the textile sector, yet the
overall improvement is insufficient to have a noticeable impact on our
The higher inflationary expectations due to
continuous surge in the international price of oil and increase in
electricity prices at home and extremely poor services provided by the
Power Company altogether have seriously hit the competitiveness of our
The representatives of around 13000 industries in
Karachi have threatened to halt operations in their units if KESC does
not stop load shedding immediately.
The industrialists pleaded that intermittent power
breakdowns hinder production process along with causing hardships and
miseries to the citizens. The manufacturing units are unable to meet
the export commitments due to lower production. Revenue to the
exchequer is also plummeting. If the present power shutdown policy
continues, export target of $10 billion may not be achieved, the
industrialists expressed their concerns.
Contrary to this situation, the finance minister
Shaukat Aziz has been saying repeatedly in his meetings with the
business community that economic indicators in the last three to four
months are on track due to rising exports, improvement in revenue
collection and swift flow in productions.
Zubair Motiwala, President Karachi Chamber of
Commerce and Industry have urged the government to come to rescue of
Karachi industrialists and solve the chronic problem of frequent and
consistent interruptions in power supply.
Zubair, originally an industrialist from textile
sector and also the former chairman of SITE Association of Industries
feels that cessation of operation in 4000 units of SITE industrial
area for one hour will inflict government a loss of Rs50 million in
terms of taxes, duties, export earnings and production. This is for
the first time that all segments of the consumers including domestic,
commercial and industrial consumers of electricity are facing load
shedding in winter.
Pakistan's exports in the first four months of the
current financial year 2000-2001 has recorded an increase of 13.44 per
cent to 2.969 billion compared to $2.617 billion of the same period in
the previous year.
The federal bureau of statistics has noted a sharp
rise of 7.48 per cent in textile exports i.e. $1.889 billion on back
of good cotton crop. The production in the receding year rose 35 per
cent to 9.7 million bales. There are strong feelings that the cotton
production would be around 10 million bales this year. If the output
hits the target of 10 million bales against the local consumption of
9.2 million bales the country can easily export over 800,000 bales
The textile sector, which is the mainstay of our
exports, is also optimistic for improved textile exports, which might
cross the $6 billion mark in the year 2000-2001 from $5.5 billion of
the previous year.
Other export items recorded appreciation were
including rice 11.76 per cent to $140 million, cotton yarn 8.86 per
cent to $325 million and ready-made garments 17.79 per cent to $179
million during the said period.
It is heartening to note that the labour ministry
in Pakistan has taken note of the situation and has envisaged
extension of the Industrial Relations Ordinance to the Agriculture
sector. Now it is being considered that the Industrial Relations
Ordinance 1969 will be extended to the agriculture industry, says the
labour ministry. The advisory board has recommended increase in the
amount of compensation from Rs100,000 to Rs200,000 under the workmen's
compensation Act in case of death or permanent disability of a worker
while at work or due to that. New ailments and disease would also be
incorporated in consultation with the medical experts. National Safety
and Health Council would be set up to give guidelines on health and
safety measures at work places. A generic law for all work places
would be enacted in this respect.
The draft policy also envisages extension of the
coverage 4 of labor laws by reasonably increasing the present upper
wage ceiling of Rs3000 in labour laws relating to social welfare of
the workers and their children. Besides, in all social welfare laws
the term 'worker' will be replaced by 'employee' to extend the
coverage of application of these laws to the agriculture sector.
Over 60 per cent of the total labour force works in
the farm sector of Pakistan but there is no law till today to regulate
this sector. The farm workers generally known as Haris in Sindh and
Mazarays in Punjab have been brutally denied of all the facilities
available to industrial workers in the country. A crop of happy farm
workers is expected to make Pakistan not only self sufficient in food
but also a leading player in the export market.
Pakistan has the surplus wheat this season and the
country would be able to market 1.8 million tonnes of wheat to earned
foreign exchange. The ministry of food and agriculture has estimated a
total production of 20.9 million tonnes of wheat this year of which
1.9 million will be surplus after the estimate of domestic consumption
of 19 million tonnes. The Trading Corporation of Pakistan (TCP) and
the Export Promotion Bureau (RPB) have been assigned the task of
exploring market for the surplus wheat. The TCP has set up a 'wheat
cell' for exploring overseas market and also approached Pakistani
commercial officers abroad to send the lists of wheat importing
countries in the world. A large portion of the surplus is likely to be
exported to Iran and Afghanistan and the deal in these regards has
already been struck, it is learnt.
Wheat production target for the Rabi season
2000-2001was earlier set at 22 million tonnes has now been reduced to
20 million tonnes due to shortfall in water supply.
The 20 million tonnes target seems to be well
within reach due to support price mechanism introduced by the present
government to evoke interest of the growers in certain crops. Even the
slashed target of 20 million of wheat would be enough to cater to the
need of the country. However, all such exit points from where wheat is
smuggled out into Afghanistan, Iran and Central Asian States would be
required to guard to plug the leakage.
Credit for boosting exports
The government in cooperation with the Asian
Development Bank (ADB) has initiated two new credit facility and
guarantee schemes worth around $250 million for the promotion of
exports and small and medium enterprises (SMEs) in the country.
The two new schemes namely export credit facility
scheme worth $150 million and export credit guarantee scheme worth $80
to $100 million will be operational by January 2001. The export credit
guarantee scheme wroth $100 million will help resolve the problems of
SMEs in securing credits from banks by providing collateral to the
concerned banks on nominal charges.
The SMEs, which are often unable to secure, credits
from banks due to collateral or security problems will now be able to
get credit from banks through the Credit Guarantee Scheme.
The other scheme i.e. credit facility scheme worth
$150 million will provide credit to the SMEs, facing lack of funds for
the purchase of raw materials to be used for producing export oriented
goods on soft terms.
The SMEs which will take the credit under this
scheme will have the facility to pay back the credit after they
receive payments in dollars for their exports.
Meanwhile the Small and Medium Enterprises
Development Authority (SMEDA) has completed its studies in different
areas like textile, fisheries, fruits, and vegetable, leather, marble,
tanneries etc. will soon be opening its front offices to guide the
SMEs especially in export sector. Besides offering guidance and
assistance to SMEs for their business initiatives will also help
resolve their problems in securing credit from banks mainly the Small
Business Finance Corporation.
The government has approved the export of cement,
rice, pharmaceutical, glass sheets G.I pipes and hardware items via
land route to Afghanistan and Central Asian Republics against
irrevocable L/C's in foreign currency. These items shall be zero-rated
for sales tax and eligible for normal duty drawbacks.
In order to expand the list of non-traditional
export items, the government is actively considering allowing export
of wood products made out of sustainable forest woods. The items which
are being allowed to export include timber doors, window frames, flush
doors, panel doors, moldings, heading pallets, crates and cable drums
in knock down conditions, broom sticks and floorings all made from
sustainable foreign wood. The government has decided that it would be
mandatory for exporters to ensure that the value of export product
should be at least 100 per cent more than the value at which the
timber was purchased from factory. The export promotion bureau is
receiving frequent inquiries from various exporters for the export of
lumbers, planks, doors etc. in knock down conditions and brook sticks
and floorings made out of sustainable foreign species like Poplar,
Eucalyptus, Mango and Sumbal. It may be noted that natural forests and
timber were preserved throughout the world but man made forest or
sustainable forests were encouraged for use in products for domestic
as well as export markets. Even countries with scarce resources in the
natural forests such as India too have adopted a policy of encouraging
export of products of sustainable man made plantation, keeping strict
controls on natural forests.
The SBP has taken measures to encourage the
software industry as part of the government policy, which wants to
earn $1 billion through exports of software products by 2003.
The State Bank of Pakistan (SBP) has increased the
limit from 25 per cent to 35 per cent for retaining foreign exchange
earnings by software houses and companies. Earlier, the software
houses and companies were allowed to retain 25 per cent of their
export earnings in special foreign currency accounts with the
authorized dealers for payment of commission to overseas buyers and to
meet other expenses such as promotional publicity, import of hardware
and software, foreign consultants' fee etc.
About 450 software houses are currently working in
the country but the exports last year amounted to about $20 million
and this year it is expected to earn $30 million. The automation in
the banking sector especially for development of e-commerce is highly
discouraging. Even the foreign banks did not print even the forms for
opening of the e-commerce account. This was astonishing that the banks
have even not prepared for the opening of merchant accounts and the
forms are not available. People want to open these accounts are told
that the forms are under preparation or being printed. More than two
months have gone since the announcement of the IT policy but the
progress is highly discouraging and this is basically the fault of the
Pakistan's exports are likely to take a new turn
with the implementation of the new export policy which includes value
addition in the textile sector, enlarging the list of exportable items
with non-traditional export items and the new concept of marketing of
Pakistan made defence products. An aggressive marketing campaign is
the need of the hour to win a preferential treatment towards Pakistan
defence equipment and other products. Muslim countries whose total
defence imports range $15-20 billion a year can make a visible change
in our export scenario.