ACHIEVING AN ECONOMIC JUMP-START THROUGH EXPORT SUCCESS
'The problem is never how to get new, innovative thoughts into your mind, but how to get old ones out' — Dee Hock, business visionary and creator of Visa
by Moazzam Husain
Dec 11 -17, 2000
What is the quickest route to turn around Pakistan's economy today? Many have spoken of the vicious cycle or the logjam we are presently trapped in. The question is: what is the fastest and least painful way to break out of it? Whilst the rest of the world is going dot.com, and onto the broadband Internet, Web TV and hand held devices, how do we reconnect ourselves with the rest of the world?
There are a few options, like mass education, improving the national image and investment climate, building national infrastructure. The trouble with all these is that they are long term, vague and capital intensive. Additionally, they raise issues of public policy and therefore are not pragmatic at this stage. We don't want public policy debates. We want prosperity. Quick. Starting now, and results in 24 months: The wheels of the economy start moving again, employment opportunities multiply, we are raking in foreign exchange, and taxes are pouring into the national exchequer.
So what is to be done? An export boom has to occur and we have to double our exports over the next 24 months i.e. from the present US $ 9 billion to the target of US $ 18 billion. If we can achieve this we will have time for education, image and infrastructure. We will have time for public policy debates, for good governance, for poverty alleviation. On the other hand, if we cannot make this happen, our sovereignty will be at risk within 24 months.
The math of doubling is very simple. If today we sell 100 units in the export markets at a unit price of $ 100 each, our export earnings are $ 10,000. We need to lift our game to 160 units at $ 125 per unit to get to $ 20,000. In other words this model looks to growing our export basket by 60% in volume terms and 25% in value terms. This model also takes our share of world trade in merchandise from 1% to 2 %. Merchandise I say because it does not include machinery and electronic goods, commercial services, mining and petroleum.
The process itself comprises a sequence of 4 initiatives; time paced to collectively produce the rhythm. I caution against attempting to implement elements of this plan in individual bits and pieces, in the wrong order or in a poorly timed manner. Individual instruments do not make a symphony orchestra.
•The process begins with the dismantlement of the Export Promotion Bureau and its replacement with the Pakistan Export Marketing and Development Agency (PEMDA). PEMDA is staffed by a battery of private sector marketing professionals and backed by a consulting organization like Andersen or the Boston Consulting Group. It is organised along the lines of product category management i.e. Engineering Goods, deep sea catch, Shellfish, Rice, Apparel, Soft furnishings, Leather, Software etc. Each product category group is the repository of best in class world practices i.e, product knowledge, branding and market analysis, process and supply chain management.
So what business is PEMDA in? Very simply, it is a talent-based enterprise that handpicks the best, most willing and capable exporters, and teaches them how to fly. Reinforced by the strength of the consultants' international network and depth of industry expertise, it reaches out to top tier exporters and works alongside them to pointedly uplift their game in every sphere: Design, process, market, manufacture, distribute.
The group helps these exporters to develop winning propositions and expand 'shelf space' in the international marketplace. It is remunerated along with the consultants, on a profit sharing principle: Bonuses from the PEMDA fund, which is paid out of a World Bank-IFC export development grant to Pakistan, and share options in future prosperity of the companies they select and work with. In return, a panel of reputable firms audits these exporters to maintain the required documentation for remuneration and taxation purposes.
It is significant that the model is developed based on focus group research feedback drawing on the top exporters in each category as well as on inputs from the consulting companies. The model has to be a 'win-win' (even on an after tax basis) for all stakeholders. With a little bit of imagination, consultation and research, such a model is not difficult to create.
•I am not suggesting that all exporters will come forward to work with PEMDA on the terms of this model. "Give you share options and pay tax in return for your advice? Go away and leave us alone." Instead PEMDA relies on selectively; creating and nurturing role models for export success on the 80:20 principle. 80 % of the export earnings are brought in by 20 % of the exporters. In every group, there are early and late adopters. The model assumes that the early one's are also the more progressive and capable.
The process of selection and qualification is based on a points scoring model that applies criteria like financial performance, quality of personnel, transparency of accounts and of course quality of the business plan. PEMDA derives its success from its 'can-do' culture and from its own self-interest in dividends and shares of the success. Through the process of selection, it can focus its resources towards the most willing, capable and progressive businesses.
PEMDA is effective at creating the role model success and conspicuously showcasing it for others to see. It is a self-sustaining model of mentor capitalism, a veritable pubic private partnership and attracts overseas talent. This 80:20 rule is the second in our sequence of timed initiatives.
Poorly timed or launched in the wrong order, this model will become another of the countless failed 'schemes' launched by governments in the past. For example, given the level of scepticism and mistrust, if the present Export Promotion Bureau launches such a scheme, we know the uniform response: "Give you share options and pay tax in return for your advice? Go away and leave us alone." Similarly, if the product category group at PEMDA is staffed by bureaucrats or by second or third tier marketers, the model will collapse.
•Talent of course is the most difficult thing to attract and more so to retain. The dynamic of today's business world is not about lifetime job security and a long-term career rat race to the top. It is about creating the fastest shareholder wealth. It is about project-based successes through shifting paradigms and about taking a slice of that wealth before moving on to the next project. Start-ups spin offs and buyouts are where talent thrives.
Now, because PEMDA is envisaged as a talent based enterprise, such dynamics are inevitable. PEMDA talent will attrite and join up with top tier exporters in joint ventures, in equity participation, or simply set out on their own. This is to be expected and encouraged because it marks a defining moment in the development of our export sector. This is the beginning of the stage where the 'centre of gravity' of our export value addition begins to shift towards design and styling, branding and export houses.
Amidst this vigour, lesser exporters (who earlier said 'Go away') lured by the successful showcasing of the successes are jumping onto the PEMDA bandwagon. At the same time top tier talent from within the country and overseas is replenishing the ranks of PEMDA. In a sense this is not even an initiative. It is an automatic ignition process, and one, which begins to draw the attention of the international financial community and media.
•Media and markets like to see the evidence and the reality of a strategy unfolding and its results before they respond. Now is the time to make the pitch to the international media, investors, analysts, and fund managers, venture capitalists. To hold investor conferences and road shows. The story is simple: An export led economic jump-start is happening in Pakistan. Come in. Now is the time to invest in nascent, undervalued enterprises and watch your dollar grow. Now is the time to integrate Pakistan's export supply chains with B2B vertical hubs reaching out to global markets. This is reinforced by the launch of a public affairs onslaught. Finally, Pakistan has a story to tell the world and we tell it through editorial briefings, articles and interviews with CNBC Asia, the Economist, Dow Jones Newswires etc. The snowball effect has thus begun and the export graph is rising.
Any undertaking of this magnitude is not possible without some upfront seed money. In the parlance of the venture capitalist, the Government of Pakistan has found the 'Big idea' and is ready for an angel investor.
The PRGF (Poverty Reduction and Growth Facility) is the IMF's new name for the former ESAF. It is primarily provided to governments undertaking economic reforms to strengthen their balance of payments and growth prospects. Because in the next step we are identifying the IMF (and World Bank) as this angel investor, it is important that we get the IMF to 'buy into' this model. The pitch to the IMF is simple:
a) The objective of 5-6% GDP growth outlined in the Poverty Reduction Policy Paper, 2000-01 is predicated on an export led growth strategy that will reinvigorate domestic industry and employment.
b) The focus of IMF structural adjustment be to help bring about this export boom.
c) Specifically we are seeking to launch a battery of initiatives that will raise our export competitiveness and improve marketing (using the PEMDA model above).
We are effectively asking for IMF's "blessings" for our plan, some direct funding and help in obtaining necessary technical support and assistance. In addition, we are seeking US $ 30m by way of a World Bank-IFC grant for the export development fund. As stated earlier, this amount would be utilised to remunerate PEMDA talent and purchase consulting services. The World Bank understands that in today's knowledge economy, the essential ingredients for wealth creation are not capital, machinery, land, labour, raw materials or even software. They are knowledge and talent. Put simply, we need the money to buy the talent. Finally, the United Nations Development Program through a program called TOKTEN counters the effect of brain drain and provides funding to the national governments to recruit its overseas nationals for assignments at home. There is considerable potential for the GOP, which administers the program through the National Talent Pool of the Ministry of Labour, Manpower and Overseas Pakistanis to deploy this channel to staff PEMDA.
In the end we are seeking less than US $ 70 m to create the blockbuster that will jump-start the economy of a country of 140mn people. This is less than the cost of producing and marketing a typical Hollywood box office release.
Economic retardation is a state of mind. The country needs to quickly move out of the present depression and low morale. We need to quickly start building a national consensus on a non-controversial and optimistic way forward and put it into action at the soonest. Achieving rapid export growth is the quickest way to surmount our balance of payments difficulties, raise taxes for development and create social stability through employment. It is the fastest way to reverse our current economic and social degeneration. We have reviewed a plan built around carefully orchestrating a sequence of initiatives, which cascades to doubling our exports over the next 24 months. There is still hope.
Moazzam Husain is an international marketer based in Australia. Email: Moazzam_Husain@excite.com.au