SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
June 11 - 17, 2007

In a significant development, the Federal Minister for Commerce, Humayun Aktar, has blamed government policies for dwindling exports and surging imports. Addressing a news conference in Islamabad on Wednesday, the Minister picked up courage to admit that the government was focusing on high growth, increased revenue generation, reducing debt to GDP ratio and not on increasing exports or reducing the trade deficit.

Falling exports and its resultant staggering trade deficit has reached alarming levels. During the first eleven months of current financial year (2006-07) the imbalance between exports and imports crossed $ 12 billion. Independent economists as well as the International agencies have been drawing the attention of the economic managers of the country for the past many months towards the rapidly rising trade gap. Showing its concern the World Bank cautioned Pakistan in March last that if soaring trade deficit was not capped, it may hurt countryÝs economic growth.

John Wall, the World Bank's Country Director, speaking to newsmen here, after the signing of multi-million loan for Punjab Land Records Management System Project (PLRMSP), suggested Pakistan to take appropriate measures to augment its exports to achieve sustainability in economic growth. He also said that while a trade deficit is considered a good omen for a growing economy and demonstrative of rapid growth, in Pakistan's case it is very large and requires immediate attention. Besides, he also advocated a tighter monetary policy to check inflation. Competition from China was stated as the main cause for the fall in the growth of textile exports.


Last month, the Ministry of Commerce, in an analytical study presented to Prime Minister Shaukat Aziz, has catalogued major factors that have contributed to a sharp downslide in Pakistan's export performance. The two primary causes listed in the ministry's report which have eroded competitiveness, include poor product quality and low value addition. Use of relatively old machinery, and inadequate electricity supply given to some of the sector too have proved hampered production, requiring a high maintenance cost, which in turn has eroded product competitiveness. Low return on capital, low productivity of labour and increased wastage of inputs are the other factors that have made Pakistani products more expensive than those from some of the neighbouring countries, says a report based on MoC's study. It says that Pakistani entrepreneurs tend to invest in non-productive, speculative and non-industrial sectors such as real estate and stock market, which yield quicker and better returns as compared to industrial and productive sectors.

This tendency has in fact already prompted the Planning Commission to recommend to the government to discourage investment in non-productive and speculative activities through imposition of capital gains tax on real estate and stock market transactions. Lack of adequate investment in R&D, export houses, shortage of capacity to meet bulk orders and the levy of high protective tariffs with pronounced anti export bias, have all discouraged investment in export oriented industry. Uncompetitiveness in terms of adherence to contracted quality and general failure to stick to delivery schedules are the other manor reasons that have dented the countryÝs export sector. The downward export graph is more reflected in the fact that exports during July-March 2006-07 have increased by only 3.5 percent as compare to 18 percent export growth registered during the same period last year and 14.3 percent for the whole of FY 2005-06. A major cause of slow growth of exports is said to be the decline in the export of textile products, carpets, rugs and mats, sports good, tanned leather, footwear, surgical/medical goods, chemical and pharmaceutical products etc.


An important trade policy concern of Pakistan has been to increase the share of manufactured exports in the external trade. This requires the competitiveness. However, a labour force with relatively low wages and inadequate professional skills such as Pakistan boasts, is unfortunately not the crucial factor in international competitiveness. A study has shown that the unit cost of production in Pakistan remains high despite low wages. The main cause of this is the low productivity of labour, which in turn is caused by poor skill endowment. Secondly, export diversification through higher value added products will require manufacturing firms to upgrade their technology and infrastructure, which most of them are unwilling or unable to undertake. Thirdly, Pakistan's exports have traditionally remained concentrated in a few items, i.e. cotton, leather, rice, synthetic textiles and sports goods. These five categories have usually accounted for 74.5 percent of our total exports, with cotton manufactures alone contributing 58.4 percent, followed by leather (16%), rice (6.9%) and synthetic textiles (1.2%). Further, Pakistan's exports are highly concentrated in a few countries, with the USA, Germany, Japan, UK, Hong Kong, Dubai and Saudi Arabia accounting for 50 percent of them. Almost all of Pakistan's exports are low skill based (98 percent) and labour intensive (99.5 percent ˝ compared to India's 77 percent). Thus a major source of vulnerability is the country concentration of Pakistan's trading whereby a handful of countries account for the bulk of our trading. Textiles represent the bulk of our manufactured exports (78 percent) and cotton based exports represent two thirds of the total. Since cotton production is subject to great variation due to pest attacks and floods, the economy is subject to extended shocks and as foreign exchange earnings shrink.

The decline in our export sector is partly attributed to the lack of awareness of the requirements for international branding. Secondly, the government should ensure that the quality of the products to be exported should be of international standard. Unfortunately, overriding profit motive and corruption have caused incalculable harm to competitiveness of our products in international market. Long term sustained GDP growth requires the strengthening of competitive foundations of our economy to capture a larger share in the world market. There should thus be increased investment in industrial infrastructure and skill development of the labour force, proper communication infrastructure to meet delivery schedules, and exercise of strict, quality control to ensure that our products' competitiveness in international market.