EXPORT OF ENGINEERING GOODS BEING ACCORDED LEAST PRIORITY

ENGR HUSSAIN AHMAD SIDDIQUI
Oct 22 - 28, 2007

During the first two months of the current fiscal year 2007-08, the export of engineering goods has registered a decline of 11.6%. Total exports in this category amounted to US$ 34.40 million during July-August 2007 compared to $ 38.90 million that of the corresponding period of last year. The breakdown shows export of auto parts valuing $ 3.70 million and of machinery parts $ 4.30 million, which is lower by 21.3% and 15.7%, respectively, compared to the corresponding period of 2006-07.

Pakistan offers promising prospects for export of engineering goods, globally known as a catalyst for national export enhancement. The indigenous industry has requisite capacity and capability and, in general, international competitiveness too. Still, the export potential of machinery and equipment remains untapped so far, due to a variety of factors.

The recently announced Trade Policy 2007-08 was expected by the stakeholders to contain salutary measures to provide an impetus to the export growth of engineering goods. The Trade Policy however has not brought any relief either to the light engineering or the heavy engineering industry, since no concrete and substantive measures have been adopted for promoting the vital sector. The only measure the Trade Policy incorporates is to allow inland freight subsidy for the transportation of engineering goods destined for exports. This however is of no significance to the industry, which is overburdened at present with high production cost, low productivity and higher energy charges. The proposed measure therefore will not result in enhancing exports of various engineering goods the country produces. Federal Budget 2007-08 has also not come up with any incentives for the growth of industrial engineering sector either.

A PACK OF HOLLOW PROMISES

In fact, the engineering sector, which could play an important role in the growth of exports to a reasonable level in future, has been neglected, in spite of repeated tall claims and false promises made by the government, now and then.

On 31st October 2002, Commerce Minister Abdul Razak Dawood had said: "A roadmap by the name of Engineering Vision 2010 is in place and I hope now the country's exports in this sector will increase to $ 500 million to $1 billion per annum in coming years." Actually, exports of engineering goods during 2005-06 valued $ 280 million. The Engineering Vision had projected export of engineering goods worth one billion dollars by 2007. In reality, export of engineering goods achieved during the fiscal year 2006-07 remained stagnant at the level of $ 280 million.

Commerce Minister Humayun Akhtar Khan is on record promising, on December 23, 2003, " the manufacturing and export of engineering goods are being diversified under the localization policy of the government." This did not materialize, unfortunately. According to the 2006-07 Economic Survey, "Engineering Development Board has embarked upon a detailed sector development programme of sectors/sub-sectors with the objective to become part of international supply chain and to determine the indigenous capabilities/capacities and assess export potential of these sectors." But there are no visible signs of any improvement so far.

On May 08, 2006, Imtiaz Ali Rastgar, chief executive officer of the Engineering Development Board (EDB) had claimed "a jump of $ 250 million alone in engineering goods and services export", as the government planned to increase export of engineering goods to one billion dollars by 2007. The fact is that the engineering goods' share in total annual exports remained dismally low-even less than two percent.

SLUGGISH EXPORT GROWTH

Engineering goods are categorized by the Trade Development Authority of Pakistan (TDAP) comprising non-electrical goods/machinery, electrical goods/machinery and transport equipment/auto parts. An analysis of the export performance of the engineering industry during the last four years shows that Pakistan could export engineering goods in the range of average less than $ 200 million annually, and the growth was far from satisfactory. It is observed that though increasing amount-wise, the share of engineering goods in the total national exports, in effect, did not enhance during the period under review, as seen in the Table below.

TABLE
EXPORT PERFORMANCE
(US$ million)

YEAR

2003-04

2004-05

2005-06

2006-07

2007-08 (target)

Total national exports

12,313

14,391

16,451

17,011

19,196

EXPORT OF ENGINEERING GROUP

(i) engineering goods

100.00

181.98

218.86

280.00

325.00

(ii) metal manufacturing (incl. House equipment)

47.06

57.72

61.56

Included above

Included above

Sub-total (i) and (ii)

147.06

239.70

280.42

280.00

325.00

Share (I) & (ii) in total exports (%)

1.19

1.66

1.70

1.64

1.69

(iii) cutlery

29.67

34.26

34.26

45.00

45.00

Sub-total (i), (ii) and (iii)

176.73

273.96

314.68

325.00

370.00

Share (i) to (iii) in total exports (%)

1.43

1.90

1.91

1.91

1.93

(iv) surgical instruments

132.56

182.87

163.08

184.00

145.00

Total (i) to (iv)

309.29

456.83

477.76

509.00

515.00

Share (i) to (iv) in total exports (%)

6.69

3.17

2.90

2.99

2.68

(Source: Trade Development Authority of Pakistan)

Conventional export of other goods of the larger Engineering Group, namely cutlery and surgical instruments, however has risen substantially during past years. Nonetheless, it is shocking to observe that the share of export of the Engineering Group, including cutlery and surgical instruments, in the total annual exports declined from over six percent in 2003-04 to less than three percent in 2006-07.

The present dismal export performance of engineering goods should invite serious concerns at high government level, on priority, taking corrective measures, particularly in the backdrop of ever-widening trade deficit. Unfortunately, nothing is being done, as reflected in export targets set for the year 2007-08. Table above shows that a nominal increase of over one-percent is projected in export of engineering group. There is no increase in cutlery goods, whereas export target for surgical instruments for the current year has been kept even lower than that achieved during the previous year.

There have been repeated commitments made by President Pervez Musharraf and Prime Minister Shaukat Aziz to strengthen the engineering sector, but nothing practical has been done in this direction so far. The apathetic attitude of the government towards the sector is witnessed in the fact that the Engineering Development Board (EDB), the apex body to look after the manufacturing engineering sector, is functioning without a Chairman since November 2006, and without its full-time Chief Executive since April this year.

The capital engineering goods have already made a major breakthrough in the export market. Complete sugar mills have been exported to Bangladesh and Indonesia and ships to China in recent past. Likewise, equipment, parts and accessories for sugar, cement and textile industries, buses, tractors and a number of light engineering goods have been supplied to many countries. These products conform to international standards of specifications, quality and workmanship. Currently the top four countries importing Pak-made machinery and other engineering goods are, in order of ranking, the UAE, Afghanistan, Bangladesh and Saudi Arabia. Other existing markets for machinery and components manufactured in the country are, in the same order, USA, UK, Germany, Kuwait, Sri Lanka, Qatar, Iran and Canada.

Pakistani companies have also provided technical and engineering consultancy services related to various industrial and infrastructure projects abroad. The industry nonetheless has been unable to export, both in terms of volume and value, on a sustained substantial scale, in subsequent years. In the highly competitive and fast moving export environments, the engineering industry could not operate effectively in export markets, primarily due to lack of support by the government.

SPECIAL MARKETING MECHANISM REQUIRED

Owing to special nature of capital goods, which are not subject to employing usual methods of sales for consumer items, its marketing requires institutional support. This however is simply not possible to achieve under the existing set up of the Trade Development Authority of Pakistan (TDAP), erstwhile known as the Export Promotion Bureau (EPB). The centralized and monotonous export development strategy adopted by the TDAP has not, and will not, promote the non-traditional products like engineering goods. This is demonstrated in the fact that textile accounts for over 65% of national exports whereas rice and leather contribute another 15% and others 12.5%. The share of non-traditional items, or non-core categories, of which engineering goods a component, is hardly 7.5% of the total exports, in spite of promotional efforts being made by the EPB/TDAP for the last a decade or so.

The diversification of national exports thus remains a distant dream. Few years ago the Authority had launched an "African Plan" to enhance export of engineering goods by developing the potential markets in the African countries. Practically, no results could be achieved as the plan was abandoned almost halfway. Recently, the TDAP has announced its plans afresh to take up brand building, marketing and promotional activities related to engineering goods, "integrating it with the world market to make it the driving force of Pakistan's economic growth, developing an image of quality, trust, reliability, credibility and performance". For achieving these noble and ambitious objectives, however, the Authority intends to appoint just a consultant to undertake the assignment. Obviously, the TDAP does not appear to be serious to delivering, and the initiative may prove to be of cosmetic nature only.

It is therefore considered important to establish an autonomous body, exclusively for export promotion of engineering goods and services, on the pattern of Defence Export Promotion Organization (DEPO). Pleasantly, defence products' exports have increased, within few years, to the present level of more than $ 40 million achieved in the year 2006-07. The proposed sectoral council or board may be mandated to institutionalize public-private collaboration to substantially enhance exports related to engineering sector, and to undertake greater promotional activities in this direction.

The policymakers however may not lose sight of the fact that while it is desirable to develop a long-term vision for balanced promotion of exports, it is essential to first establish the products in domestic market for achieving economy of scale and assimilation of technology. Pakistan has developed a fairly wide base for production of engineering goods including capital machinery, which saves the country $ 3.75 billion annually through import substitution. The range of engineering goods covers industrial plants, ships, railway equipment, small aircraft, electrical goods, transport equipment, domestic appliances, telecommunication equipment etc.

TO HELP MEETING NATIONAL EXPORTS TARGET

Capital machinery, light engineering goods and engineering consultancy services offer great opportunities for export mainly in the Middle Eastern, African and neighboring countries. Nonetheless, it presents numerous challenges and difficulties too, given the present national and international environments. To bring about a real change, drastic measures are to be adopted, with well-thought-out and coordinated focus on export promotion of engineering goods and services. The need of the times is to develop a long-term perspective in this direction, whereas the government should continue tariff rationalization to provide level playing field to the local engineering industry. It is imperative to extend attractive export financing scheme and long-term financing facility for encouraging additional investments in the engineering sector.

In case the government adopts the suggested measures, it will be practically possible to substantially increase share of engineering goods in the total exports in future. Immediate implementation of the plan would greatly facilitate achieving total export target of $ 19.196 billion set for the year 2007-08. With thrust on regional trade and to exploiting the benefits of recently concluded free trade agreements with various countries, it should be possible for Pakistan to achieve success in promotion of export of engineering goods and services in not too distant a future.

(The contributor is former Chairman of State Engineering Corporation, Ministry of Industries, Production and Special Initiatives, Government of Pakistan).