FALLOUT OF POLITICAL INSTABILITY

DECELERATION IN EXPORTS

RIZWANA BASHIR (rizwana.bashir@dacb.edu.pk)
Apr 13 - 19, 2009

Pakistan's export trend diverged due to many reasons. But before we analyze all those factors which are directly upsetting the export volumes, we have to look at today's Pakistan's reflection in the world. Being ally and front line state in the war on terror is costing us heavily. High level of uncertainty and poor image has left us alone and we are loosing the international markets for our exports. No foreigners are willing to come to Pakistan due to fear of turbulence, which destroyed our tourism industry too.

The provisional statistics issued by Export Promotion Bureau (EPB) for FY2008-09 (July to Feb) are showing a decline in export of textile & garments category by 10.40 percent, developmental categories by 10.88 percent which included cutlery, furniture and poultry, other core categories export including manufactured leather garments, leather, petroleum & its products, carpets & rugs (woolen), surgical instruments, raw wool dropped by 17.44 percent, guar & guar products by 6.02 percent, oil seeds export cut down by 20.38 percent and sugar export dropped by 33.24 percent.

Recent unfavorable weather conditions; heavy rains and thunderstorms will certainly cause damage to the standing wheat crop which will have an effect on export of wheat. Weather conditions, water and electricity shortage is also expected to spoil mango crop. It is estimated that this year its production will reduce by 20 to 30 percent which is going to weaken export. Similarly, rice exports have also dropped due to poor harvest, while exports of refined petroleum products, carpets and leather dropped due to industry dynamics. But actually there are many other reasons responsible for massive decline in exports. Even all of them could not be identified by the experts. However, it is vital to significantly expand exports and support imports substitution for products where Pakistan has competitive advantages (particularly in food commodities). Pakistan's textile export has also been far weak during financial year 2008-09. It is feared that in the background of current circumstances, lower textile and clothing exports will, certainly, filter into lower total exports of the country where textile contribution is more then 50%.

Amongst other factors are large dependence on fewer markets; our exporters are just concentrated on limited markets. Pakistani exporters are unable to explore new markets for their products or expand their target markets which further limit their sales if any insurgency comes in these limited available markets. Another factor is narrow range of export products; if we glance at the dynamics of export we will come to know that Pakistan's total exports are coming from very limited range of products namely cotton, leather, rice, synthetic textiles, sports goods and surgical instruments. These five categories of export accounted for 77.2 percent of total exports during 2006-07. This increases the risk of overall decline in export if any of these products faces a turn down. To me another reason is modest short-term demand responsiveness changes for major export categories; our export categories are extremely rigid and take too long to respond to changes which require immediate reaction. One more reason could be little Foreign Direct Investment (FDI) in tradable sectors; FDI is reduced due to unsupportive factors in Pakistani market and turbulence in the country. With a history of kidnapping and killing foreigners by terrorists and frequent incidents of destruction of private and public property during protests by elements from general public nobody will make investment in Pakistan.

Inadequate infrastructure becomes another strong reason in certain potential growth sectors; the basics like electricity, sui-gas, telephone, transportation and unavailability of other resources obstacle the growth of export oriented industries. Another reason to me is the absence of trade risk mitigation arrangement; which discourages both new exporters and delivery to non-traditional markets by existing exporters. Even our exports are restricted to dependence on small number of established exporters. One significant reason is also the quality of products; the exporters can be blamed to a degree for this situation. However, the government too is responsible for not ensuring quality control as a result country's export is falling and creating bad reputation for country. Due to more competition in post WTO world Pakistani exporters will have to improve on quality to make their product competitive and acceptable in international market.

Although the international economic slowdown undoubtedly challenges Pakistan export prospects, but there were grounds for optimism, especially as non-traditional sector exports continued expanding. Pakistan's total export can be expanded if we try to widen the range of products in our exports and focus on export of agricultural products and newly emerged service sector which contributed 53 percent to GDP last year. Small and Medium Enterprises (SMEs) can also be encouraged to participate in foreign accounts.

Therefore, Pakistan has to expand its exports not only in terms of commodities but also in terms of markets. Intense focus of exports in few commodities and few markets can cause instability in our exports. Current situation identifies the need for remedial actions at government level by creating a suitable environment for investors in the country and measures to ensure building up a better image in the world accompanied by a relief package to the export oriented industries especially in terms of availability of electricity and gas but also the relief in their prices and rationalization in tax structure that has remained the greatest demand of exporters. This relief could help eliminate many of macroeconomic problems like stabilizing local industry, saving many businesses from closing and many people from loosing their jobs. This will also enable the exporting industries to participate in the international markets at competitive prices. As well as measures focusing on the concerns of productivity enhancement, quality excellence, costs and scale economies and product diversification are required to be taken a government level.