Aug 10 - 16, 2009

With the very deliberation ministry of commerce has announced score of measures to spur external trade of Pakistan in a recently unveiled trade policy 2009-12, it needs to focus on strengthen domestic trade foundation on which the success and failure of exports and imports depends. The industrial leaders are wary of giving positive remarks about trade policy even if they find ones there because of delays in subsequent actions. They are confused about "how-will-things-go?"

Mian Zahid Husain, Chairman KATI sees misdirection in trade policy, saying while trade policy is for foreign trade, it needs to have clear-cut plan to stimulate external trade. "I did not find any clear direction in the trade policy," he says. It seems that government did not put horse before the cart, sarcastically remarks Majyd Aziz, former president KCCI while referring to the trade policy. It is an irony that government has come up with trade policy without spadework, he said and adding otherwise, we would have heard of SROs after over one week. "We are unaware, for instance, of what would be the modus operandi to apply for grants and subsidies government announced for different sectors." Chairman KATI said although there were some good steps, exports target would be missed again for this fiscal year.

The government though has not set over ambitious targets of exports for the next three years yet it requires the undeterred backing of domestic sector to make the dreams come true. If private sector continues to bear high cost of doing business on account of high electricity and gas tariffs, unnecessary cost of security, and exorbitant cost of funding, then it would be unable to maintain productivity in the vertical and horizontal supply chains of industries. Government has realized the supply constrains faced by the small and large-scale industries in the country and therefore announced certain measures that it is perhaps complacent to work as redeemers. But, would they really be so? Time will tell.

In this trade policy, hedge fund is created to shield running finance debtors against fluctuation in interest rates. TDAP would supervise the fund, according to the policy. "Unclear is the detail however," said bemused Zahid. Government has to develop enabling environment for trade and industry across the board instead of, he terms, beating around the bush by announcing hedge fund and export investment support fund. What government could do directly, he argued, was by reducing mark-up rate and other bloated costs of doing business.

Cost of financing has become a longstanding issue for private sector, bringing down industrial productivity. The business community has been berating the monetary policy of the government for last over one year. High interest rates have adversely affected the textile sector, resulting in largest amount of bed debts in the sector. High cost of borrowing is compelling many industries to keep production scale low as this has reflected in the downturn in industrial production, down by 7.7 percent in last fiscal year. Investment (private) was also declined to 19.7% of GDP as against 22 percent in FY08.

Undoubtedly, vibrant private sector is vital to increase export sector's competitiveness and product sophistication. The government aims to achieve dual aims by providing support funds to various exporting industries. Mian Zahid Husain said export investment support fund and hedge fund were insufficient. He is suspicious about transparency in disbursal of the funds, saying corruption might ensue. He feared handpicked approach and political cronyism in place during the disbursement of funds. 'The announcement of funds is a good step, but government should ensure foolproof transparency.'

Apparently, export support investment fund of Rs40 billion is substantial. However, its allocation to several sectors would not serve properly to single sector. Government has announced measures in the trade policy to boost up private sector as it claims to have realised importance of private sector in driving economic growth. The thrust of the policy is to prop exporting industries directly or indirectly. Directly, it earmarked subsidies for leather sector out of EISF. The plan to subsidize insurance premium of foreigners would also slice it. The concession on inland fright service charges would be allocated out of the fund. Using the fund, government plans to subsidize 25 percent cost of setting up design centres and labs in tanneries and provide grant for effluent treatment plants in tanneries. The allocation to other sectors will be clear once the Statutory Regulatory Orders start to cut across preliminary order.

Small and medium sector is the backbone of Pakistan's industrial sector. Cluster development is oft-repeated mantra, but nothing has been done to bring small manufacturers on a specially established industrial zone. It was echoed in last trade policy 2008. However, except few examples of auto cluster in Lahore, materialization is absent across the country rather the plan had gone amuck. Majyz Aziz says it is not a new idea and pervious government envisaged development of clusters. What is wrong then? "Relevant incentives and supportive policies on which the plan progresses were conspicuous in absence," answered Majyd.