Aug 10 - 16, 2009

The belated Trade Policy 2010 has hardly created any ripples in the dead sea of our economy. The lukewarm response of our trade and business circles emanates from the general conception that such policies irrespective of their value-content usually fail to deliver on implementation front. Putting aside the question of implementation, one may argue about the dynamics of this policy which is heavily loaded in favour of export related economics. The critical phase through which the country is passing demanded policy measures to revitalize the entire economy including domestic trade and commerce. This is high time we make a rigorous SWOT (strengths, weaknesses, opportunities and threats) analysis to chart a new course for our economy taking into consideration both global and domestic compulsions. In the wake of shrinking global demands and a rather questionable competitiveness of our products, we will do well to give much needed impetus to our domestic markets. Dwindling exports on the crutches of a depreciated rupee cannot sustain the economy for too long.

Nevertheless, criticism of the Trade Policy in disregard of the prevailing circumstances will be a bit harsh. The short tenure of the ruling setup is riddled with a plethora of problems on national, regional, international and even domestic fronts. The government has hardly been provided breathing space by the ever surfacing new challenges both on political and economic arenas. Moreover, like any other political party of the country, the ruling party is also short on talent. Since talent tends to be uncompromising and outspoken, it hardly finds a place in the ranks and files of a political party of third world countries. The political system prevalent in our country dictates that mindless rhetoric and feudal arrogance (and not education) is all that is needed to make a political leader, exceptions notwithstanding. So, the ruling democrats always have limited choice when it comes to important inductions. On the contrary (and interestingly), the dictators have at their disposal the entire pool of country talent in case they wish to induct a civilian. The author of the policy- a senior and revered politician - has been shortly inducted as trade and commerce minister after having a round of feud with the clique of neo-party-stalwarts. Without casting any aspersions on the talent and ability of the said minister, it can be safely assumed that his team is not as brilliant as he himself is. And this fact is amply reflected in the trade policy document.


"The Ministry of Commerce's endeavor is to provide medium term policy framework with focus on improving supply side to achieve sustainable export growth. The policy thrust would be to enhance quality, improve business processes through structural transformation and transferring resources to achieve production and export of a more sophisticated and diversified range of products."

The policy aims at:

* Growth with equity
* Greater opportunities for gainful employment
* Sound macro-economic framework for trade environment
* Concern with poverty eradication and environmental protection
* Investing in human resource
* Targeting poverty alleviation
* Promoting private sector as engine of growth
* Focus on small scale sector, particularly agriculture

The policy has been drafted mainly on the basis of comparative changes in the external trade volume during the year 2008-09. At the outset, the Policy makes a historic review of country's exports and imports mentioning that against a WTO estimate of 9 per cent shrinkage in global trade, Pakistan's exports declined by 6.7 per cent only during the fiscal-09. China recorded a fall of 24 percent, India 31 per cent and Bangladesh 14 per cent. As against a drop of 6.7 per cent in exports, imports during the same period recorded a fall of 13 per cent .with transport, textile and petroleum contributing shrinkages to the extent of 41 per cent, 29 per cent and 17 per cent respectively.


2000-01 9.2 - 10.7 -
2001-02 9.1 -0.7 10.3 -3.6
2002-03 11.2 22.2 12.2 18.2
2003-04 12.3 10.3 15.6 27.6
2004-05 14.4 16.9 20.6 32.1
2005-06 16.5 14.3 28.6 38.8
2006-07 17.0 3.2 30.5 6.9
2007-08 19.2 13.2 40.0 30.9
2008-09 (P) 17.8 -6.7 34.8 -13.0

While enlisting the challenges, the policy document bifurcates them into external and domestic factors. In fact, the external challenges are the bye-product of internal challenges that are:

* High cost of finance
* Energy crises (Gas and power)
* Law and order situation

These three foremost challenges have stifled our economy on both external and domestic fronts, and unless effectively taken care of, they are not going to allow any turnaround in the near future. The lack of international competitiveness is directly related to these factors which increase the cost of doing business on one hand and compel the producers to churn out low quality produce on the other. The sliding competitiveness index is a telltale sign of our policy infirmities.

Overall competitiveness 92 101
Infrastructure 72 85
Labour market efficiency 113 121
Financial market sophistication 65 71
Technological readiness 89 100
Innovation & sophistication factors 78 85
(Source: Global Competitiveness Report 2008-09, World Economic Forum)

The competitiveness index table should be an eye opener for those policy makers who think that few short term incentives will do the trick and transform Pakistan into a leading exporting country. This is not going to happen at least in the coming decades. To achieve this objective, we will have to start from our domestic markets by subjecting them to the demand and supply forces and lifting any bureaucratic controls, whatsoever. Pakistan is a generation, with abundant supply of young labour (uneducated and unskilled though). Serious investment in human capital, through compulsory education and training can transform this ore of young generation into pearls and gems of economy. We have immense opportunities in agriculture, mining, fishing and energy sectors. Land, river water, sea, coal, mineral resources all are in waiting for purposeful exploitation. Write your own script and create your own economic world. Support the domestic producers; let the fair competition generate domestic demand and allow your local markets to buzz with activity. Given these opportunities, the local producers will learn how to be genuinely competitive in the international markets.

The Trade Policy has skipped rehabilitation measures for the textile sector for which a separate Textile Policy is expected to be unveiled shortly. This policy, first of its nature, is likely to introduce technology support fund to be used as a hedge against high mark up rates for the import of capital goods. Economic or financial cosmetics are no substitute for long term healthy fiscal and monetary policies. Unrealistic interest rates throttle production and give rise to financial corruption. Creation of support funds brings more corruption. Instead of creating support funds, let the interest rate come down to the realistic level. A change in the existing SBP rate structure is also in the offing according to which Repo and reverse Repo rates with a spread of 200 to 250 basis points shall be set. The prevailing SBP discount rate might also see a cut of 150 basis points. The existing SBP rate needs a few more cuts to match it with the other economies particularly the neighbor economies. Any support funds are uncalled for. To-day's ailing textile sector has enjoyed boom periods as well when the balance sheets of textile companies recorded huge profits. Then came the era of low SBP rate. It is highly unfortunate that our industrial sector (textile being no exception) misused the cheap credit by diverting it to non-productive and speculative sectors. They missed the chance to indulge in mass scale transfer of technology through import of capital goods at a cheaper rate. Now, when the textile sector is on a slide, one would like to know the utilization of boom period earnings and low-rate-era cheap credit. No sector should be pampered with support funds What is needed is the adjustment of SBP policy rate to reduce the cost of doing business.

The main features of the strategic trade policy framework 2009-12 have been listed as under:

* Three years strategic framework
* Review mechanism
* Well defined business processes
* Shift from comparative advantage to competitive advantage

Prior to listing of Trade Policy objectives, the following statement embodying the spirit behind the stated objectives is made.

People centric: poverty alleviation and employment generation through export-lead growth


* Enhance the competitiveness of Pakistan's exports.
* Reducing cost of doing business
* Focus on products with higher sophistication potential
* Promote agricultural development through exports
* Enable Pakistani exporting companies overcome the negative effects of global demand contraction

The main plank on which the policy objectives rest is export-led growth. We have read and heard much criticism of the previous government's policy thrust on consumption-led growth. The critics of the policy offered production-led growth as an alternate model. The Trade Policy has offered yet another model namely export-led growth model. All three models essentially encompass production. Export necessitates value-addition either to the domestic or imported goods and material. Leaving aside the question of import, we know that every country produces what it can in line with its resource base and technical competence. Agriculture and energy resource base is our strength. We can produce surplus food and energy. Focus on these two sectors will give us a kick start after which we can create huge export surpluses. In the absence of these surpluses, our focus on exports will take us no where. We can promote export through agricultural development, but not the other way round.

One can understand that Trade Policy announcement is a ritual that must be performed periodically. We needed a policy, and it is there. Its appreciation or criticism is almost immaterial. We have an economic road map and obviously need to move in the right direction. Good governance is just doing the obvious.