SHIFTING FOCUS TO SERVICE SECTOR

SHAMSUL GHANI
(feedback@pgeconomist.com)
Feb 14 - 20, 20
11

The Trade Policy (2009-12) envisages promotion of agricultural development through exports. 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 offers yet another model namely export-led growth model. All three models essentially focus on increasing production. Export necessitates value-addition either to the domestic or imported goods and raw material. We know that every country produces what it can and should in line with its resource base and technological competence. A predominantly young nation, immense agriculture potential and ample coal and water resources are our strengths. 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. Until we are able to produce these surpluses, our focus on exports will take us nowhere. Cotton and yarn producers will keep on exporting their produce leaving the domestic value-added textile high and dry. Rice, wheat, meat products, fruits, and vegetables will continue to move to foreign markets leaving the masses in the grip of inflation and hunger.

Political uncertainty over the last three years has resulted in a massive flight of capital putting external account pressures on the economy. Being industrially backward, we have become used to putting reliance on exports of agriculture produce-cotton, rice, meat, fish, vegetables, and now wheat-caring little about the distortion in socioeconomic balance.

Earning dollars by fanning domestic food inflation is not a prudent policy. Cotton and rice exports have been the mainstay of our external economy. Blindly adding wheat and sugar (or gur) to the export list will create social unrest, as local prices of these items will be adjusted upward in line with the international prices. The government will earn more foreign exchange and the exporters will earn higher profits, albeit at the cost of low-income local population who will find these essential items slipping away from its reach. This will create serious social unrest with grave consequences.

The recent wheat crises in Russia and Australia have sent the international wheat prices sky-rocketing from $200 per ton last year to the existing $350 per ton. Currently, we are reported to have sufficient wheat stock. This situation gives certain quarters a dubious incentive and they have started mulling over the possibility of wheat export. The outlook for the next crop is also favorable given friendly whether conditions with sufficient rainfall. Our current domestic wheat price is around $275 per ton. The better future outlook and the gap between the international and domestic prices are huge incentives for wheat export. But, who is going to monitor the quantum of this export to ensure that no wheat crisis for the local population ensues. All quantitative estimates might well be either inaccurate or concocted just to hoodwink the authorities who might be forced to re-import the over-exported quantities of wheat at a later stage. This has happened in the past.

Cotton prices are also on the rise, internationally. Domestic prices too are moving in line with the international prices - around $1.75 per pound, equivalent of around Rs.150. This price hike is the result of renewed focus of global speculative forces on commodity market. Indi's ban on cotton export in April 2010 gave these forces a chance to raise cotton prices to an unprecedented level during the last 150 years. India being the second largest exporter of cotton surely benefitted from this move as it managed to export its 5.5 million bales at much higher prices. Pakistani importers of cotton suffered a huge setback when India refused to honor contracts to export one million bales to Pakistan.

In the given scenario, Pakistan's textile sector is bracing to bear the consequences of high cotton prices. The high cost of production of cotton textiles will put the Pakistani exporters at a disadvantage in highly competitive international markets. The upswing in prices will tempt the majority of players to indulge in the profitable business of cotton trading instead of going through the painstaking process of value addition. The windfall profits and their plowing back into the trading business might send the cotton prices further up. One might ask the question if the cotton export cap is maintained to save the value-added textile sector from being shut down completely. The unusually high cotton prices will definitely result in equally high cotton garment and textile made-up prices. This situation will add fuel to the already raging inflationary fire and the fallout will certainly jolt the textile sector, which is already in a bad shape. What is required of authorities is a vigilant check on the possibility of excessive cotton export that will have adverse social and economic consequences. The market price mechanism also needs to be checked as driving the prices of domestic produce to the international levels is not what our economy can absorb particularly in view of a very low per capita income.

After cotton and textiles, rice is the largest earner of foreign exchange. During the first seven months of the current financial year, Pakistan has exported 2.081 million tons of rice fetching $1.141 billion at an average international price of $548 per ton. During the same period of the previous financial year, the export accounted for 2.397 million tons with an export price of $1.181 billion and an average price of $492 per ton. Did the domestic consumers get the same variety of rice at the same price? The negative side of export is that it encourages profiteering at the cost of low-income domestic consumers, under the garb of earning foreign exchange for inapt and corrupt governments. All such exports fall under the category of 'toxic exports'. In case of Pakistan, grain, fruits, vegetables, meat, fish, and dairy products are brazenly exported to sustain external account position with little thought and regard for the undernourished, below-the-poverty-line masses.

The trade policy lays much stress on export-led growth model without making any attempt to identify the imperatives of such a model. Export values vary according to the level and quality of value-addition which, in turn, are dependent on the level of technological advancement attained in a particular economy.

Given the potential of our agriculture sector, we should have been in a position to produce surplus food, but our per-hectare yield - one of the lowest in the world - prevents us from attaining that level. Lack of capital formation, low literacy rate, and absence of vocational training and skill enhancement programs and facilities drag us to the category of below-average producers in the world agro community. Dependence on toxic exports to sustain our external economy is a big social hazard that has made its presence felt in a big way. This is high time we thought of boosting our export capabilities and materially altering our list of exportable items by shifting focus from food items to service sector and industrial sector items. Adequate supply of cheap food to the struggling segments of the society can ward off the looming social and economic collapse.