Need of the hour
One of the primary ways of enhancing exports is to support entrepreneurship and to create new avenues for growth by guiding the youth
Exports are the back bone of any economy. Where domestic consumption is low, the primary mode of enhancing the growth rate of a country is through its exports. Exports help earn valuable foreign exchange, which is quite important for a country like Pakistan, which has to pay its oil and defense purchase bills through foreign exchange. Decreasing exports would mean an unfavourable balance of payments which would put pressure on the exchange rate causing the rupee to depreciate which would increase again the bill of imports creating a vicious cycle from which a country has to protect itself.
The exports of almost all the countries in South Asia are on the rise. Unfortunately with Pakistan, the case is opposite. In the fiscal year 2015-16, Pakistan’s exports witnessed a 12pc decrease from US$23.6 billion to US$20.8 billion. This is an awkward and embarrassing situation for Pakistan given the fact that we had been awarded the GSP Plus status by the European Union to help boost our exports. According to the economic survey of Pakistan 2014–15,Pakistan’s exports remained stagnant at US$24–25 billion (and it actually decreased in the year 2016) while Bangladesh’s exports surpassed the US$30 billion mark last year and is set to hit the US$34 billion mark this year. The reasons for decreasing Pakistani exports are the sluggish growth in the Pakistan’s major trading partners namely UK, USA, and China, high cost of production due to electricity shortfall and delays in order deliveries because of non-availability of energy inputs. Among Pakistan’s major exports, rice, cotton, leather, jewelry and the chemical sector have been hit hard by the slump in exports. Given the current scenario of Pakistan’s dwindling exports, a strategy for bolstering them becomes imperative.
One of the primary ways of enhancing exports is to support entrepreneurship and to create new avenues for growth by guiding the youth. Entrepreneurship creates a virtuous cycle of prosperity as the people not only get employed themselves and create value for the society and the economy but they also promote employment opportunities. The spectacular growth of the US economy has only been possible by promoting the culture of entrepreneurship which entails taking risks for new ventures and not fearing from failure. Jack Ma, the founder of the Chinese e-commerce giant Alibaba.com, once said: “You are poor because you cannot overcome your cowardice”. Turkey’s recent rise from the “sick man of Europe” to the “most active man of Europe” has been attributed to Anatolian Tigers who are actually the Turkish entrepreneurs.
The second way out of the problem is to diversify our current export base. Our current export base is mostly limited to basic commodities which include textiles, leather, cotton and other basics eg grains, fruits, etc. We should make a transition from these exports to more value added items in the global value supply chain eg computer chips, integrated circuits, semiconductors, parts used in mobile and laptop manufacturing and other high tech items. It will have two benefits. First is the transfer of technology, which is in itself a barrier in Pakistan for enhancing exports. Second is the encouragement of local entrepreneurs to build these high tech devices themselves as well. A woman in China realised the potential of the protective glass cover which has to be used with every smart phone. She started manufacturing it and now Zhou Qunfei is worth $7 billion. Similarly, there are many parts associated with a smart phone or other tech products. If even only one or two start getting manufactured here, it would bring a revolution in Pakistan’s exports. Transition to high tech equipment will also require industry academia linkages to be developed, which are currently non-existent in our country and the establishment of high tech educational infrastructure in the country in collaboration with the foreign universities. A previous HEC chairman was planning to do that but thanks to the PPP government of 2008, they thought it to be a useless investment and halted the allocated funding.
Along with that, we should identify other export opportunities from Pakistan and inform the investors and the public about them so that more people can take part in the value creation process. For example, the plastic flakes are exported to China from Pakistan which are made by simply crushing the plastic bottles of the beverage companies. They are used in the huge plastic recycling industry of China and it requires little investment and effort on part of the manufacturer. The main effort is required in finding the relevant companies and marketing them for export in which the government can help by informing and educating the exporters and youth who are aspiring to be entrepreneurs. Similarly, there are many other opportunities available in the supply chain of many finished products.
The third way is to enhance the export of value added items within the existing portfolio of exports. Value addition has two key benefits. One is that we are able to fetch a higher price and a better profit for them. Second is that we can build a brand in value added products which creates trust for the product and trust again means higher profits. Instead of exporting simple cotton and yarn, we should try to manufacture and export more garments, towels, bed sheets and hosiery items. Bangladesh, which imports cotton from other countries, is now the fifth largest textile exporter in the world owing to its value added textile exports. In Pakistan, data shows that the export of cotton yarn has been down by 32pc but the export of readymade garments has improved by around 4.2pc in the current fiscal year, which tells us about the importance of value addition. Similarly, in the meat and dairy sector we can export frozen meat products, powdered milk, cheese and other value added creative products instead of exporting raw products. For example, a frozen meat company in Pakistan recently launched a burger patty in which there was a cheese filling in the center which was indeed a creative idea. Likewise, a steel company in Islamabad, instead of manufacturing simple steel bars, manufactures ball bearings and other steel parts for different automotive companies in the world and gets a much healthier profit compared to traditional steel mills.
The fourth point is to focus on the services sector along with manufacturing. The services sector is now contributing 59pc of Pakistan’s GDP and 25pc to the cumulative global trade. Services sector includes the global outsourcing industry, IT, telecom and the tourism sector. Philippines, which is a country half the population than Pakistan has roughly US$25 billion of exports in the global outsourcing industry, only second to India. Similarly, Dubai earned US$36.4 of foreign exchange through tourism in 2015. Pakistan’s work force is also skilled and it can become a major player in the global outsourcing industry if given proper attention by the government. Pakistan also has got a lot of potential in tourism for the adventure seekers and history lovers. We have got some breath taking scenery, palatable food, and a wonderful cultural history for the global tourists. If we can develop Gwadar in a proper way and make sure the security of the beaches, then we can also show them some of the best beaches in the world.
If we can develop Gwadar in a proper way and make sure the security of the beaches, then we can also show them some of the best beaches in the world
The fifth way is support by the government. Our government takes a more liberal view for export promotion offering only the government backed loans like the youth loan scheme or offering just the policy incentives for export promotion. It should take a holistic view of the situation and should adopt a rather activist and Keynesian approach towards export promotion. The government should make a multipronged strategy towards the promotion of exports. The first prong should be the immediate supply of cheap energy to the industry. The second prong should be to build foreign partnerships with technical universities and to build industry academia linkages to build innovative and high tech R&D based products. The third prong should be to not only give the loans to the youth but to inform, train and educate the youth about the new avenues and possibilities of exports. The industry based veteran mentors should be placed in the board of directors of those firms who are taking the loans from the youth loan scheme. The government should try to promote venture capital outside the IT industry as well particularly in the export sector. Similarly, the fifth prong should be to focus on the services sectors export. Pakistan is currently the third largest country in free lancing IT export services to the world but we need to transition from the services based model in the IT sector to a product based model where we can build IT products and sell them to the whole world.
