With Pakistani exports already hitting a negative trend, it is very important for the economic managers to start focusing and strategising now on the new trade ties that will be evolving within our region in the coming months. This in the context of granting MFN status to India under the WTO bindings and the impact of South Asian Free Trade Agreement (SAFTA) that envisages a highly liberalised trading arrangement by January 2013 when trade will open up in all goods, except for the items in the SAFTA sensitive list. The average tariff for SAFTA members, including India, will be reduced to 0 to 5 percent, meaning that our industry will face tough competition from the cheaper Indian goods.
Bangladesh for the first time left Pakistan behind in exports as the former crossed the $25 billion mark, while Pakistan - in comparison in the last fiscal year - could only register a total export of $23.60 billion. Both countries as we know are largely based on textile exports and whenever there is a change in demand, supply and price of textile made-ups in the international market, it affects the total exports of the two countries accordingly. But not this time, as Bangladesh successfully converted the challenge of the prevailing global recession into an opportunity and, on the contrary, increased its exports by offering innovative products at lower costs and at short lead times.
In contrast, the main competitors - Pakistan and China - were either asking for long production periods or condoning off shipping delays in case of the former and untimely price increases in case of the latter. For Bangladesh whose low labour costs and smart energy prioritisation for industry were the main drivers of its increased industrial competitiveness, the year could not have been better as it snatched market shares both from Pakistan and China, which saw its readymade garment exports rise by nearly 7 percent from a year ago to reach $19 billion.
Pakistan’s fast eroding competitive advantage is largely self-inflicted and the economic managers are to blame. While gas rationing and loadshedding may not have short-term solutions, the fact remains that such rationing unless prioritised in favour of industry will continue to stifle industrial growth and keep the production below capacity. The latest figure on large-scale manufacturing (LSM) growth at 1.80 percent is extremely debilitating for the industry and a sure stultifying factor for ambitious plans, if any, for economic growth.
The SME (small and medium size enterprises) sector, known to be the real engine of growth, may be even worse off than the LSM, as small businesses do not have the inherent capacity to absorb such pressures. Further, with the highest interest rate in the region, high inflation and rising input costs, the industrial climate in the country does not present itself to be conducive. This, if not addressed timely, can have serious implications on not only the performance of our domestic industry, but also on our overall chances to embark on an export-led growth.
Now that a paradigm shift has taken place vis-à-vis liberalising of trade with India and due to the regional trade openings round the corner within SAARC through SAFTA, a feeling of both optimism and apprehension prevails in the Pakistan manufacturing sector. Optimism that we may finally be staring right into the potential of accessing the strong Indian markets and apprehension that what if our government yet again fails in aggressively addressing the Indian Non-Tariff Barriers (NTB) before the trade opens up completely in January 2013. In spite of Pakistan being granted the MFN status by India back in 1996, its exports to India are less than a quarter of India’s exports to Pakistan!
All the more reason that the entire gamut of Indian NTBs in place needs to be assessed in depth and should be correlated to the pace of phasing out the negative list in order to safeguard the interests of the Pakistani exporters.
Then, of course, there is that Bangladeshi style element where Pakistan can in fact convert this challenge into an opportunity and instead come out a winner. After all, despite the apparent issues, we also stand to benefit from quite a few areas and which if managed well carry far more potential than the negative ones:
a) Substitution of expensive imports with cheaper Indian goods;
b) Cheaper raw material imports from India can help boost Pakistani industrial competitiveness;
c) Healthy competition always helps operational efficiencies (when the going gets tough, the tough get going!);
d) Enhanced exports to India will mean an overall increase in Pakistani exports;
e) Cheap consumer imports will help tame inflation at home;
f) Easy access to Indian and regional essentials will strengthen our national food security;
g) With the availability of Indian option in imports, we can negotiate better with our traditional suppliers; and
h) Clandestine import from India will start being routed through official channels, thereby adding to the governmental revenue.
Finally, in our pursuit of improving the industry’s competitiveness, we need to be careful that we do not end up confining ourselves to the simple and singular notion of merely looking to increase our country’s share of world markets for the products our industries produce or help in producing. Competitiveness in its true sense is defined by the productivity with which a nation utilises its human capital, its financial capital and its natural resources. Almost everything matters in raising competitiveness: schools, roads, domestic financial markets, energy mix and customer sophistication. It requires a framework that addresses various socio-economic areas simultaneously through coherent and connected policies.
For now, we will have done well if a meaningful debate and discussion can be triggered amongst the policymakers on what constitutes the best response for the Pakistani business to successfully meet the emerging challenges in January 2013 and beyond. And once an understanding is developed, then how to undertake and quickly channelise creative policy making towards implementing this designed response.
n The writer is an entrepreneur and economic analyst.