In a recently-concluded American Business Council economic summit, titled “Beyond Borders: Trade Treaties and their Implication”, a thorough debate on the challenges and opportunities of trade in Pakistan highlighted many attention-grabbing facts. An example presented quoted our exports statistics.
If anyone inquires about the export performance of Pakistan over the last two decades, the immediate response is that it has quadrupled: from $6 billion in 1990, to $10 billion in 2000, and now an impressive $24 billion in 2010. This translates to a 7% per annum increase over a 20 year period. What they fail to highlight is that as ‘a percentage of GDP’ – a key economic indicator, as it puts the overall economic growth of a country in perspective – our exports have dropped from 16% of the GDP in 1990, to 14% of GDP in 2010: a net drop of 2% of GDP or roughly $4 billion.
To realise the true impact of this statistic, it is important to compare it with other countries in the region; such as our neighbours, India and Bangladesh. Over the same period, both our neighbours have faced similar socio-economic challenges, while significantly increasing their export businesses. India increased exports 17 folds, Bangladesh 10 folds, while Pakistan managed only a 4 folds increase. On a ‘percentage of GDP’ basis, the data is even more striking; India’s exports have grown by a whopping 16% of GDP, and Bangladesh’s by 12% of GDP, while our exports have dropped by 2% of GDP during the same period.
Reasons for dismal performance
Among the many factors responsible for our dismal exports, decades of protectionist policies have rendered local industry uncompetitive and inefficient. A protectionist policy works if it protects an infant industry; but protecting mature industries simply does not make sense and is not sustainable. Even with infant industries, there should be solid plans to develop them during the period of protection, invest in their infrastructure, assist them by driving innovation and upstream research, build a supplier base, and improve their productivity.
After a period, protections should be taken away so that these industries can stand on their feet and compete with global corporations. India has used protection polices very effectively and now exports nearly $384 billion worth of goods and services. Their exports were just $23 billion two decades ago, and have grown 15% per annum on average. This is clearly disproportional, if you compare that their GDP is nine times ours, but they export 16 times as much as we do.
In addition, we have very few Free Trade Agreements (FTAs) with trading partners, which could provide the private sector greater access to other countries and regions. For the last two decades, nearly 20 FTAs are signed globally on average every year. To date, the Pakistani private sector has access to only four. For the FTAs we have signed, utilisation has remained extremely poor. For example, for the South Asian Free Trade Area (SAFTA) agreement we signed in 1994, we have only a 10% share of total trade, while 90% is split equally between India and Bangladesh.
Furthermore we have a poor in-country logistics network, which hurts the growth of both imports and exports. The railways structure is dilapidated, the road network lacks reach and is in poor condition, and there is no online tracking system for goods in transit to smaller cities. Our port and airport charges are the highest in the South Asian region: Port Qasim and Karachi Port charges are estimated to be three times Sri Lanka’s, and seven times Singapore’s.
Finally, we also urgently need to streamline and improve the efficiency of our Customs operation. It is a proven fact that the faster the clearance times of imports and exports, the larger the volume of overall trade. There is empirical evidence that indicates that that overall trade gets close to, or in many cases exceeds, 100% of GDP if goods’ clearance time falls below 3.5 days.
We need to prioritise enhancing exports in the country’s policy dialogue. On a fair share basis, our exports based on our GDP size should be in the range of $180-200 billion. We need a single-minded focus on fixing infrastructure, inland logistics, Customs operations, as well as overall governance and security in the country. I have no doubt that we can enhance exports significantly and solve many of our current account challenges if we are to work on these measures.
THE WRITER WORKS IN THE CORPORATE SECTOR AND IS ACTIVE ON VARIOUS BUSINESS FORUMS AND TRADE BODIES
Published in The Express Tribune, September 17th, 2012.
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