How can PTI turnaround the export sector?

Pakistan has faced perpetual trade deficits in the wake of modest export earnings to service colossal import bills. Successive governments opted for a facile route of abating imports instead of incentivising the export sector to address this plight. Despite yielding outcomes with a time lag, the latter can help Pakistan withstand trade woes perennially.

Pakistan’s export sector has performed dismally in comparison to countries like India and Bangladesh. This becomes worrisome because these countries kicked off their development process simultaneously and have identical conditions to Pakistan. So, what has been the reason for such a lacklustre performance?

Pakistan has been unable to fully realise its export potential owing to an absence of a long-term strategy and appalling economic decisions, including a managed exchange rate. Pakistan has exported low-value-added, one-dimensional goods over the years. More than 60% of our exports account for cotton and textile products, with other significant items being food and sports goods. Due to a lack of R&D investment, the exporters relied on conventional labour-intensive technology, so the quality never ameliorated.

The export woes were compounded due to exorbitant energy prices and dismal labour productivity (the ratio of output to input) in the country. Pakistan’s labour productivity has not only persisted below our neighbours but has paralleled many African countries. Also, the exporters indulge in a cut-throat competition given limited commodities and finite markets. This comes at the price of fetching competitive prices.

To rectify the industry’s awful state, the incumbents have to devise a promotion strategy that either reiterates Pakistan’s existing strengths or manifests a new competitive advantage. This strategy must focus on expanding the range of our exports along with augmenting the quantum.

The foremost challenge to the government will be to formulate a business-friendly economic policy amid an IMF programme. The government might not be able to bolster the sector with subsidies. Still, the renegotiations with the IPPs may result in a downward revision in electricity prices, lowering production costs. Similarly, a market-based exchange rate will serve as an impetus to the exporters due to an increment in their profit margins.

Diversity is central to a promising outlook of our export sector. The authorities have to lay down criteria to hand-pick products and services with export potential. The yardstick for scrutiny should be a comparative advantage, international demand, and growth potential. The industries in Pakistan with growing potential include telecom, pharmaceuticals, renewable energy, etc.

The export policy has to emphasise productivity gains since they will help Pakistan produce more with the same or less. This can be done by investing in R&D, which will help to steer innovation towards the sector. Vocational institutes at subsidised rates can be established for skills development of the labour class. They will learn advanced techniques and production methodologies and imitate them in the factories.

The industry cannot capitalise on its competitive advantages until it effectuates a culture of quality at each value chain stage. The government can legislate on the subject making quality certifications mandatory for the companies to operate. It can also award subsidies to the producers that rigidly abide by quality standards. Besides, strict quality control measures can be enforced even for the local production so that the producers become quality conscious, which will have a trickle-down effect on each worker.

Pakistan’s performance on the World Bank’s ‘Ease of Doing Business’ ranking has been deplorable. Pakistan needs to facilitate the industry by ensuring sound infrastructure, including an economical supply of utilities, less delay in shipments, orderly handling of the port, and vibrant financial institutions (banks). Similarly, the exporters should equip themselves with the capacity to comply with social and environmental regulations and customer-specific standpoints.

Lastly, there is a need for Pakistan to reinvigorate economic diplomacy in our foreign relations through our embassies. The organisations responsible for promoting exports have to effectively market them by employing subject professionals. Conducting trade through regional alliances is a go-to policy in the contemporary geopolitical environment.

The crux of the matter is that Pakistan can afford to curtail imports for a prolonged period due to its adverse repercussions. The imports have to be eased gradually, but the authorities also have to protect domestic producers since exposing them directly to foreign competition will be a recipe for disaster. Hence, Pakistan needs to expedite export growth – with a cautious liberalisation of imports – to address the national trade woes.