An overambitious foreign trade strategy

The not-so-good news is that the new foreign trade policy reflects an overambitious quality

M Ziauddin March 25, 2016
The writer served as Executive Editor of The Express Tribune from 2009 to 2014

The good news is, a three-year strategic trade policy has been announced a couple of months ahead of the announcement of next year’s budget. This allows the budget-makers to dovetail the policy in the budgetary measures, rather than as usual, force the trade policymakers to adjust the policy priorities to fit the restrictions of the budgetary measures flowing out of the finance ministry’s fiscal policy and the State Bank’s monetary policy as well as the FBR’s revenue collection targets.

However, the not-so-good news is, the new policy reflects an overambitious quality as it aims to improve exports from the current depressing level of $19-20 billion a year to $35 billion by 2018.

Clearly, this overambitious export target has been fixed without taking into consideration the ground realities obtaining in the domestic export capacities.

Pakistan lacks enough exportable surpluses and has a highly restricted number of export market destinations. Also, most of our exportable surpluses lack significant value addition and are limited to commodities such as rice, cotton and raw materials like cotton yarn.

Pakistan’s list of export items has not changed much since the mid-fifties and its top export markets are limited to the US, China, Afghanistan, the UAE and Germany. And half of our total imports come from China, Kuwait, Saudi Arabia, the UAE, India and Indonesia.

Pakistan’s export base and markets are extremely narrow. Its exports continue to be dominated by cotton textiles and apparel; imports include petroleum and petroleum products, edible oil, chemicals, fertiliser, capital goods, industrial raw materials and consumer products. Over 55 per cent of its export earnings are contributed by the cotton group alone. Relatively low value-added products like leather, synthetic made-ups and rice contribute about 14 per cent of total exports.

Currently, according to a number of estimations, the Pak rupee is 16 per cent stronger than those of the competitors. While we are keeping our rupee at a relatively higher value than it is worth, India, Indonesia, Thailand, Turkey, China and Vietnam have devalued their respective currencies by significant margins in recent times.

An artificially appreciated currency ends up subsidising imports and serves as an effective disincentive against foreign direct investment as well as exports.

The government has promised Rs26.14bn for funding the three-year strategy. And in the first year, of which only four months are left, Rs5bn will be spent on providing subsidies and support to identified sectors.

Going by the past experience, one can easily assume that all this funding would go to waste as our exporters would siphon off more than half of this amount by, as usual, doctoring their export documents without introducing the desired reforms in their manufacturing and trading practices.

The biggest hurdle that faces Pakistan in the way of its attempts to improve its foreign trade quantity- and income-wise is our self-imposed disconnect with the regional markets.

So, the aspect to focus on, in trying to improve our foreign trading capacities is the regional connectivity. Pakistan stands to profit immensely from such connectivity but we ourselves seem to have served all these years as the sole and biggest hurdle in the way of this happening.

We have a very limited and patchy trading activity with our eastern neighbour and the same goes for our north-western and western neighbours. Our northern borders had also remained inactive export/import-wise, for a long time. And now that the China-Pakistan Economic Corridor (CPEC) is being launched, the possibility of at least the north-south connectivity becoming a reality soon, seems assured.

We need to reach the Central Asian markets at the earliest. But Afghanistan is not likely to allow us its overland route to reach Central Asia unless we allow Kabul to trade with New Delhi through Pakistan overland. And New Delhi is not likely to see that happen unless we allow India a transit route overland to trade with Afghanistan and beyond.

Even if we don’t achieve substantial market access in the east and northwest regions, we would be racking in millions by way of toll tax collection alone if this transit route is opened for India and Afghanistan to trade. And we would also be saving millions in freight by importing much of raw materials and intermediaries for our manufacturing and fabricating sectors from our close neighbours, including Iran and the West.

Published in The Express Tribune, March 26th,  2016.

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asma tanoli | 5 years ago | Reply @Humza: Opening to other markets never hurts but benefits. The more open an economy is, the better off it is. India did not lose out by opening to China. Bangladesh's exports have grown faster after it opened up to India. About the currencies, unlike Mr Ziauddin, I am also arguing the same thing. Whenever we have a stable exchange rate, our exports start growing like when it was Rs 60 to a dollar during Musharraf era. We should not misunderstand about the Japanese yen. It is their basic coin like our paisa. It used to be 300 yen to one dollar when Pak rupee was Rs 4.75 to a dollar or one PkR equalled about 60 yen. This currency has revalued by over 60 times in one generation but it did not hurt the Japanese exports.
Humza | 5 years ago | Reply @asma tanoli: The exchange rate has no direct link with the value of currency. The Japanese Yen is over 100 to the dollar but it is a stable currency that is far more valuable than the Taka, Afghani or any Rupee. Pakistan's currency has stabilized under Nawaz Sharif but my fear is that he may open our markets to cheap Indian goods which will hurt Pakistan's economy and industry just when Pakistan is starting to improve economically. Pakistan needs to develop an IT and manufacturing base of its own and not be flooded from the East.
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