Pakistan’s exports in the post-Covid global marketplace
Covid-19 has also created opportunities for Pakistan in the short, medium and long term
The Covid-19 contagion has not only created a human crisis of unprecedented scale but rattled the global economic order, quicker than anyone could have visualised a few months ago. The crisis is fast transforming the socio-cultural life, which, in turn, determines the economic activity and consumption patterns. The initial trends indicate the direction of transition — social distancing, premium on personal hygiene, flexibility of workplace, nationalistic self-sufficiency in critical supplies and consumables. The consumption patterns are being redefined in terms of type, time and place of consumption. The frontiers of production and supply are being redrawn. The exact configuration of the new order is uncertain, but it is evident that the global economic order will have a reboot on the other side of the crisis, with a new set of economic challenges and opportunities for Pakistan.
The pandemic has put the global economy in a tailspin. According to initial estimates, the crisis is going to shave more than $9 trillion off the world GDP in 2020 and 2021. IMF forecasts the global economy to contract by 3% and WTO expects the world trade to fall by 13% to 32% in 2020. Eight out of the 10 largest economies, constituting 45% of the global GDP and 40% of Pakistan’s export markets, are expected to contract at an accelerated pace — US (6.1%), UK (6.5%), Germany (7%), France (7.2%), Spain (8.0%), Italy (9.1%), Japan (5.2%), and Canada (6.2%). Pakistan’s exports will have to navigate in these contracting markets.
The disruption of global supply chains during the pandemic outbreak has forced a rethink of the ideals of market economies and integration into global value chains. Nation after nation, even the most strident advocates of free trade, have baptised the taboos of export bans and import restrictions, without a whimper. The import restrictions and protectionism are being unapologetically resorted to, on the pretext of national self-sufficiency.
The lockdowns have resulted in mass closures of retail outlets in the export markets and factory shutdowns in Pakistan. With the clogging supply line, exports would inevitably slide downwards in the coming months. The glimmer of hope, however, lies in the forecast that some of the product categories of Pakistan’s export interest, especially apparel and bedwear, have a high potential of bouncing back in the medium to long term.
The above-mentioned challenges, notwithstanding the crisis, has also created opportunities for Pakistan in the short, medium and long term. Firstly, with the global recession and mass unemployment becoming a reality, the disposable incomes will shrink, and consumption patterns will change, creating new winners and losers. In the face of economic crisis, the consumers are willing to buy less expensive luxury goods, what is termed as the “lipstick effect”. It will create sustained opportunities for Pakistani suppliers, since their traditional strength has been the lower to lower-middle product segment.
Secondly, due to the disruption in global supply chains during the Wuhan phase of the pandemic, companies across the globe have realised the risks of over-reliance on limited nodes of supply chain, especially China, for essential supplies. The enterprises will diversify their supply chains, creating opportunities for Pakistani enterprises to penetrate some of the hitherto-impermeable global supply chains. Agility and competitiveness will be the critical success factors to tap these opportunities.
Thirdly, the FAO forecasts disturbance of global food systems, disruption in regional agricultural value chains, and shortages of food supplies in the world, escalating the global prices of food commodities. Rice being the second largest export item of Pakistan and primarily an export-oriented crop in Pakistan (with more than four million tonnes exportable surplus) is likely to get a positive impact on the average unit price, increasing the dollar yield.
Fourthly, the social distancing and other lifestyle adjustments of consumers are creating new winners and losers in the product and services domain. In the short term, sanitisers, soaps, toilet paper, protective masks, home office furniture and equipment remain high in demand. In the medium to long term, selfcare products and apparel can have sustained growth. Pakistan can benefit from its comparative advantage in textiles and leather products to diversify into new product range — fabric masks, protective gear, footwear and personal care products. Besides, Pakistan can venture into new products, e.g. paper products and sanitisers, leveraging the indigenous raw material base of ethanol.
Fifthly, with social distancing becoming the new social norm, physical retailing is conceding its ground to online retailing. The traditional privilege of physical retailing, i.e. sensory testing of the product would be abated since touching and trying the product in store would be considered ‘unhygienic’. Besides, the social distancing compliance multiplies the space requirement of retail outlets, making it uneconomical. Consumerism, both essential and discretionary, will have no option but to be fulfilled through online retailing. With the advantage of physical retailing being offset, the overseas exporting enterprises (e.g. Pakistani exporters) can swiftly carve out their share in e-commerce provided they are able to develop functional shopping platforms, convenient payment solutions and agile delivery mechanisms.
Sixthly, being forced into the work-from-home model, enterprises in developed countries are realising the benefits of reducing office and operational costs by allowing employees to work from home. With the transformation of workplace, the home-office equipment and outsourcing of functions overseas will become more viable than before. Coming from a reasonably sound production base, Pakistan’s ICT industry, especially fintech, business process outsourcing, consultancy and software development can claim a significant share in the post-corona marketplace.
The most critical factor in Pakistan’s ability to capitalise on these opportunities is the agility of enterprises to quickly transform their production lines to grab the immediate demand of new product categories. As is the nature of the crisis, the immediate market demand is in the same products, which are needed at home. The real challenge for public policy lies in accurately determining national demand, imposing ‘smart’ import restrictions wherever necessary, resisting the temptation of overprotection and allowing the exportable surplus to gain the first-mover advantage in export markets.
Published in The Express Tribune, May 2nd, 2020.
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