Make exporters more responsible

Pay-for-performance culture needs to be introduced for export industries

KARACHI:

Pakistan now earns more through remittances than from merchandise exports. Even combined foreign exchange earnings of merchandise and services’ exports are only a few billion dollars larger than remittances.

In July-June 2019-20, the country’s merchandise exports (free-on-board value) were around $22.51 billion, which were lower than inward remittances of $23.11 billion, according to the State Bank of Pakistan’s balance of payments report.

This is not a good sign for the economy. It is a poor reflection of the country’s ability to tap its resources for producing quality goods for international markets in large volumes. It also indicates that the country is not progressing well in offering to the world the kind of services in demand.

The growth in remittances is always welcome but with certain conditions. If remittances grow due to export of highly skilled workforce able to earn high per-person wages or if they grow due to foreign exchange sent home by expatriate entrepreneurs, that’s good.

However, if remittances rise only because a large number of people, mostly unskilled and semi-skilled, go abroad to earn livelihood, it means their home economy is not working well to absorb employable people. That is exactly what is happening in the case of Pakistan.

Even before the outbreak of Covid-19 pandemic, the drive for localisation of jobs in the Gulf Cooperation Council (GCC) region, from where the bulk of Pakistan’s remittances come, posed a threat to further dispatch of large numbers of Pakistanis to Saudi Arabia, the UAE, Kuwait, Oman, Qatar and Bahrain.

Now, with the pandemic having affected economies of these countries and other host countries of Pakistani diaspora ie the US, UK, Malaysia and EU nations, there are slim chances of growth in export of manpower from Pakistan.

This is going to slow down the growth in remittances – if not in the coming months but surely in the coming years – unless global economic realities change for the better.

Forget the recent growth in remittances, which is because of the fact that the Pakistanis who lost jobs in the GCC and other parts of the world after Covid-19 triggered recession or slowdown in economies are returning home with their life-long savings.

That also partly reflects the effect of diversion of a few billion dollars in remittances from informal to banking channels as Pakistan launched a successful crackdown on the illegal transfer of foreign exchange back home by the overseas Pakistanis.

Over-reliance

Even if, for argument’s sake, the remittances continue to grow year after year, over-reliance on them make us forget the urgent need for boosting exports of goods and services.

Countries that have made dazzling economic progress in recent decades have all relied much more on boosting exports and not on remittances. The reason is that the export-led growth leads to qualitative and sustainable growth of the economy – and reliance on remittances to make up for the shortfall in exports puts real economic issues under the carpet.

When goods exports are allowed to remain stagnant in an economy, as we have seen in Pakistan, industries become complacent and self-serving and do not invest in innovation and modernisation. That is what we witness in Pakistan.

When low growth in services’ exports are tolerated, education and skill development become a low priority, depriving the nation’s youth of their right to excel in fields of higher learning and training. We also continue to witness this in Pakistan. But these things have to change now.

Pakistan can no longer afford to run a high deficit in goods and services’ trade and must aim to turn this deficit into surplus in the medium term. Without that, sustainable and job-creating economic growth is not possible at all.

To make that happen, exports of both goods and services need to be put on a high growth trajectory.

Cash handouts

However, that cannot be done unless policymakers conduct an honest and ruthless study on why Pakistan’s exports have remained range bound between $25 billion and $30 billion over the past 10 years despite all the so-called incentive packages of hundreds of billions of rupees doled out to merchandise exporters.

If that study exposes the unscrupulous role played by some policymakers and exporters, responsibility must be fixed after a forensic audit of incentive packages, and those responsible for that must be taken to task.

There are several structural problems with exports but no responsible government should let inefficient exporters hide behind them and live on cash handouts and subsidies, ultimately financed by ordinary citizens.

Pakistan’s merchandise exports rely heavily on textile and food. Top exporters in the two sectors enjoy a lot of political clout in the country. That is why they manage to get incentives every time in the name of export enhancement but deliver very little.

The auto sector is also notorious for its manipulative skills to get support from the government of the day. But automakers, too, have done very little to contribute significantly to the growth in exports over the past decade.

Living on cash incentives and subsidies and contributing little to export growth is not just limited to these three sectors but all other export sectors also suffer from this malice.

This should now come to a halt and incentives and subsidies to exporters must be linked to their performance. A pay-for-performance culture needs to be introduced in export-oriented industries.

In services’ export, the culture of living on incentives and subsidies is not that common. This sector rather suffers from neglect by the policymakers. The Pakistan Tehreek-e-Insaf (PTI) government should introduce a comprehensive scheme to boost services’ exports, particularly in the area of ICT.

Tech starts-ups must get policy attention. Future lies in growth of these tech starts-up that can bring in billions of dollars with enough official support.

The writer is a mechanical engineer and is doing masters

 

 

Published in The Express Tribune, September 21^st, 2020

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