New export-driven economic paradigm

Technology adoption will help country to innovate, improve export capacity

KARACHI:

In early July 2021, the adviser to prime minister on commerce and investment posted a celebratory tweet that congratulated the exporters on their unprecedented performance and that too when major economies around the world were facing a significant slowdown.

Pakistan reported the highest-ever exports in FY21 as total exports exceeded $25.3 billion, beating the previous record reported in FY14 by approximately $200 million, according to trade statistics extracted from the Pakistan Bureau of Statistics (PBS).

The exports were 18.3% higher than the value reported for the previous fiscal year, ie FY20. Exports in June 2021 were at $2.7 billion, 63.3% higher than the value reported in May 2021 and 70.7% higher than the value reported in June 2020.

Although exports declined in July 2021 relative to June 2021, they remained above $2.3 billion, which was 16.4% higher than the value reported in July 2020.

Exports of services, touching almost $6 billion in FY21, were up 9.1% year-on-year.

The exports seem to have recovered from the sharp drop in May 2021, which was likely associated with the Eid holidays and the nationwide lockdown during the month. Remittances have averaged more than $2.5 billion since January 2021.

In essence, exports of goods and services from Pakistan and the inflow of remittances have reached new heights at a time when the world economy is reeling under the burden of the pandemic.

The impact of global slowdown on exports from Pakistan was limited, contrary to the expectations when the pandemic first sparked tremors in early 2020.

Imports too increased in FY21, from $44.6 billion in FY20 to $56.4 billion. The year-on-year increase in FY21 was 26.6%.

Interestingly, imports in June 2021 increased by 72.2% year-on-year and by 20.4% month-on-month. Imports, greater in value, are following the trend in exports.

The trade deficit in FY21 increased by 34.3% year-on-year as it surpassed $31.1 billion. The monthly trade deficit has surpassed $3 billion since March 2021.

With gains in economic growth reported in the last fiscal year, the rise in imports and consequently the trade deficit should not be a surprise. The rising trade deficit will subsequently lead to challenges in terms of current account deficit.

Textile boom

In exports from Pakistan, textile products constitute the largest category and at the same time value-added products within this industry are increasing.

According to trade statistics available at the International Trade Centre’s Trademap.org, exports of articles of clothing from Pakistan increased, on average, by around 6% per annum between 2016 and 2020.

There was a $550 million increase in exports of the aforementioned products to the European Union between 2016 and 2020 while exports to the United States rose by $380 million.

On the other hand, exports of intermediate goods and cotton raw material decreased by $850 million.

Imports of textile machinery were 35% higher in FY21 than those reported in the previous fiscal year. Similarly, imports of raw cotton and synthetic fibre showed a significant increase.

Therefore, the increase in imports of raw material, intermediate goods and capital goods by the textile industry and the shift towards value-added consumer goods are positive signs for the textile industry.

Pakistan also experienced an increase in exports of surgical goods by 20% in FY21 over the value reported in FY20 and an increase in exports of engineering goods by 31% in the same time period.

Although the increase in non-traditional products, particularly the engineering goods, is promising, the challenge is to ensure that the rise in exports is sustainable.

This will require not only to tap into global value chains by ensuring Pakistani producers receive products at the cheapest possible cost, it will also require the exporters to undertake measures to harmonise their quality of production to the global standards and innovate to ensure that the producers churn out products according to the shift in global trends.

Technological gaps

Adoption of latest technologies is likely to drive the capabilities of countries to innovate and improve their capacity to export.

According to the Unctad’s Technology and Innovation Report 2021, the global market for 11 frontier technologies, which include AI, 5G, nanotechnology among others, is likely to increase approximately ninefold to $3.2 trillion in the next few years.

The Country Readiness Index ranks Pakistan in the lowest quartile. Low economic diversification and weak financial systems are among the major challenges that developing countries face in order to benefit from the technological innovation.

Job polarisation, loss of jobs due to automation and widening technological gaps are some of the potential adverse effects of the lack of technology adoption.

Hence, the government has to ensure maximum benefit from the technological change while minimising the associated losses so that Pakistan can tap into greater export potential.

The writer is the Assistant Professor of Economics & Research Fellow at CBER IBA

 

Published in The Express Tribune, August 30^th, 2021.

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