Export diversification

Low trade is not an economic problem but a political one

While we all know that Pakistan has miles to go before it reaches its full trade potential, a recent report has surprised even a few experts by illustrating exactly how far. The Asian Development Bank’s ‘Pakistan’s Economy and Trade in the Age of Global Value Chains’ report says that the country has one of the lowest trade-to-GDP ratios in the world at 30%.

However, the report also offers some positives and potential solutions, although accomplishing these involves several variables, and even then, it might be considered wishful thinking by pessimistic readers. The report notes that despite “considerable poverty reduction since the turn of the millennium”, Pakistan “is still one of the few relatively large and diverse economies whose participation in international trade... has remained well below its potential”. Pakistan has unusually low trade with regional countries, which is one of the areas where gains can most easily be made. Indeed, this is not an economic problem but a political one. Export diversification is also an issue, and this is one that the current government could begin to address if it has the resolve. Unfortunately, it has gone all-in on promoting textiles, our leading export by far.

Another interesting note is that Pakistan’s economy is one of the least open in the world, and that this overreliance on textile exports increases vulnerability to economic shocks. This means that if the global textile market is down, Pakistan’s economy will be in dire straits even if the rest of the global economy is booming. Diversification would also have a knock-on effect by opening industries relating to even more sectors while increasing movement of labour to the formal sector and opening up new investment. However, the greatest challenges to growth may well be in a concluding paragraph right late in the report. Various rights must be protected, people “must have faith in an impartial court system dedicated to the rule of law”, and “market distortions” — uneven benefits to ‘certain’ groups — from policymaking must be addressed. These, beyond trade, remain the country’s greatest challenges.

Published in The Express Tribune, February 15^th, 2022.

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