Towards export enhancement

Export-to-GDP ratio is among most important indicators to gauge level of development

The export-to-GDP ratio is among the most important indicators to gauge the level of development. A low ratio is a clear indicator of deindustrialisation for a country. Pakistan’s deindustrialisation has been indicated by its exports to GDP ratio, which has declined significantly since the 1980s. According to the World Bank, Pakistan’s export-to-GDP ratio declined from 12.3% in 1986 to 10% in 2020. Whereas, regional comparison reveals that the export-to-GDP ratio of India increased from 5.2% in 1986 to 18.66% in 2020, and Bangladesh’s increased from 5.18% in 1986 to 11.99% in 2020. However, Vietnam’s export-to-GDP ratio increased from 6.62% to 105.5% in the same period, the highest among its peer countries.

According to World Bank statistics, geographically Pakistan’s export penetration has remained limited to a few countries as only the top 10 countries contribute 61% to total exports. Further analysis reveals that only 50 countries contribute 93% to the export value. Analysing the top 10 countries reveals the US has the highest share of 18% whereas Afghanistan, the UAE and China have a share of 7% in the last 17 years of average exports. The composition of exports mainly consists of textile which contributes 57% to the total exports. The remaining 43% includes leather, agricultural food cereals, surgical goods, sports goods, chemicals and others. The product base of the export industry has remained narrow with limited focus on value addition. The group-wise average share of the last 15 years reveals textile group maintains the highest average share of 57% whereas the food group has increased its share from 8% to 21%. Engineering Group has maintained its average share of 10% whereas metal and minerals shares have declined from 3% to 1%.

Pakistan needs to diversify its export market by exploring potential opportunities in Africa, Latin America, Central Asia and the ASEAN region. Trade with neighbouring countries especially India and Iran should be normalised by opening borders for the free movement of goods and services. Anomalies in the trade regime need to be rectified. Investment has been marked as one of the crucial factors in enhancing industrial competitiveness and promoting sustainable growth. However, Pakistan performed poorly in terms of attracting both domestic and foreign investments. According to World Bank, the country consistently witnessed a relatively low investment-to-GDP ratio in the last 10 years averaging 15% as against India’s 33% and Bangladesh’s 29.5%. For the last 2 decades, FDI inflows have remained heavily tilted towards a handful of consumption-oriented sectors. The telecom sector captured the largest share of total FDI, followed by mining, oil & gas exploration, financial business, power, and food.

As per the industry’s feedback, some of the products have huge potential for export growth such as minerals & metals, horticulture, meat & seafood, stone & glasswork, raw hides & skin, electric meters, transformers, electric switches, pumps, and motors. To achieve a transition towards value-added exports the government should develop a sector-specific strategy. The real estate sector should be taxed and regulated to channel resources toward export-oriented manufacturing and productive areas. Capital gain through speculation should be discouraged through proper taxation. Speculation in land acquired for industrial purposes should be discouraged by imposing penalties and non-utilisation tax. The lack of comprehensive industrial policy and ad hoc economic decisions have eroded industrial competitiveness significantly. Sectors like petrochemicals, light & heavy engineering, minerals & mining, chemicals, food processing, and IT services should be prioritised in industrial policy. Industries including rubber & plastic, chemicals, basic metals, machinery, electrical & electronics, construction, textiles & leather manufacturing, and food & beverages have strong backward linkages. The country should initiate a “resilient value chain drive for Make-in-Pakistan” to support sectors with extensive backward linkages to achieve competitiveness. The objective to attain export enhancement can only be fulfilled if Industries are provided long-term consistent policy framework.

Published in The Express Tribune, January 29^th, 2024.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.