Work hard: Trade a matter of exchange based on competitiveness

An open letter from the Turkish prime minister to textile tycoons.

ISLAMABAD:

Dear textile tycoons of Pakistan,

When I arrived in Islamabad last week, a quarter of newspapers’ front pages was covered with appeals to Turkey to give zero-duty status to Pakistani textiles. I am now responding to these appeals.

I would like to start by narrating history. In 1990, Turkish textile exports were half that of Pakistan at around $1.4 billion, when your country was exporting textiles worth $2.6 billion. By 2000, when Pakistan’s textile exports were $4.5 billion, Turkey was still behind at $3.6 billion.



However, by 2010, our exports touched $9 billion, while Pakistan’s could not cross $8 billion. In 2012, our exports were 25% higher than Pakistan. This has continued. We have taken 25 years to come at this stage. Our total exports now are more than $210 billion, up from $57 billion in 1998. Today, Pakistan’s total exports hover around $25 billion.

When I read your advertised appeal to me to allow duty-free status under the GSP Plus scheme to your products, I was astonished. Turkey did not use such special status to achieve the current level of progress. We worked hard. We designed better products and produced more.

You wrote that the “award of the GSP Plus status to Pakistan will not be a big burden on Turkey but indeed be a boost to Pak-Turkish trade.” This status has been awarded to Pakistan more than a year ago by the European Union, but I understand that this has not tremendously helped its textile exports. Pakistani textile exports have fluctuated around $700-800 million a month in the last six months instead of showing any spike.

Energy shortages

Indeed a major reason is the energy situation. Let me, therefore, comment on the accompanying ad, in which you implored your government to give you continuous gas supplies. I indeed have full sympathies with you here.

However, please note that instead of asking your government to divert gas to textiles, you should ask the government to exit from this business of distribution of power supplies and let the market decide. Let the private sector invest.

Turkey requires an investment in electricity generation, transmission and distribution to the tune of $105 billion by 2020, and most will come from the private sector.

In Turkey, electricity is now distributed through an automated exchange, not like your Central Power Purchase Agency, which is more like a political mechanism. In fact, I am told that your government does not let the private sector IPPs to produce at full capacity due to ever escalating circular debt. The solution is very simple: let customers pay directly and let different prices prevail.

In our case, companies can sell their electricity at much higher prices through the Market Accounting Conciliation Centre (PMUM) set at the Turkish Electricity Trading Company, TETAS. Generation companies submit their price and amount of electricity that they would like to supply to the grid through submitting their bids to PMUM one day before. The following day TETAS buys the electricity by starting with the lowest bid.

Currently, as there is great demand for electricity, wholesale prices are approximately at 8-9 cents per kWh and prices are not expected to decrease for years to come until excess capacity is in the marketplace.

Turkey is fast moving into the liberalisation of the electricity trading market. The Energy Market Regulatory Agency (EMRA) issues licences for power generation or wholesale trading companies, which can sell its electricity generated anywhere in Turkey to any large client in any place in Turkey by paying a certain trading fee.

We can train your country’s power managers to install this system, however, we will charge consultancy fee.

Lastly, I would like to clarify that trade is a matter of exchange, which is based on competitive advantage, and is not a matter of brotherhood, as you have implored in your ads.

Dear brothers, Turkey has become a major regional economic power by adoption of sound economic policies and a hard-working private sector backed up by highly trained civil service and quality higher education.

If you want the same in Pakistan, you have to come out of the habit of begging bowl. The trade is not a matter of brotherhood. This is my utmost brotherly advice to you.

The writer is the executive director of PRIME Institute, an economic policy think tank based in Islamabad

Published in The Express Tribune, February 23^rd,  2015.

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