Diversifying exports By Dr Abdul Karim

THE country’s actual exports are a fraction of the potential. To boost exports a more serious approach, commensurate with gravity of the situation, and an effective strategy, is required.

The main thrust of the government policy is to seek market access from the US and the European Union. Even if this approach succeeds, for which the prospects do not look very encouraging at the moment, it would not solve the problem, as the balance of payments gap is too big to be taken care of by exports to these destinations.

What is needed is geographical diversification of exports and increasing the range and the nature of goods to be exported. So far the country has mainly relied on exports to the US (18.5 per cent), UAE (7.3), Afghanistan (5.1), UK (five per cent), Germany (4.2), China (3.5), Italy (3.3), and Hong Kong (2.7), together accounting for half of total exports.

The composition of exports is dominated by textiles, which are no less than half of total exports. This is followed by the food group with 15 per cent, of which rice accounts for nine per cent. Other manufactures are only 18 per cent.

First, the star performer, textiles. In spite of the great advantage of availability of raw cotton and textile industry, exports of ready-made garments are hardly $1 billion, representing 10 per cent of textile exports and five per cent of total exports. In sharp contrast, Bangladesh, lacking both raw cotton and textile industry, is able to export garments to a level of over $10 billion , surpassing by a huge margin its traditional export, raw jute.

In Pakistan, others not fully utilising the potential among traditional exports are raw cotton, the whole food group, not only rice and wheat but also fruits, cutlery, surgical goods and medical instruments, sports goods, leather and leather manufactures, carpets, etc. Practically awaiting to be utilised is the huge potential in vegetables, flowers, poultry, livestock, marble, gems and precious stones, jewellery, handicrafts, furniture, and engineering goods. There is the grossly neglected share in large computer work out sourced by developed countries.

With the implementation the WTO charter and free international trade in 2005, export is now an altogether a new ball game. Textile quota system, which was of great importance for a country like Pakistan, has been abolished and this has exposed the exporters to the full blast of intense world competition. Not properly prepared to meet such an eventuality, they feel ill at ease.

In the new order of things, what matters now is not just the price of exports but also the quality of products and level of business dealings. Pakistan has to shed the unfortunate image of a “one consignment country” and drastically improve the quality of those exports, which are sold abroad at discount for being substandard.

Tariffs have been reduced but many non-tariff barriers have been set up in the name of hygienic considerations, proper social conditions for work and the environmental impact. Pakistan is already experiencing their effect in regard to export of fish products, sports goods and some fruits. With this perspective, only the fittest will survive. The weaklings will have to either shape up or ship out. This is a great challenge for exporters.

Exports depend upon domestic production and that base must be strengthened. This will not be possible without making productive economic activity easier and more lucrative than the alternate sources of making money. As things are, setting up industry in Pakistan is a Herculean task and running it a very tedious affair. This explains the lack lustre new investment in this important sector.

In sharp contrast, making money through devious means has become much easier and a whole host of new avenues have opened up. They are too numerous to be listed here and are well known. The common perception is that most of the filthy rich have acquired the bulk of their wealth through these means.

What is needed is a dual approach of encouraging and facilitating new investment in industry and effective measure to curb making easy money through socially and economically undesirable means. The whole thing boils down to “corruption”, which is so rampant that it has become part of national culture.

The problem is occasionally mentioned as a national malaise but there is no effort worth the name to curb it. This calls for a radical change in the mindset at all levels. The essential prerequisite for that is the realisation that a corrupt society can never make economic progress.. There is plenty of evidence available in current history to support this view.

Pakistan is basically an agricultural economy and most exports and imports can be attributed to it. It is the real strength of the country. It is a matter of great shame that a country, which was self-sufficient in basic food, now has to import even onions and tomatoes, not to speak of wheat at times. The situation needs to be redressed on a priority basis.

The focus has been on the large farmer who has failed to deliver because of his pre occupation with other urban economic interests. His practical interest in agriculture is indicated by the fact that there has been large cultivable waste, accounting for as much as 37.8 per cent of the total cultivated area. These tracts mostly belong to the big farmer. This is a sad commentary on the national approach to agriculture.

So far, to all intents and purposes, agriculture has been identified with the large farmer leaving the small farmer in the cold. The primary focus must shift to the small farmer to remove his varied handicaps. He should be assured of timely availability of water and other hassle free essential inputs like fertilisers and pesticides. His capacity to hold must be enhanced so that he may reap the full benefit of hard labour and does not have to resort to distress sale of his produce.

In this regard, his access to institutional credit is of vital importance to liberate him from atrocious informal sources of credit. The State Bank has been urging commercial banks to step up their agricultural credit. As a result, outstanding commercial bank advances to agriculture, hunting and forestry increased from Rs63.9 billion in June, 2006 to Rs73.9 billion in June, 2009, of which growing of crops accounted for Rs57.9 billion. The increase in the number of borrowers has not been commensurate to the needs. This indicates that the increase was confined to existing clients and credit did not percolate to small farmers in rural areas.

Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/diversifying-exports-230