Explains the main weaknesses of Pakistan's exports sector,the challenges it is facing and presents a set of recommendations to meet those challenges

1. Shahid Hussain Raja
Independent Consultant-Public Policy
www.shahidhussainraja.com
January 15,2015

2. Introduction
Pakistan’s Exports Profile
SWOT Analysis
Suggested Strategy
Conclusion

3. Pakistan has done fairly well economically since her
independence more than six decades ago and is the 27th largest
economy in the world with a per capita income of more than
US$3500 in Purchasing Power Parity .
However its exports performance has been lackluster and far
below her potential, constituting a meager 0.15% of total world
exports.
It becomes all the more depressing if compared with other
countries which started their development process at the same
time as Pakistan and with almost the same initial conditions
During the last two decades China’s exports have increased over six
fold, India's exports have grown over five times. Similarly Vietnam,
Turkey and even Bangladesh have also done well in their efforts to
promote their exports.

4.  In comparison, Pakistan’s exports have increased only
2.7 times over this period, reflecting its less than
satisfactory performance, placing it among the low
achievers on this score.
 What went wrong and why is the topic of discussion in
this presentation, along with a set of recommendations
for boosting exports potential of Pakistan
 Its article version is available at my website under the
following URL
 http://www.shahidhussainraja.com/pakistans-exports-
sectorchallenges-and-response

5. Pakistan’s Exports Profile

6. Years Exports (Billion US $ )
2005-06 15.43
2006-07 16.91
2007-08 19.07
2008-09 17.68
2009-10 19.20
2010-11 25.34
2011-12 24.61
2012-13 20.14
2013-14 20.99
2014-15 (projected) 24.55

7. 2010/2011 2012/2013 2013/2014
Food Group 3.3 4.5 4.7
Textile Group 10.2 13.8 14.0
Petroleum
Group
1.1 1.4 1.5
Other
Manufactures
3.8 4.5 4.9
Engineering
Goods
0.2 0.3 0.3

8. Countries Percentages
Unites States of America 17
United Arab Emirates 9
Afghanistan 8
China 7
United Kingdom 5
Germany 5
Turkey 3
Italy 3
Bangladesh 3
Belgium 2
Others 38

9. SWOT Analysis

10. Pakistan has a strong comparative advantage in
agricultural commodities due to its soil endowment,
climate, irrigation network and human force.
Growing pool of skilled human resource particularly in
finance, information technology and engineering is
becoming a sound base for exports of services
Extensive network of Pakistani business Diaspora with
strong ethnic ties is a solid demand which needs to be
scientifically cultivated
Ninth largest English speaking nation in the world
facilitating its integration with global trading system

11. Heavy concentration on traditional resource-base and low value
added products mainly produced for domestic captive market for
selling at high prices, dampening the urge to export by improving
quality
Relying on labor-intensive technology with limited production base
of high quality manufactures due to lack of R&D culture and facilities
in industrial sector of Pakistan
Increasing costs of production making our products expensive in the
world markets. Delayed delivery due to energy crises and law and
order/security situation
Exports of few items to limited destinations resulting in cut throat
competition among our exporters fetching lower prices
Absence of a clear long-term strategy with regard to export
promotion over the past six decades.

12. Increasing world population and growing global
prosperity fueling the demand for new products
Globalization with attendant expansion of markets,
ease of communication and rapid transportation of
goods and services
Increasing outsourcing opportunities from developed
countries because of increasing costs of production
there
Greater possibility of acquiring competitive advantage
by importing raw material not available locally

13. Award of the Generalised System of Preferences Plus(GSP+)
status on 1st January 2014 is expected to provide a further boost
to the country’s growth prospects through increased trade and
foreign investment with the EU.
Relocation of industries from developed countries to developing
countries in the wake of global restructuring
Joint venture agreements with businessmen of the countries
having raw material but lack expertise and resources
Growing prosperity of Pakistani Diaspora keen to buy goods and
services of Pakistan

14. Pakistan’s image as an exporter of low quality, low
prices of selected goods and services, restricting
demand for high quality products from Pakistan, a
Catch-22 position
Law and order/security situation deterring the
importers to visit Pakistan or participate in our trade
exhibitions
Energy crises creating crises of confidence among the
importers about the certainty of timely delivery of
exports orders

15. Emergence of strong competitors in the region in the
same groups where Pakistan has the comparative
edge
Increasing concerns of the importing countries about
social and environmental issues- the green
technologies, child labour, gender balance, bonded
labour etc
Shifting of Pakistani industrialists to other countries
due to push/pull factors
Pakistan’s major export markets – the United
States, the European Union, China and the Middle
East – are experiencing an economic slowdown

16. How to increase the foreign exchange earnings of
Pakistan by increasing the volume and range of
exporting high quality goods and services in the
face of increasing competition in a rapidly
globalizing world

17. Formulation of business friendly national economic policies(multi-
sectoral as well as sectoral) which encourage creation of exportable
surplus of high quality goods and services with incentives for R&D
and value addition. These policies should be reinforcing each other
and any anti-export bias found in any policy be removed.
Formulation of a comprehensive trade policy which should indicate
the broad direction for this sector, create institutions and define their
respective roles, make rules for coordination, set safety and quality
standards and provide an incentive and rewards system for various
stake holders
Within this framework, Government's role should be confined to
legislation, policy development, regulation, capacity building and
facilitation, while the private sector should take the lead in investment
and value chain development on its own.
Broad objectives of this policy could be ;

18. Increase productivity by increasing efficiency in all those
sectors geared towards exports
Increase profitability of all stakeholders by providing them
appropriate incentives and rewards
Making exports competitive in the rapidly globalizing world
Ensuring sustainability by promoting environment friendly
good manufacturing practices
Ensuring equitable distribution of gains from enhanced
productivity to all stakeholders

19. Accelerating the growth rate of Pakistan by improving its
foreign exchange earnings through increased exports of
goods and services
Poverty alleviation and reduction in income inequalities
through creation of job opportunities in exports sector
Attracting foreign investment by reducing costs of doing
business, giving appropriate incentives and creating an
investment friendly environment
Modernisation of all economic sectors by introducing new
technologies and techniques

20. The best export promotion strategy reinforces a country's existing
strength and /or creates the basis for establishing new competitive
advantage.
Our strategy therefore should be to not only increase the quantum of
our exports but also to expand their range, selecting higher value
added goods for exporting to the existing or new markets.
Once we have selected the desired components of our export basket
and the markets in which focused attention would be paid and
strategies laid out for their implementation, we must ensure that the
overall competitiveness of exports is achieved and maintained.
For this purpose, it must address following broad economic and trade
related issues, which play crucial role in affecting the overall
competitiveness of a country's exports in the global export market

22. Increasing Exportable Surplus
Capacity Utilization
Capacity Expansion
Productivity Growth
Enforcing Quality Control
Facing Challenges of WTO Regime
Encouraging Private Public Partnership
Reducing Transaction Costs
Attracting Foreign Investment
Rationalising Import Policy
Maintaining Rational Exchange Rate
Reinvigorating Economic Diplomacy
Social and Environmental Compliance
Encouraging SMEs to Export

23. Obviously you cannot increase your exports without
creating substantial exportable surplus in the country.
This in turn means increasing the production of goods
and services in all the sectors in general but in
exportable sector the most
Consequently it translate into devising policies and
strategies to increase the production through all the
three ways-surplus capacity utilization, capacity
expansion and productivity growth

24. Thanks to past policies there is a lot of capacity in every
industrial unit which cannot be utilized for one reason or
other-costly imported raw material ,lack of finance,
inadequate BMR, shortage of expertise etc
There is thus need for carrying out a comprehensive
analysis of all the export oriented industrial units and find
solutions for optimum utilization of their excess capacity
If there are some industries which have lost their relevance
or competitive edge, we should take bold steps and let
them die their own death

25. Related to above is the need for increasing the capacity-
either of existing units or building new ones. Without
diversifying the production base we cannot improve our
exports profile.
We should select goods and services to be promoted for
exports on the basis of their comparative advantage, global
demand and growth potential-the sun rise industries
Some of these sunrise industries are electronic and
telecommunication equipment, automotive parts, biological
pharmaceuticals, renewable energy, petrochemicals,
aerospace etc

26. An economic measure of output per unit of input(the ratio of GDP to total
hours worked in the economy during a measuring period), productivity
gains are vital to the economy because they allow us to accomplish more
with less.It comes from three major sources
Investment- in physical capital and promoting innovation i.e. successful
exploitation of new ideas.
Skills formation- needed to take advantage of investment in new
technologies and organisational structures by increasing labor
productivity through education, on the job training, skill up gradation and
dissemination of new knowledge and techniques.
Competition- when enterprises compete with existing firms It ensures
that resources are allocated to the most efficient firms and forces
existing firms to organize work more effectively

27. There is a need to promote the culture of quality at every
stage of value chain and even among the consumers
through awareness campaign, appropriate legislation,
institutional mechanism etc
There should be strict quality control measures even for
domestic sale of goods and services to make our
producers quality conscious
Compulsory quality certification along with subsidy to the
manufacturers of high quality products
Establishment of facilitation centers to reduce the costs of
production and ensuring quality of finished products

28. Globalisation is a two edged weapon-it provides opportunities but
also poses challenges. Only those countries will be able to profit
from this phenomenon which accept the challenges and come up
with appropriate responses.
It is therefore essential to conduct constant research about the
issues raised in the new WTO regime in order to provide useful
information for taking market-friendly measures
Regional trade agreements(RTAs) may work as an effective
industrial policies, increasing opportunities to export through the
reduction of various trade costs while simultaneously promoting
market-friendly reforms.
However there is need to conclude such RTAs in consultation with
the stakeholders to ensure that interests of our manufactures are
fully protected

29. Private sector has become an active partner and player in
development especially in export sector. However it needs
incentives like easy accessibility to loans, better infrastructure,
tax concessions etc
Most of all it demands good governance, consistency of fairly
formulated policies, level playing fields and quick dispute
resolution mechanism
We should encourage our private sector to help Pakistan
becoming a trade corridor for the regional countries, particularly
Central Asian Republics which are witnessing phenomenal
growth with a fast expanding market for which we need to
develop our ports and other transportation network under a long
term plan
It is here where private public partnership could yield handsome
dividends to the country as well as to the private sector

30. Pakistan is ranked 110th by the World Bank in its Ease of Doing
Business Index. Measures are needed to improve this ranking by
improving country’s physical infrastructure.
This includes reliable and low cost supplies of power, water, gas
telecommunications, cutting down long delays in shipments,
clearances, cargo space, handling at the ports and airports etc for
export industries.
We should encourage domestic investment in shipping to save $1.5
billion annually being paid to foreign shipping companies. Pakistan
has a small shipping fleet which carries less than 10% of our trade as
compared to 40% permitted under international law
Similarly there is need to improve its financial infrastructure for which
long term financing and hedging products need to be developed by
the financial institutions

31. The opportunities arising from increased global trade are
accompanied by numerous challenges both for
manufacturers and exporters. One of these is meeting
strict quality and compliance requirements
Pakistani exporters should equip themselves to become
fully compliant with these requirements of the advanced
economies buyers and governments.
Government will have to come with a heavy hand to
ensure the social and environmental compliance through
appropriate policy formulation, creating institutions and
providing an attractive incentives and rewards regime

32. Small and Medium Enterprises (SMEs) play a crucial role
in any economy but they are hampered by their limited
access to finance, technology, management practices and
information.
However without integrating the export oriented SMEs
into an organized production network for exports, we
cannot give quantum boost to our exports.
Here state will have to play a very proactive role to ensure
their easy and affordable access to information, finance
and create facilitation centers in cluster areas.

33. No one can deny the role of foreign investment in accelerating
the growth rate and promoting exports by bringing much needed
capital, technology and management practices to the country.
We should therefore attract foreign investors for export oriented
joint ventures in Pakistan and also establish joint ventures
abroad.
For this purpose we should target brand name merchandisers
and large retailers of standardized products. Foreign joint
ventures can provide marketing, design, logistics, financing while
the production can be handled by domestic firms.
However it will require greater transparency and disclosure by
Pakistani firms aspiring for joint venture relationships and a
reliable dispute resolution mechanism to redress grievances

34. No country practices absolute free trade; the US protects
its steel, autos and heavily subsidises agriculture and the
defence sector while the European Union has provided
hundreds of billions in subsidy to its “inefficient”
agriculture.
We should therefore follow a cautious liberalisation of
imports, restricting freer imports to the export sector via
bonded warehouses and export processing zones.
Secondly, reducing the level of protection to domestic
industry and agriculture at a time of severe challenges is
not a good policy formulation.

35. A country in order to grow has to expand its market; if local
market is not large enough to absorb the expansion in
output, it has to find external markets for which its exportable
surplus must be competitive.
For this, either your costs of production should be lower or
your cost of exchange (value of your currency) should absorb
the increased costs and must be devalued to that extent.
That means maintaining appropriate effective exchange rate
to ensure certainty, not necessarily rigid stability
Chinese learnt the lesson from Japanese and kept their
currency undervalued. Americans failed to do so and lost
their manufacturing, first to Japan and and later on to
Chinese.

36. Every country strives hard to enhance its exports
capabilities. However that is not enough if not matched
by equally important measure- economic diplomacy
We need to reinvigorate economic diplomacy in our
foreign relations, especially through our embassies. The
role and effectiveness of the Commercial Counselors in
improving the relations with trading partners have to be
strengthened.
All the institutions tasked with export promotion must
be converted into an effective marketing organizations
by involving the private sector and inducting
professionals.
Pakistan is also a member of regional arrangements i.e.
SAARC and ECO, which have yet to contribute to the
promotion of intra-regional trade.

37. Despite massive strides made by Pakistan in the field of
economic development during six decades of existence, her
export profile is not as impressive as it should have been.
Her reliance on too few exportable items and too few trading
partners have made the country vulnerable to external as well
as internal shocks.
Pakistan will have to expand her production base, diversify it
on need basis and craft an aggressive long term export
strategy
She also need to rationalize her economic policies in sync
with this strategy making concerted efforts to enhance our
exports by diversifying them, finding new markets and
encouraging value addition to our exportable items.