The world is at the threshold of the 21st century with its billions of citizens facing the prospect of a rapid change in the way the countries do trade, win friends, and break the traditional mold of isolation and indifference. At the same time, the era of globalization has begun which will shatter the trade barriers, which will eliminate high import tariffs, and which will crush the policies of protectionism.
The free trade regime will also bring with it a more concrete desire to create products that would be world class, with a strong emphasis on quality, with a respect for competitive pricing, and with a stress on prompt and fast delivery and movement of goods. The concepts of ISO- 9000 and ISO- 14000 will gain importance not only in high-tech manufacturing, but also in small and medium sized companies producing everyday items. Human resource development will be accentuated and encouraged so that a superior and efficient production system is evolved.
Pakistan, like other developing countries, will be compelled to fundamentally restructure her mode of manufacturing for the world market. The policy makers, the exporters’ associations, and the various think tanks, will have to shed their lethargic posture and start a movement on a war-footing basis to make the country a viable world trade player. The present ad-hoc policies of the administration, the rigid nature of government officials, and the plethora of bottlenecks and hurdles in matters of exports, have been classic deterrents in boosting the nation’s exports all these years.
The export figures have tiptoed between US$ 8 billion and a few million here or there. There have been no dedicated efforts to attain the target of US$ 10 billion that Prime Minister Nawaz Sharif envisaged during his first stint as the head of the government, way back in 1991. The ensuing years witnessed the same low priority being afforded to raising the export figures. The government of Premier Bhutto jump-started on the adoption of WTO conditionalities by reducing import duties on goods that already were heavily produced in Pakistan, while not heeding the call for a commensurate decrease in the import duties on essential raw materials. The resultant scenario has been an unmitigated disaster for the local traditional industries that have been gradually losing their domestic market share to those foreign goods that are invariably under-invoiced and are below the acceptable international quality standards.
The question which is of significant importance, is whether Pakistan will be able to formulate a pragmatic, workable, and effective export policy or whether there will be a continuation of the adherence to the present dilly-dally attitude towards exports. It should be noted that although exports are not the only panacea for the economic development of any country, the case for Pakistan takes on a very profound understanding of the critical need to expand the export base.
Pakistan is endowed with nature’s bounties. The country is rich in cotton production, in rice output, and in various minerals, that any nation can be proud of. Pakistan has a reasonably large number of gem mines, is gifted with many orchards of delicious fruits, and is spending billions on discovery of oil and gas to run the wheels of industry. Pakistan has a skilled workforce that can deliver the right quality product. She has craftsmen that are internationally recognized for their art. She has citizens who are world-renowned industrialists, bankers, pilots, and soldiers.
The Islamic Republic is well poised to progress on the path to industrialization. The question is whether this will be export-led industrialization or whether the nation will be satisfied with import-substitution industrialization. This discussion takes more of an urgent nature if the realities of the WTO and globalization are held into account. The Asian Tigers shot into prominence with a devoted and determined approach to export-led industrialization. Although devoid of essential minerals and crops like cotton, etc, the Far Eastern Asian countries, such as Singapore, Taiwan, Hong Kong, and South Korea, became economic juggernauts in a relatively short time. These four countries have been in the forefront of the rapid growth of manufactured exports from the developing world.
The dominant question is whether these countries zoomed up in the field of exports due to the influx of transnational companies, or whether this was mainly due to the mobilization of domestic factors. Whatever the causes, this transformation from newly developing countries to a more intensified status as semi industrialized nations has been explosive, and these countries are now truly "super exporters."
There is a need to examine and discuss the significance of foreign factors in the growth of exports. There can be improvements in exports if one takes into account the large infusions of foreign capital, technology, and entrepreneurship, while the host country passively provides unskilled and semi-skilled labor. The transnational companies generally take all decisions on the choice of product, technology, and international marketing. Of course, there will be a limited linkage to the domestic economy. This is more so in sectors that are usually designated as Export Processing Zones and which have been provided attractive incentives, like zero duty imports, no labor laws, subsidized infrastructure, and access to other needs of industry. There is a marked advantage over tariff areas, and this transforms into a well-suited working area for the foreign firms.
This flow of foreign capital is primarily referred to as direct foreign investment and it projects the confidence of the foreign investor in the economic progress, social uplift, and political stability of the host country. This plays strongly in promoting the country at international fora and at conferences where the country’s economic and investment policies are highlighted and marketed. This investment in export-based industries also opens up new vistas for the domestic investors who then tread the path of exports that have been laid by the multi-nationals. It should be borne in mind that there is a significant difference in foreign loans and foreign investments, because each has its own rules and the host country is dependent on a different plateau in each case. It is pertinent to point out here that productive foreign investment is in industries and the manufacturing sector, and the inflow of foreign funds in the stock exchanges does not play a meaningful role in increasing export figures. More importantly, the influx of funds in the guise of loans and credits, such as from IMF, ADB, syndicates of international banks, or foreign donors, does influence exports but in a more indirect way. The claim of Benazir Bhutto, at the annual dinner of SITE Association of Industry in 1995, that a direct foreign investment of over US$ 5 billion will flow in, did not materialize, and the country is still on the lookout for substantial overseas investment.
The second prominent factor is the utilization of the available labor force in the increase in exports. There is an imperative need to chalk out a program that envisages the optimum employment of workers. Thus the need to channel resources in high-labor intensive industries. The example is more vivid in the context of Pakistan. A huge unskilled and semi-skilled workforce can easily be tapped. The present labor situation in Pakistan is very conducive to industrial efforts. The unions have adopted a more practical posture and this has been evident from the lukewarm response of union leaders to the process of downsizing in financial institutions and other state-owned enterprises. Furthermore, the recessionary mode of the main export industry, textiles, has also significantly affected the thinking of the workers. At this juncture, the labor position is ripe for a quantum leap into the setting up of labor-intensive manufacturing units, both with domestic capital as well as with the investment of foreigners.
It is plain from all results that the strategy of labor-intensive export-led growth has produced significantly higher incomes for the poorer part of the population. This has been instrumental in providing a large base of disposable income that generates the demand for goods and services in the local markets. Of course, it is important that the entrepreneurs provide a modicum of a socially acceptable wage packet for the employees. This will induce the workforce to be more accommodating to the vagaries of the manufacturers, especially in respect to the demands of the product mix. The case for a continuous and substantial investment in high-labor intensive industries such as textiles (specifically clothing and made-ups), footwear, and electronics, is called for. The abundance of cotton, the expertise in tanning of leather, and the impressive growth in demand for electronic goods, are three specific areas where the country can excel and progress. Computer software development is a 30% annual worldwide growth opportunity that this country should not miss.
The third and very important factor that can enhance the export base is the attitude of the government and the official policy makers in export promotion. The present scenario is that there is an Export Promotion Bureau that is more or less headed by a representative of the private sector. However, there is a lot of dictation from the various ministries, and this has stifled the desired advancement and effectiveness of this vital organ. Furthermore, the steps taken by the government in areas such as the imposition of sales tax, the withdrawal of subsidies, the late payment of duty drawback and rebate cheques, the display of cronyism and favoritism, the misuse of quota allocations, and the proverbial red-tape and bureaucratic indolence, have all contributed towards the stagnation of exports. The stranglehold of big time exporters, especially in the affairs of export based trade associations, have demoralized small and medium exporters who suffer from a perpetual lack of a level playing filed.
The government has never seriously adopted the recommendations of various task forces on exports or the continued lobbying of the exporters’ representatives. Somehow, the government of the day stops well short of accepting the recommendations, suggestions, and proposals, to lift up the export figures. This is very unfortunate, and the results have been miserable. The government must provide noteworthy incentives and then stand by these if the country is to attain desirable export figures.
There are various ways to provide incentives and encouragement. One way is to allow the exporter to retain 75% of the earned foreign exchange which can be disposed off at the prevailing free market price while the government should hold only 25% of "dollar earnings" at the preferred official rate. Foreigners should be allowed to repatriate profits to their home offices at the open market rate rather then the official price. The new investment policy recently announced by Prime Minister Nawaz Sharif can be an effective inducement for foreigners as well as domestic investors, if the policy is allowed to be implemented in toto, in letter and spirit, and most importantly, with a honest purpose and frame of mind.
It should be reasoned out that the present value of the rupee is a matter of deep concern. The external forces, such as the mayhem in the currencies of the Far Eastern countries, have played havoc with the world trade regime. The downslide of the currencies of European nations vis-a-vis the dollar is also threatening. No wonder it has been difficult for the rupee to maintain its hold these days. The strong rumors of another official "adjustment" of the rupee could be gauged from the fact that it is losing value in the open market.
Export-led industrialization will bring forth a rapid growth of the economy with emphasis on the manufacturing sector. This will result in a higher employment situation that will introduce the element of more demand for training and skill development. It is hoped that this will generate a better quality product made by a more competent and trained worker. The availability of high income will translate into a higher disposable income that could also be put into various saving schemes. Moreover, the increase in exports will convert into a reduced balance of payments deficit. This will create a bigger foreign exchange reserve fund and, at the same time, reduce the budgetary deficit that is anathema to those who provide the funds for the country’s development schemes and plans.
The onus for an enhanced export led industrial base, in the long run, will depend on the entrepreneurship of the domestic investor, the infusion of their own funds, and the aggressive marketing and promotional activities they undertake in global markets to vend their products. These should be sustained activities and these should be progressively augmented by the entry of new local investors in the export-based industries. The continued interaction and networking of the government, the industrialists, and the think-tanks will, undoubtedly, make Pakistan a major player in the world market, provide a reputation as a supplier of quality goods, and most of all, make it the next Asian Tiger . . . a Super Exporter of the next millenium. This is the vision of Prime Minister Muhammad Nawaz Sharif as well as the 140 million denizens of the Islamic Republic of Pakistan.
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OCT 26, 1998
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