Exports out of STPF

Majyd Aziz

The Strategic Trade Policy Framework (STPF) 2012-15 was formulated after a reasonable evaluation and analysis of STPF 2009-12. The focus of the three-year strategy was to enhance export competitiveness through an integrated approach rather than jumbling around with piecemeal actions. The vision was to introduce pragmatic and sustainable measures to achieve the objectives. As usual, the regulatory amendments were given priority but incentives for exporters received a lukewarm support, largely due to non-availability of resources.

The increase in the export base during the tenure of the STPF 2009-12 was largely due to the efforts of the private sector and primarily due to global demand rather than any outstanding policies of the government. The figures did give impetus to the Ministry of Commerce to prepare a viable framework rather than a three-year vision. The buoyant atmosphere at Ministry of Commerce and TDAP when exports nearly hit the $25 billion landmark for 2010-11 was all-embracing. That year, exports jumped over 27%.

That was when serious planning as well as adopting a visionary outlook should have been considered. The fundamentals were in place and the time to strike iron while it was hot was then. However, the euphoria faded away when the consecutive years witnessed a dark period in the export regime. There was no handholding between the government and the exporters as envisaged in the three year STPF. The concerned Ministries and TDAP did not realistically harness the global as well as domestic trade dynamics. Blame was laid on factors beyond the control of the decision makers. The ensuing result was that the export regime took a big jolt.

STPF 2012-15 was billed as the most formidable strategy that would catapult Pakistan's exports on a much higher plateau. Exports would definitely be given topmost priority through introduction and implementation of far-reaching incentives and support. The downslide in exports would be addressed seriously and the resultant inflow of export proceeds would reduce dependence on international financing institutions. At the same time, remittances from the Pakistani Diaspora would further strengthen the Foreign Exchange Reserves. Despite infrastructure shortages, intensive competition from regional rivals, and various exigencies in the global marketplace, Pakistan would be able to maintain a rising trajectory in global trade.

The right buzzwords were highlighted in the policy. Fifteen elements were to be addressed and the die was supposedly cast to make exports the engine of growth. TDAP was promoted to be the focal center to ensure that it adhered to its laid down objectives of ensuring a fast moving export regime through a defined linkage between enhancing exports and development of domestic trade and commerce. There was a need to institutionalize the reforms through a sustainable mechanism so that the foundation would be solid and effective. Regional trade was targeted to be the launching pad and it was decided to establish the Pakistan Land Port Authority to ensure effective facilitation. EXIM Bank was another planned initiative. Amendments in the regulatory framework were to be undertaken in a fast mode. In short, a sweeping revamping of the system was to be taken up to achieve the export objectives. The STPF laid down four enablers to achieve the targets: Competitiveness, Compliance with international standards, policy environment, and market access. The sad fact is that there is no progress or sincere initiative to implement these enablers.

However, there is a wide gap between initiating and envisaging policies and incentives and their eventual implementation. The slow pace and the lackadaisical attitude in implementation tightened the noose around the necks of the exporters. In short, the exporters continued to be between the devil and the deep blue sea. The dismal trade figures even today are a direct outcome of the non-implementation of the vision.

Then, as well as now, the hard-boiled, non-support of the Ministry of Finance in releasing Export Development Funds as well as refunds of taxes further exacerbated the travails of the exporters as well as Ministry of Commerce. Thus, exports continue to be depressed and difficult.

The above analysis is more export-focused because the impact of imports is due to the price variations of world oil prices, the increased domestic demand for edible oil, the huge inflow of agriculture products mainly due to floods, low productivity and efficiency of the agriculture sector, unnecessary imports of consumer goods, higher demand for automotives, and informal trade of various essential and non-essential products.

STPF 2015-18 was envisaged as a functional model with clearer targets than what was planned for its predecessor. The export target was $35 billion, rather unrealistic considering the fact that there were declines in the previous years and that the infrastructure situation needed to be properly addressed. Moreover, the oil prices were declining especially when positive news was emanating from the negotiations between P5+1 and Iran on the nuclear issue. At the same time, the Ministry of Finance was adamantly averse to the idea of settling the refunds of the exporters. There was, and is, a blatant disconnect between the Commerce and Finance Ministries.

The Commerce Minister travels all over the world but has not been able to make any progress in exports. TDAP is a redundant organization. Overall, there is no real time ownership of the STPF in the corridors of power. The export package is still gathering dust despite intensive lobbying. Refunds are released by FBR in trickles or droplets rather than clearing the outstanding amounts in one go. Objectives should be achieved through a holistic approach rather than in an ad hoc manner.

There is a need to close down TDAP, TCP, and other such organizations since it is actually the domain of private sector as well as Chambers and Associations to develop the foreign and domestic trade. Private sector organizations should be tasked with marketing and promoting international trade. It should not be left to the bureaucracy to indulge in trade and commerce. Billions can be saved if these redundant and ineffective organizations are closed down for good.

The vision of making a positive transition from the factor-driven mode to efficiency driven structure with emphasis on innovative economy is still a pipedream and not adopted even by the private sector. Moreover, the plans to solidify and enhance regional trade are still tottering. There is no marked progress in intra-SAARC trade and Pakistan has not substantially penetrated the Central Asian States, except in pharmaceuticals. Trade with Afghanistan is moving from the formal sector to the reliable and lucrative informal sector, mainly due to vast experience of the players in moving the goods under the Afghan-Pakistan Transit Trade Agreement. Bilateral trade with Iran is mostly through third countries because of the reluctance on the part of SBP to revisit the banking channels rules.

The comforting hope is that bilateral trade with China would cover the shortfall in regional trade. However, Pakistani exporters have also not had a significant success in this context while importers are having a field day in procuring Chinese goods, raw material, and equipment. CPEC is being promoted as a conduit for increased Pakistani exports but the ground realities negate this premise.

Economic diplomacy cannot be effective when most of the commercial consuls and trade officers in Pakistan's diplomatic outposts are appointed on political grounds or through nepotism rather than on merit. Most of them spend time as protocol officers rather than as business go-getters. This is the general complaint of the private sector and, hence, most of them avoid utilizing the services of these officers. Free Trade Agreements, Preferential Trade Agreements, and other bilateral or multilateral agreements are usually not in the larger interest of the country. In essence, trade diplomacy has been an abject failure.

The STPF is very silent on upgrading, processing, and marketing of minerals. It focuses more on traditional products and goods rather than making a paradigm shift. Rice, horticulture, jewelry, and meat products are to be promoted alongwith textiles, leather, sports goods and specific fruits like mango or kinnow. The export base is still narrow and this is one prime reason why exports have not rushed upwards. Exports of minerals can cross double figures in billions of Dollars within five years if there is a dedicated and determined outreach towards this sector.

Achievement of $35 billion exports by 2018 seems to be a difficult task. A 75% increase in exports in the next 18 months is highly improbable. Therefore, it is important to concentrate on real time projections rather than abstract targets. No action plan can reach fruition if there is a disconnect between policy planners and downstream implementers. Moreover, the volatility of the global marketplace as well as the strong and fierce competition for global market share are large hurdles that need to be surmounted. The decrease in oil prices led to reduction in the value of exportable goods worldwide. Pakistan has not been able to cash in on the new scenario. The Pakistani exporters, by and large, are deficient in marketing, in promotion and in networking. Moreover, the negative image of the nation has been a debilitating factor too.

Despite the grave scenario, Pakistani exporters are persevering and ensuring maximum utilization of their facilities albeit at a lower profit margin. In the short-term, exports would not increase at optimum levels. The pro-active measures, if undertaken by the government, may enable Pakistan exports to rise upto $23 billion by end of fiscal year 2016-17. An upsurge in economic activity, with better availability of utilities, sales tax refunds, lower markup rates, stable oil prices, better law and order situation, political stability, and much needed incentives may enable Pakistan to cross $28 or $ 30 billion by end of fiscal year 2017-18. The government must become a sincere facilitator and must use all resources to implement the framework and its policies. Exporters must get out of their complacent posture and target regional countries and even Russia. The theme should be regional economic integration and this must be the rallying point for all stakeholders. Pakistan may achieve the export target of STPF 2015-18 by end of calendar year 2019 or by end of fiscal year 2019-20 but if all systems are in fast track position, then the upward movement in export figures may become a reality.