Pakistan’s total exports between the fiscal years of 2013-14 and 2015-16 experienced a decline by almost USD5 billion. During this same period and same global market conditions South Asian Countries such as Bangladesh and India in particular along with Vietnam witnessed increase in export market share of those commodities in which Pakistan was once having a respectable ground. Even the market access facilities such as provision of GSP plus status by European Union (before Brexit), United States and countries with which Pakistan has free trade agreements, is not able to help arrest declining exports.
This decline in exports was because of various reasons. These reasons as reported by various studies include shortage of skilled labour, energy crisis, institutional rigidities, market imperfections and weakness in physical infrastructure. Outlook of such type may particularly be important because of Pakistan’s exports being highly concentrated both in terms of commodity groups and markets. For example in 2013-14, textile had 54pc of the total share of exports which increased to 60pc in 2015-16 due to status of GSP Plus which was given by EU. This status thus helped in diverting number of textile exports towards EU and UK.
It is also worth noting that Pakistan’s export destinations are minimal with 70-80pc exports going to these countries (USA, China, Afghanistan, UK, Germany, UAE, Bangladesh, Italy, Spain and France). The current political shift which has taken place in USA, Afghanistan, UK and Bangladesh means this number is on decline. On this decline in exports it is worth to note that since early 1990s major structure of exports remained same and there has neither been any significant change in the composition of exports nor high significant change in export market.
To further highlight challenges in export, Sustainable Development Policy Institute (SDPI) conducted a brief survey and highlighted various challenges which are being faced by exporters, manufacturers and service providers. These challenges not only prevented new entrants in export market but also caused decline in exports.
First, there is lack of planning and coordination between all the associated ministries and departments which are involved in either exports or facilitating exporters. Second, time to prepare and pay taxes is one of the biggest challenges it takes over 300 hours per year to prepare and pay taxes. Third, export development fund is under the control of ministry of finance which also adds additional regulatory pressure. Fourth, institutions linked to trade facilitation for example Trade and Development Authority (TDAP) being one of the concerned authorities is not following its mandate.
Fifth there is a weak government support in understanding certification processes for exporters who intend to export to developed countries. Beside this certification process, there is also a weak government support for exporters in becoming part of supply chain (e.g. marks and Spencer’s and Zara). Sixth, there is lack of foreign direct investment (FDI) when it comes to export oriented industries. Seventh, there are issues in accessing quality human resources which can lead to productivity and efficiency. This thus results in low and costly output. Eighth, there are institutions like Small and Medium Development Authority (SMEDA) but there is no implementation of that research by SMEDA itself.
Ninth, when one looks at the broader picture, it can be found that there are over 40 chambers of commerce in Pakistan but with no people power in terms of administration and trade facilitation.
So what may be done in the forthcoming strategic trade policy framework (STPF 2018-23) which can help in growing of exports and make them more competitive in the regional and international market which provides a positive signal towards integration and improving the economy?
First, to improve cost of doing business there is need to rationalise tax regime with simplified procedures. Within this process there is need for tax integration, with possible involvement of tax harmonisation, among the provinces to avoid double taxations. Government should review all such tax proposals which in the long run can help in improving cost of doing business and promote businesses within and outside South Asia. Additionally tax reform commission (TRC) should also take into consideration all such proposals which can play vital role in indirect taxes, phasing out of federal excise duty and a more transparent structure of taxes on trade.
Second, there is also need to shift all authorities under Export Development Fund (EDF) to ministry of commerce which is currently under the umbrella of ministry of finance. Ministry of commerce in this regard should ensure that it is sufficiently influential in development and implementation of export policies.
Third, there is also need for having effective centers at trade offices within and outside Pakistan for need based market research. The focus of these offices should not only be restricted to research but also trade facilitation. Further these offices should focus on business to business (b2b) integration for diverse and collective market research.
Fourth, there is need to identify all such SMEs’ having capacity to scale up. Such SMEs’ in the long run can help in trade promotion which can lead to job creation and generating more tax revenues. Fifth, institutes such as TDAP need to assist and facilitate traders by acting as education center for traders across Pakistan. TDAP in this regard should also come up with the arrangements where they can help exporters in identifying potential market.
Sixth there is also need for changing the regulatory structure involved in doing business. Seventh institutes like TDAP, SMEDA, associations and chambers should create awareness and educate businessmen on quality measures. Further these organizations should focus more towards product specific policies depending on collective market research done by government and private sector.
Eighth, there is also need to look into ingredients important for value addition against each commodity for which all parties involved in exports should play their part. This contribution towards value addition can thus give more worth to the commodity both in terms of quality and money.
As the strategic trade policy framework will be coming next year, right now is a most appropriate time to consider reforms mentioned above. These reforms can lower the cost of doing business; support declining exports, improve quality standards and increase competitiveness of Pakistani exports and make them equal to international standards.
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The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.