KP traders stress reforms in trade strategy
Pakistan’s total exports during the fiscal years between 2013-14 and 2015-16 have been on decline of almost USD 5 billion. During the same period with same type of global market conditions countries like Bangladesh and India in particular along with Vietnam have witnessed drastic increase in their export market share of particular commodities in which Pakistan was once having a more 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, were not able to arrest the fall in exports.
This decline in exports was mainly attributed to number of factors which are also reported in different studies. These factors include shortage of skilled labor, energy crisis, market imperfection and weaknesses in physical infrastructure. Outlook of such type may particularly important because of exports going from Pakistan are concentrated both in terms of commodity groups and markets. This concentration can also be reported when it come to the discussion of exports going from Khyber Pakhtunkhwa province.
So when one looks at the export concentration both in terms of commodity and market in Khyber Pakhtunkhwa, there are limitations present. For example most of the commodities which are exported from the province are to Central and East Asia, EU, USA and Persian Gulf but with only few commodities like carpets, dry fruits, marble, various edibles, match stick, pharmaceutical products and metal and very small base in international market.
A recent survey conducted by Sustainable Development Policy Institute where exporters and business community of Khyber Pakhtunkhwa highlighted number of challenges which they are facing in doing business at initial level and further exporting from Khyber Pakhtunkhwa.
First business community of the war-affected province proclaimed that current tax regime is rigid. While highlighting the problems which are being faced due to rigid tax regime, business community was of the view that there are very high duty rates on raw material which hinders growth of a business. Further these high duty rates also lead to high cost of inputs thus output at lower cost also becomes difficult for the business community to deal with.
Second when it comes to technology which Pakistani firms is using in general and within that business community of Khyber Pakhtunkhwa is using very obsolete technology. It is due to this obsolete technology and low quality products fail to compete in international market.
Third, there is very ‘low awareness’ among SMEs regarding the export procedures and export policy especially the women in general and even women related to Khyber Pakhtunkhwa Chamber of Commerce and Industry. Women who are actively in business are having very limited access to the information and procedures related to business.
Fourth, institutions linked to trade facilitation for example Trade and Development Authority (TDAP) should be more effective.
Fifth, when it comes to addressing financial constraints which are being faced by business community, there is challenge of getting loans from banks. Loans which are available to do business are subject to high interest rates requiring financial guarantees. Also in accessing loans from the banks compliance cost (compliance cost include paper work in accessing loan, provision of guarantees other than finance, approval from different authorities and pledge documents) is also hindrance in doing business in the province.
Sixth, the relative prices associated to business in provision of services are too high due to input and other related costs incurred. This input cost not only includes purchasing required ingredients required for production of output. It also includes travel cost from point of origin to point of destination. Also business community involved in service provision has very low access to big cities and big markets. There is also lack of information about such markets which hinders this access.
Seventh, access and costs associated to infrastructure is another big hindrance which business community of Khyber Pakhtunkhwa in particular and Pakistani business communities of big cities are facing. Problems and challenges in this regard are linked to export processing zones and storage units which are missing in the province.
Similarly higher energy costs with breakups occurring brings in problem of access to energy and getting electricity. Due to this challenge of accessing and getting electricity output predicted by enterprises is not achieved thus adding to losses which have consequences on the business from different angles. These consequences include shedding of labor which results in unemployment as one of the primary problem in the province. Also with higher costs, businesses having no capacity to absorb losses either migrate or close.
Eighth, Investment environment of the province is also not suitable and business friendly. This is because of; 1) missing province centric investment policy and 2)lack of centers and offices in the province for marketing at national and international level. Ninth, there is no value addition to the commodities which are being exported from Khyber Pakhtunkhwa. This lack of value addition is due to lack of research interest in this area. This lack of research interest in this area is also because of low or no promotion of the research environment. Beside low or no promotion of the research environment, there is no academic institute to promote research in the areas related to value chain. It is also due to lack of research exports are limited to specified commodities and big cities. Within research component, component of training is also missing. Due to this lack of training problem of unskilled labor also becomes hindrance for businesses to flourish.
Tenth, business community of Khyber Pakhtunkhwa is also influenced by political interference and uncertainties linked to politics of the province. Within the province it has been the case that all such forums which are linked to business community are being used with political inclination on the front. With this political inclination of the forums, new entrant also becomes hesitant to enter the market. Similarly, such uncertainties also result in businesses either at the verge of closure i.e. problems of sustainability in the long run may lead to closure of business.
So what maybe the steps which Government of Pakistan should focus on in forthcoming strategic trade policy framework (STPF 2018-23) in order to achieve 1) stability in International market; and 2) export competitiveness? 3) How through STPF 2018-23, Government of Pakistan can help business community of Khyber Pakhtunkhwa?
First, there is need to reduce number, rate and type of both direct and indirect taxes associated to trade. Besides reducing number of taxes government should review all such proposals which are being put forth by Tax Reform Commission (TRC). Within these proposals, all such proposals seeking reduction in cost of compliance with general sales tax, solution to the issue of multiple and double taxation across provinces, phasing out of federal excise duty and a more transparent structure for taxes on trade. This will also enable businesses to grow by having access to inputs required at lower price.
Second, to improve technology and its use in the province, provincial government can uptake such projects where there can be technological transfer involved. Due to this technological transfer there can be more skilled labor as a result of which knowledge to use new technology can be acquired easily and in the long run impact will be on both quantity and quality of output.
Third to create awareness regarding export procedures and export policy among SMEs and in particular among all such enterprises where role of women is major, there is need to channelize them through procedures and bring them into formal and documented economy. In this whole process of channelizing, people associated should have; 1) access to legal knowledge about enterprises and their registration; 2) access to knowledge of doing business; 3) access to knowledge related to markets both at national and international level; and 4) access to knowledge about all tariff and non-tariff measures.
Fourth, there is need for institutions like TDAP, chambers across the country and counselors at embassies to explore International markets in general and space within these markets in particular to promote Pakistani commodities. With this practice also these institutes should also focus on research based on market needs which will further help in identification of markets where businesses can have expansion in the long run.
Fifth, there is need to address financial constraints which are being faced by business community of Khyber Pakhtunkhwa. This can be done by provision of loans at low interest rate and flexible conditions (including guarantees and compliance cost) which will lead business to grow.
Sixth, there is need for province centric investment policy (Khyber Pakhtunkhwa has formulated one which will have fruits in the long run). Within this policy there should be element for provision of infrastructure which is missing in smaller province and cities within the province as is the case of Khyber Pakhtunkhwa. Within this infrastructure there should be coverage for access to electricity without any breaks which may hinder the production process. Similarly within this electricity challenge number of hours in accessing electricity should also be reduced with more comprehensive procedures and access to its information should also be made easy.
Seventh, when it comes to doing research which can play vital role in value addition, there is need for more centers like Agriculture University Peshawar. Primary focus of such centers should be to do more market oriented research. This research should also be in line with the products which are more in demand from the province. This will enable to promote research environment by having more trainings and interactions between academia and business community.
Eighth, all such institutions should be more inclined towards corporate culture with no intervention from political circle. In order to enhance corporate culture within these organizations and institutions the proposed solution should be linked to more public and private linkage which is a missing component in this regard. This more public and private linkage will also enable new entrants to flourish in the market.
As the strategic trade policy framework will be coming next year, right now is the most appropriate time to consider reforms mentioned above. These reforms can lower the cost of doing business, increase capacity of businesses within Khyber Pakhtunkhwa province, increase competitiveness of Pakistani exports from the province 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.