Published Date: Sep 21, 2015
Upping Pakistan’s value chain
It is difficult or rather impossible to discuss international trade and investment policy without acknowledging the importance of global value chain. It rarely happens in developed countries that goods or even services produced entirely at one location and then exported to the consumer. With changing trends in production, the process has become increasingly complex and that’s why supporting activities across different spectrum of value chain of the products are sourced out wherever it can be efficiently produced.
For a developing country like Pakistan, the importance of global value chain is quite essential for its economy and yet Pakistan barely participates in it. The failure to do so is also one of the reasons why Pakistan’s export basket is rather small. According to UNCTAD, there is a positive correlation between GDP growth and global value chains particularly for a developing country; in 2013, 28 percent of GDP in developing countries came from value-added trade.
To explain the issue related to global value chain, the Sustainable Development Policy Institute (SDPI) recently hosted a discussion about ‘How important are global value chains in early 21st-century international trade? What are their trade policy implications?’
The successful value chain works better if there is a larger regional integration at work. Some good examples are countries like Singapore, Philippine, Malaysia, China and Indonesia. All these countries are specialised in a particular part of the production cycle and integrate accordingly and this process helped them to generate significant value.
However, in South Asia the regional value chain and integration is quite limited, despite cultural similarities and shared history. Even though a 2011 study by Secretariat of Commonwealth which examines Pakistan, India, Bangladesh and Sri Lanka argues that if these countries develop a supply chain in clothing and textile sector to gain cost competitiveness, it will increase the exports of South Asia. The cost will be decreased because the demand and provision for inputs lie well within the region. However, to enhance the regional value chain in South Asia, there are significant hurdles.
At the SDPI moot, Dr Vaqar Ahmed of SDPI listed some key obstacles in the enhancement of regional value chain. He rightly pointed out that there is no economic corridor in the region that can help to facilitate regional value chain.
Secondly, there are significant mistrust and security issues with the neighbours. It is particularly a problem for Pakistan and India. There is also a lack of free trade agreements and slow progress on trade facilitation. Then there are non-tariff barriers that prevent skill and technology transfer in the region.
In his concluding remarks, Dr.Vaqar suggested that pending agreements related to energy, transportation, connectivity and dispute resolution should be implemented as soon as possible. To control the cost of doing business, trade facilitation across the region should be applied. Regional government-to-government and institutional connectivity is necessary to resolve product compliance, visa for the business community and for technical staff and facilitation for licences and permits.
With Pakistani exports dipping by 10.27 percent to $3.4 billion in the first two months of the current fiscal year 16 and PM’s statement that “the country has not witnessed any growth in its exports over the past few years” the regional and global value chain is the right path and the only path to improve exports in a hugely competitive global environment.