An export economy

Before Independence in the areas now constituting Pakistan, sports goods, instruments and apparatus were the only goods exported. Earnings from these traditional exports expanded considerably, particularly under the incentive schemes. Their relative share in Pakistan’s exports was considerable. However, these exports cannot still be termed as the country’s primary exports.
The earlier periods had given high hopes about the export prospects of manufactures. Paper was one of them. Its share in total exports was quite considerable. Plans after plans had estimated the value of paper and newsprint exports to rise. The industrial production programme for paper and paper board, however, did not come to fruition. For writing and printing paper, production was expected to rise. In newsprint and mechanical paper, the output was expected to rise annually. But the actual production has always been short of the target.
The export of simple machinery and transport equipment has been, however, faring quite well. The value of exports had originally gone up but declined later. The main export markets for these items were the neighbouring Afro-Asian countries, particularly the Middle East.
With the setting up of oil refining capacity in the country, an export market for petroleum products also developed. Export earnings from these items increased. In fact, they formed one of Pakistan’s major exports.
The export of hides and skin was once a major export. It, however, has consistently declined. The decline in export earnings from raw hides and skin has been compensated by growth in the export of leather goods, including footwear. These exports received great impetus from the Export Incentive Schemes. Leather is exported mainly to the developed countries, and leather goods to the neighbouring Afro-Asian countries.
The developed countries provide the main market for these exports and account for the total quantity exported. Among the developed countries, the biggest buyers have been Italy, United Kingdom, France, Japan, Germany, Sweden and United States.
One of the main items that Pakistan exports is woollen items. Woollens include carpets and rugs for which the main export market has been the United Kingdom and EU countries. Nearly nine-tenths of woollen carpets are being exported to the developed countries and the rest to the developing countries. The share of the socialist countries is negligible.
In earlier years, the United Kingdom used to be almost the sole buyer of Pakistan’s woollen carpets due to tariff preference there. The United Kingdom still accounts for a little less than one-third of Pakistan’s exports. Overseas sales have now been diversified a great deal. Switzerland’s purchases are just a shade lower than those of the United Kingdom. The other significant buyers are Germany, the United States, Belgium, Italy and Denmark.
Cotton and textile is the main export commodity from Pakistan. The value of these exports has seen phenomenal growth. The export orientation of Pakistan’s cotton textile industry has been constantly improving and over one-third of the industry’s total output is now exported. A high export target had been set for cotton manufactures. Much ahead of schedule, the export target exceeded when cotton products accounted for major export.
The export performance of the cotton textile industry is all the more creditable in the context of the substantial lag in its production programme, resulting from shortages in some of its critical import inputs. Earlier plans anticipated the cotton yarn output to increase. The value of cotton textile exports, on the whole, increased at an impressive annual rate. At times export was faster than the growth of production capacity.
Due mainly to unfavourable manipulation of export incentive entitlements on cotton yarn, the annual rate of growth in the value of cotton textiles export has been declining. Even then, exports are keeping far ahead of production, which had expanded in the case of cotton yarn and cotton fabrics. Installed capacity had also expanded at a more or less uniform rate of spindles and looms. The result is that cotton yarn export is the fourth highest in the world and textile fifth largest in the world.
The socialist countries mainly have been buyers of the cotton yarn. On the whole, the bulk of Pakistan’s cotton yarn exports have been to the developing countries, over 60 percent in quantity and value. Among the developed countries, Hong Kong has been the main market for Pakistan’s cotton yarn.
Pakistan exports cotton fabrics of high value. The quantity amounts to the country’s major production. This includes export directly in the form of yarn and the total exports of cotton textile industry. Out of the country’s total yarn production, over 30 percent is being exported. This large percentage gives a clear idea about the high export orientation of Pakistan’s cotton textile industry.
The developed countries have been absorbing about half of the cotton fabrics. More than half of this quantity again has been to the European countries despite their quota and tariff barriers. Australia, Canada and the US have been purchasing substantial quantities of cotton fabrics from Pakistan as well.
Export markets are more important now than ever before for Pakistan’s cotton textile industry which accounts for a gigantic expansion programme – the fifth largest in the world. The restrictive policy on cotton textiles in developed countries, including the application of quota system in the UK, has been the most serious problem faced by this premier manufacturing industry of Pakistan.
The Geneva Global Accord on textile exports resulted in a sharp reduction of the relative share of the UK and the US in Pakistan’s export of cotton fabrics. The ECM countries still remain the nearest area of industrial protectionism in relation to Pakistan’s cotton textile exports. The year 1963 was the first year of the five-yearly Geneva Accord which was pushed through on the plea of avoiding market disruptions for manufactured products in the developed nations. The Accord was preceded by a temporary yearly agreement.
The nineteenth century practice of developed countries producing manufactured goods and backward colonies producing the material to feed industrial capacity in the developed countries has now been replaced by competitive exports of manufactured goods. For healthy growth of the world economy, this competition has to give way to a new concept in the form of the developed countries concentrating on complex and sophisticated manufacturing and developing countries like Pakistan on simple manufactures like textiles.
The real magnitude of the external disequilibrium of the developing countries was not fully appreciated in the past due to their trade gap being filled up through inflow of foreign loans. When these loans dry up, the developing countries must either accept an extremely low level of equilibrium or close the gap through increased export of manufactures.
Pakistan’s remedy lies in self reliance more than in quotas, tariffs and so-called access to the world. Pakistan’s untaxed income – about 57 percent of the whole, according to the FBR-World Bank report, modified recently by the chairman of the FBR at 79 percent, provides a solution. Much of this untaxed income arises from the developed world’s formula of liberalisation, deregularisation and privatisation. This formula is forced upon the developing world more than the developed world, and particularly on countries like Pakistan. India and Malaysia do not subscribe to the formula.
In addition, Pakistan has reserves of coal, silver and gold claimed to be among the fifth largest in the world. Their exploration and export will help the economy immensely. If Pakistan follows India and Malaysia it may also invest, produce and export – glocalisation and not globalisation being the recommended formula. This will improve GDP, exports and through them provide wider access to the world market.
The writer is the chairman of the Atlas group of companies.
Email: yhs@atlas.com.pk