Ramp up exports [Part – I]

In the current economic landscape of Pakistan, a clarion call for transformation resounds. The economic woes, manifested in perpetual borrowing, mounting external debts, and a precarious balance of payments, demand not just a response but a strategic overhaul.

I propose a pathway towards economic revitalization, centring on a formidable goal – boosting annual non-debt forex inflows to an ambitious $100 billion from goods and services. At the heart of this transformative endeavour lies a resolute commitment, passion and focus on turbocharging exports and ensuring this recognition not only by the nation but owned and aimed at the highest level in the corridors of power and the private sector.

The economic conundrum: Pakistan's socio-economic development is fettered by a critical dilemma. The twin pillars of any nation's economic stability – adequacy of local currency and foreign exchange – face a daunting challenge. Meeting the burgeoning needs of education, health, justice, infrastructure, and governance and industrial growth requires a robust economic foundation.

However, efforts to elevate the GDP growth rate above 3.0 per cent risk exacerbating the Balance of Payments (BoP) issue, leading to a perilous cycle of borrowing from 'Peter to pay Paul.' The stark reality is that Pakistan stands at the crossroads of a fiscal precipice, with external debt skyrocketing to $127 billion in 2022, a staggering 320 per cent of exports. The consequence? Debt servicing ballooned from 16 per cent to 42 per cent of exports in the last decade, sounding alarm bells for the nation's socio-economic development, security and sovereignty.

Focus on exports: Amidst this economic turmoil, in my humble view, exports at least in the short term are the panacea. The sources of short-term foreign exchange include exports, remittances, FDI and debt. The grim reality is that remittances are unlikely to provide a quantum increase of the level we desperately need in the next five years.

FDI is essential even for export enhancement but is unlikely to mature in the next three to four years at a significant level. Exports have lagged, culminating in no choice but higher debts with severe socio-economic and political ramifications under the pressures of world agencies. To tackle this quandary, I believe, for a few reasons outlined below, that exports can not only substantially but timely provide the source of non-debt foreign exchange thus addressing the formidable social and economic challenges Pakistan faces today. On the 4th of March, our new prime minister clearly said that debt is our biggest challenge.

Mapping export potential: So what does Pakistan have to export and how much can be targeted in the next 5-8 years? There is a plethora of 5998 product clusters (Harmonized System Codes (HSCs)) of goods imported in the whole world of about $25 trillion in 2022. Notably, Pakistan already exports 3390 of these HSCs, of a total world demand of $17 trillion. The challenge therefore is not a dearth of exportable goods but a strategic focus on amplifying our share in the World Import (WI).

My view is that the key lies not in increasing the footprint in the short term but in leveraging the low-hanging fruit in expanding the market share by increasing the customer and geographic base for exportable products by the exporters. This demands nuanced policies, initiatives, incentives, and facilitation, aimed at value addition to secure higher market shares and prices.

Creating exportable surplus: An often-heard concern is that Pakistan does not have an exportable surplus. Anyone who has managed their own business will know that exportable quantum is contingent upon rising demand created by the environment of opportunities and incentives. Based on the progressive increase in Pakistan's exports from 2000 to 2008, almost 15 per cent, in various sectors such as textiles, rice, leather goods, surgical goods, pharmaceuticals, meat and poultry, plastics chemicals etc, it is clearly evidenced that the exporters respond when they perceive potential and returns in exports, suitably led and facilitated by the government.

While the cost of energy presents a challenge, lower manpower costs can offset this disadvantage. Realistically, even if energy costs are 10 per cent of cost of goods (though some sectors are significantly higher), even a 20 per cent higher cost may translate to only a 2.0 per cent disadvantage, manageable due to other lower-than-competition costs.

Thus, the required focus lies in obtaining higher prices from customers through product value addition, requiring R&D and benchmarking with other competitors. In a recent study, the World Bank pointed out that if 1 is the highest price and 100 is the lowest for the same HSC, Pakistan’s rice stood at about 33, and three textile and apparel products were as low as 81 to 84. Clearly, a significant opportunity.

Estimating export potential: The focus here is on providing a ballpark figure to shape national strategy and policy initiatives easily understood by stakeholders, particularly the exporting community.

To estimate the potential, I have considered for the short term, only the 1022 HSCs, where current exports already surpass half a million dollars per annum per HSC. Extrapolating world import for these items to year five, based on the respective Compound Annual Growth Rate (CAGR) of the last five years, it equates to a world demand in 2027 of $12 .5 trillion.

Based on market shares slightly above the current levels – 0.33-0.98 per cent – the estimated export potential reaches $122 billion. However, the net of the sector ‘Mineral Oils and Bituminous Substances’ is unlikely to respond in the short term. The potential works out to $86 billion – 0.69 per cent share of respective products, achievable by year five. Add to this the well-accepted figure of $20 billion from IT exports alone and we are in the range of $100 billion-plus.

Even a 25 per cent shortfall would mean a potential of $75 billion covering almost all of our import and debt servicing needs.

Export strategy: Dreams must be worked upon to be realized. This is hard, consistent and passionate work. My forecast achievement pivots on the imperative need for a robust customer-centric export strategy, providing clarity on the objective with a unified national effort. My emphasis is on the ‘national’. Critically analyzing the current Strategic Trade Policy Framework (STPF-2020-25), I feel that it lacks the customer-centricity essential for market share gains.

To be continued

The writer is a former minister of state and CEO of TDAP.