No investment, no exports

Our trade statistics over the last few years continue to paint a grim picture of the structural issues in the country’s trade and industrial regime. The last fiscal year (2016-17) showed that a country of 200 million people, endowed with several natural advantages, could muster a mere pittance of $18 billion in exports. The mid-year data of the current fiscal points towards another year of similar embarrassment.

This poor performance extracts a heavy price, not only in terms of financing large trade deficits but also in relation to the sovereignty and self-respect of the nation. At what point did Pakistan lose its path to progress to such an extent that it became almost unrecognisable? A country that was ranked among the most promising developing countries in the world has now been subjected to one embarrassment after another – be it in terms of education, the economy or international relations.

Systems of governance are designed to lift nations towards higher levels of peace, prosperity, power and prestige in the international community. They do not exist to drag countries down, add to their miseries and become a source of embarrassment. And yet, year after year, these embarrassments are swallowed up by the powers that be. However, no attempt has been undertaken to overhaul the system.

Fuelled by the low rates of GDP growth that are barely above the population growth rate, millions of people to continue living in poverty, illiteracy, unemployment and international embarrassment while the same empty slogans and false promises are spouted day after day. Can anyone believe that our exports were higher than those of Thailand, Malaysia and Indonesia during the 1960s and 1970s? Today, the exports of each of these countries are worth almost $200 billion while this country is stuck at a lowly $18 billion.

Can anyone believe that in 1981 Pakistan and Turkey’s exports were equal? Today, Turkish exports now exceed $150 billion, which are eight times larger than ours. Can anyone believe that in 1990 Vietnam did not feature in international trade as a country making worthwhile exports? Today, Vietnamese exports are well above $200 billion– much higher than our export figures. These are examples of how the governments of other countries have worked towards building their nations, enabling their citizens to hold their heads high and for the state to become members of important international forums like the G20.

Every one of the milestones achieved by these countries could have easily been attained by Pakistan if nation-building instead of self-building had remained the principal objective of governance. For instance, Thailand improved its productivity and value addition in agriculture to drive its export strategy. With the most extensive irrigation network at our disposal, we were better-placed to have achieved the same objective. Malaysia has diversified into electronics and electrical goods to drive its exports while we have remained a mono-industry economy (textiles) since our country’s inception. And Vietnam has used FDI to drive exports into foreign markets while we have used foreign investment and loans for domestic consumption.

During these decades, oil prices have fluctuated and the rupee has both appreciated and depreciated. But our export performance has remained abysmally sluggish. What this shows is that our problems are a product of endogenous rather than exogenous factors. As Lee Kwan Yew, the former prime minister of Singapore told this writer during a meeting, the fundamental question of governance that distinguishes successful states from failing ones is to determine whether the instruments of governance – the laws and policies of the state – are made for the benefit of the population or for the benefit of the rulers.

Decades of nepotistic and politicised governance have created a decaying state apparatus whose functionaries are incapable of conceiving strategies for nation-building. They have inculcated a dependency syndrome and cannot act without the spoon-feeding tactics of their political bosses – and that too for the benefit of the rulers.

This has eroded their capacity of recognising the synergies created by the inter-related forces of the economy in nation-building. In areas of export growth, this disconnect has left us in a state of free-floating confusion where we have excelled neither at import substitution nor at our export performance. Some of the important missing linkages for export growth are as follows.

First, we must prioritise investment. We have failed to recognise in our policies that exports and value addition are the functions of investment. There are no exports without investment into producing goods and services. Over two-third of Vietnam’s exports are generated by the FDI that has been pumped into its manufacturing sectors. In Pakistan, the disconnect between investment and exports has led to policies that have made investment in the non-manufacturing sector – such as luxury housing– more attractive. The trick lies in using FDI to generate exports in the foreign markets.

Second, we must develop a skilled workforce. Human resource development is an investment, not an expense. In a globalised competitive economy, exports are a product of quality human resources and deliver higher productivity per capita. While 90 percent of the Chinese workforce in the manufacturing sector is formally trained and 23 percent of the Bangladeshi workforce is trained in industrial skills, only eight percent of our industrial workforce has received this form of training. What miracles can one expect from uneducated, untrained workforce in competitive globalised economy? This partly explains why Bangladesh’s garment exports are higher than those from Pakistan – even though the former is not a cotton-producing country.

Third, efforts must be made to strengthen our technology base. Value-added exports are a function of technology and innovation. Some countries use FDI to bring in new technology and management skills to ensure competitiveness in the foreign market. Others make heavy investments in science and technical education and develop their indigenous R&D. We do neither. Our budgetary allocations for science and technology have been insignificant and our FDI in manufacturing for exports has been equally abysmal. This explains why Pakistan does not occupy any notable position in global competitiveness in manufacturing while Malaysia, Thailand, Indonesia, Turkey, Vietnam, India, the UAE and Saudi Arabia are listed as prominent competitive economies in the emerging markets of Asia – if we don’t count Japan, China, South Korea and the other Asian tigers.

Fourth, marketing must be given priority. Markets are segmented. Different strategies are needed for different markets. One size doesn’t fill all markets. Unfortunately, our basket of exportable goods has largely remained the same for the last 40 years. But we continue to pursue low-end products in high-end markets and waste our limited yet qualified human resources and capital. We do not target the Central Asian markets that we can readily supply goods to within 24 hours.

None of this is rocket science. So why haven’t we acted on these measures like other countries whose export performances have overtaken Pakistan?

This brings us to the crux of the problems of governance: have our exports ever been given priority in the last 40 years? An example would suffice to answer this question. The Federal Export Council, which is headed by the prime minister and comprises senior public and private sector representatives, is supposed to meet every six months to facilitate exports and remove bottlenecks. By all accounts, it has seldom met over the last 10 years. So much for promoting exports.

The writer designed the Board of Investment and the First Women’s Bank.

Email: smshah@alum.mit.edu