Widening trade deficit

Published March 7, 2005

The government has been concentrating on increasing exports and improving the balance of payments for the last few years; results seem to be exactly the opposite of the declared target : the gap between exports and imports has widened. Finances Ministry officials are reported to have indicated an estimated $4.5 billion deficit during the current fiscal year.

The escalating imports are offsetting export gains and not all trends for exports from Pakistan seem positive and durable.

The most rewarding area of exports has been cotton yarn and textile products but the sector could be beheading for a difficult turn because Pakistan has not prepared, not meticulously at least, for the post-WTO regime either at the government level or by the textile sector, its efforts for upgrading operations through a $4 billion investment notwithstanding.

A textile sector management expert from Italy was recently in Pakistan as consultant to a leading, indeed a top textile organization. His assessment of the sector was quite unfavourable. Pakistan, according to him, needs at least four to five years to reach the take-off point for export of men's garments in Europe, provided the sector worked with determination for improving its standards.

On the other hand, he said that China had engaged Italian experts for improvements in its textile industry in a big way in the last three to four years and had already made its presence felt in the European market to the extent that even the far advanced Italian textile industry felt threatened by the Chinese invasion; he had worked as a consultant in China too.

The kind of competition with which China can confront textile industry nations is not difficult to imagine; it has already swept markets for many products and those from cotton cannot be more complicated. India has also worked hard to make its textile sector competitive in the international market for a number of years and has taken significant strides towards that end.

China and India are cotton-producing nations and their achievements are understandable though the task before the Indians is more uphill because of low quality of locally produced cotton but that makes Indian achievements all the more commendable.

There however is the case of Bangladesh that has moved ahead of Pakistan in finished textile products without being a producer of cotton. While Pakistan has produced blurred visions, countries like Bangladesh that lack indigenous raw material have produced results.

For exports to be really beneficial for Pakistan's economy, major rethinking is a pre-requisite. Whatever the odds, it is desirable to continue encouraging the textile industry to pursue its programme for the sector's improvement but a high quantity of eggs may not be put in this basket. Exports need to be reviewed to minimize, if not eliminate their dependence on imports, be they in the form of machinery or raw material.

The sum total of such exports is higher foreign exchange investment than income in many cases and persistent dependence on resources outside the country. Moreover, countries producing raw material and machinery for these products have a clear edge on Pakistan in these exports. The list of industries falling in this category needs to be reviewed and revised.

Then there are exports in which the country has made some headway like engineering goods and military hardware; they have certainly been profitable. There however is the question if the country can consolidate them over the long haul. The apprehension is that they may prove flash in the pan kind of bonanza.

Whatever the progress made by Pakistan in these fields, it is questionable if our products can compete with technologically more advanced nations that back their exports with political clout in importing countries. As a result, Pakistan has to be content with markets that are considered uneconomic and unimportant by major manufacturers of these products.

That adds up to an uncertain field and inconsistent exports. It does not follow that these fields should be abandoned but it would do us good to remember that these exports are not sustainable. At some stage, investments made in these areas could turn in to an albatross. Greater focus on them would be a short-sighted policy.

The vital fact that is unfortunately not given due weight is Pakistan's basic strength, the agriculture sector. Cotton of course represents it and so does rice. Agriculture scientists and growers have done remarkably well in both crops. Sugar was another potential product for export but the sector has been messed up.

Unpredictable policies of the government policies coupled with increasing water shortage and refusal of mill owners to treat growers fairly have adversely hit the cane crop. So much so that at this point in time, it is difficult to say whether Pakistan is a sugar exporting country or importing nation, more of the latter, judging from the latest developments.

By all accounts, the country should be exporting urea rather than importing any quantity to meet domestic requirements. This is a vital input for almost all crops and considering that the raw material, natural gas is available in the country, it is a pity that urea is imported.

This is done at a high cost and distributed with a subsidy that does not contribute to lowering the price of the product and providing relief to farmers. Self-reliance in urea production is imperative for the agriculture sector as also for cutting down imports. Pakistan should in fact be exporting urea.

The area that offers tremendous potential for exports has been left largely, if not totally unattended, is fruits and vegetables. Mango and citrus growers have successfully explored export markets but they have done this essentially on their own; government has done little to provide basic facilities and concessions.

Citrus growers have also managed to find support from the industrial sector but they too could do with more focused backing. Mango growers have been less fortunate in this regard. Other fruits are mostly left to rot.

A huge international market for Pakistani fruits and vegetables, particularly the former, is waiting to be exploited. They have already found consumers across the globe because, who so ever tastes most of Pakistani fruits can get hooked to them; their deliciousness is rarely matched. The crops are abundant despite generally lacking technical and professional support from departments of agriculture.

Their quality is undermined both for domestic market and export purposes by restricted farm to market access and where roads have been constructed their state of utter disrepair damages the produce during transportation. A majority of domestic consumers has become accustomed to accepting whatever is dished out to it but foreign markets are quality oriented. Cooling chains, preferential treatment for transportation by air and proper, indeed state of the art warehouses should be established to promote fruit export.

The ministries of industries and agriculture urgently need to coordinate for promotion of fruit based industries and facilitate setting up of canning, preserving and packaging of fruits and extending support for the export of packaged juices.

Encouraging the country's well-reputed breweries to use grapes for export-oriented products would not be a bad idea. It would go a long way towards poverty alleviation in northern parts of Pakistan and Balochistan where the fruit massively rots. The potential of Pakistan's fruits is immense but the attention of successive governments for import-based products has been the major roadblock in its realization.

However, to score noteworthy success with capacity for sustaining over a long period, the government should harness the sector for optimum results. It should produce even better results than leather products that are also a component of the agriculture sector in so far as farmers and livestock breeders are essentially the same set of people from the rural populace.

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