Pakistan’s economy is expected to make an upward jump from 2021 onwards as increased industrialization, expanded investment and progressive drives by the government begin to bear fruit.
Continued commitment to reforms combined with productive investment and strategic capacity development will be pivotal for the country to find its way towards the growth path. 2020 will go down the annals of history remembered mostly for Covid-19 pandemic, which hardly left any part of the world unaffected.
From the social vantage point, it caused a decisive change in everyone’s life patterns. However, due to the Pakistani government’s consistent efforts, the country has been able to get back on track and is showing clear signs of recovery.
Pakistan is projected to experience a broad economic recovery in the fiscal year 2021 as the economic sentiment improves with the resumption of structural reforms. Since the removal of Coronavirus related restrictions; the country has witnessed a rapid recovery of exports. Consequently, the outbound shipments from Pakistan in recent months outnumbered that of regional competitors, Bangladesh and India.
December shipments rose to US$ 2.4 billion as compared to US$ 2.2 billion in November 2020, a month on month increase of 8.9%, and by 19.0% as compared to US$ 1.99 billion in December 2019. By comparison, India’s exports went down by 9.1% in November. In December 2020, India’s exports totaled US$ 26.9 billion a marginal decrease of 0.8% compared to the previous year’s figure of US$ 27.1 billion.
Total Indian exports in April-December 2020 amounted to US$ 200.6 billion, a decline of 15.8% from US$ 238.3 billion during the same period in 2019. Bangladeshi exports showed a nominal increase of 0.8% to reach US$ 3.07 billion in November 2020 from US$ 3.05 billion.
The country’s overall exports in July-November 2020 stood at US$ 15.92 billion, marking a 0.9% rise from US$ 15.77 billion during the same period in 2019. Textile’s value-added sector remained the main engine of growth for the economy as its exports registered an increase of 22.72% to an unprecedented high of US$1.40 billion as compared to US$ 1.14 billion in December 2019 and increased by 9.2% when compared to US$1.28 billion in November 2020. Pakistan’s textile exports increased by 7.8% to US$ 7.4 billion in July-December against US$ 6.9 billion in the same period last year.
Textile commodities that contributed to positive trade growth included knitwear exports, which increased to US$ 1.9 billion during the first half of FY2021 compared to US$ 1.6 billion last year. Likewise, bed wear exports increased by 16.4% to US$ 1.4 billion, and towels’ exports increased by 17.5% to US$ 445.7 million.
Pakistan’s IT sector also showed great promise as IT exports increased 39% to US$ 763 million in (July-November) in the current fiscal year. The rise in IT exports results from SBP relaxing its regulations remitting funds in and out of Pakistan – long demanded by the IT sector.
The country’s economy’s growth trend was further helped by the cement sector, which commenced FY2021 on an upbeat note. Cement dispatches during the first six months of the current fiscal year increased by 16% to 28.6 million tons compared to 24.8 million tons during the same period last year.
Government’s sustained economic policies helped Pakistan reduce its fiscal deficit and current account deficit – the latter where there was a huge US$ 40 billion trade gap.
How Government Initiatives helped Exports
Government’s initiatives have attracted domestic and foreign investment in textile’s value chain and the development of value-added sectors, with the prime focus on small and medium enterprises (SMEs). In the new textile policy government has also proposed a subsidy of Rs. 200 billion on electricity supply to export sectors for the next five years.
Electricity will be provided at 9 cents/kWh. Similarly, an amount of Rs.150 billion will be allocated for providing gas at a concessionary rate to the industry. Furthermore, an export development board is being set up under the Strategic Trade Policy Framework.
Read more: A look back at Pakistan’s exports in 2020
But despite all the above-mentioned export promotion measures taken by the government, a lot more has yet to be done! Export policies need to be reevaluated before the country can get on the path of export-oriented economic growth.
Regular periodic assessment of export policies has turned around several Southeast Asian economies; our regional peer Bangladesh is an excellent example.
The Punjab government is working in complete synchronization with the federal government to provide dynamic investment opportunities for sustainable economic growth.
The provincial government’s policies aim to develop Punjab as a competitive manufacturing hub, enabling industries to serve domestic and overseas demand with an increasingly value-added and versatile product range.
To this end, the provincial government has offered varied investment opportunities and has built an enabling environment for the private sector through:
• Revamping Industrial Zones for Industrial Transformation: Establishment of special economic zones and industrial zones, leveraging investments. These zones have offered attractive incentives; optimally located along industrial corridors in line with the provincial spatial strategy, feature dedicated infrastructure, and a business-friendly regulatory regime.
• Transforming productivity: Increase productivity of the manufacturing sector by instituting reforms to the vocational training system to better serve industry needs in terms of number and skills, and by facilitating industries to increase productivity through greater adoption of advanced management and operational practices.
• Expanding access to financing for industry: Increase access to finance for businesses throughout their lifecycle, particularly with a focus on supporting SMEs and creating an ‘investment matching’ program for Venture Capital and Private Equity firms seeking to invest in SMEs.
• Addressing specific governance challenges: Improve the business environment for business in Punjab by increasing private sector consultation before introducing any revamping of standards and processes to increase export readiness.
• Developing strong industrial clusters: Facilitate growth of industrial clusters which benefit from economies of co-location, e.g., shared infrastructure, skilled workforce, technology transfer, some of which can attract and support globally leading large-scale manufacturers as anchor investors.
Future looks bright
Global outlook of Pakistan’s exports is very bright, and both internal and external factors contribute to it. One significant internal factor is the textile industry’s plan to expand and invest US$ 5 billion across the textile chain for a notable increase in exports by 2025. Since July, the external factors that have helped to almost doubling of orders from the West include the US-China tensions and ongoing supply disruptions induced by the Covid-19 pandemic in India and Bangladesh.
These factors have helped Pakistan grab additional export orders from Europe and America. Major international brands are coming to Pakistan because we have cost and tariff advantages over our Chinese competitors in the EU and US markets.
Our Indian and Bangladeshi rivals are struggling because of supply chain disruptions. Pakistan is now an emerging country in textiles.
The government is set to unveil an ambitious five-year textile policy laden with subsidies and lower rates on utilities worth Rs. 960 billion to boost production and exports of value-added textile products.
The proposed policy estimates that the measures will lift textile exports to a minimum of US$ 15.7 billion and a maximum of US$ 20.8 billion by the end of the year 2025. The policy contains measures to tackle issues confronting textile sector caused by Covid-19.
Historically, the Textile Policies of 2009-14 and 2014-19 were also formulated to enhance exports to US$ 25 billion – US$ 26 billion, respectively. However, as much as the targets set were ambitious, they only remained on paper.
For achieving the desired targets, the financial commitment of Rs. 188 billion for the first policy and Rs. 65 billion for the second policy were made by the then governments.
However, the governments did not fulfil their commitments, and timely payments were not doled out in the financial support schemes resulting in only partial implementation of these policies. The detrimental side to this failure of keeping commitments is the lack of confidence the industry has in government policies.
Exports: Real Way forward to sustainable growth
• Value Addition: Value addition is of immense importance as it is a crucial component of our exports. It guarantees enhancement in exports and would also result in accelerated industrialization and employment opportunities.
• Diversification and expansion of the export base: Our exports have not changed much for years. Cotton textiles and foods still account for over 70% of Pakistan’s exports. We need to create specialized industrial zones based on the manufacturing of goods to export but for new products and markets (such as engineering, chemicals, electronics and food products). The government should support the development of a formal IT services export sector.
• Investment: Pakistan’s investment-to-Gross Domestic Product (GDP) ratio has been hovering around 15%. In contrast, countries like China, India and South Korea have maintained the ratio above 30% to put their respective economies on a sustainable path. To improve job creation, productivity and exports, Pakistan should raise the investment-to-GDP ratio to around 20%.
• Brand development & aggressive marketing: Brand development is the major key for export growth. A brand development fund should be launched, and international buying houses should be encouraged to open offices in Pakistan. Ministry of Commerce, through its trade missions in potential countries, should formulate an aggressive road map to get market access to developed and developing economies.
• Skill development: The mass level training programs should be launched, especially for industrial sectors and mostly for the textile sector. Measures should also be proposed to produce highest quality professionals in design technology, management and marketing, apparel manufacturing and merchandising, fashion design, and industrial manufacturing.
In testing times like now when economies worldwide are struggling, new export orders and opportunities are a windfall for Pakistan’s industry. If availed timely and wisely, they can be sustained for years to come. It all depends on how we steer this industry into the future. We are confident that the growth momentum will continue and the country and its exports will scale new heights.
Azizullah Goheer is a Certified Director CCG and a Certified project management professional PMP. He is presently serving as the Secretary-General of Pakistan Textile Exporters Association (PTEA), the premier association of textile manufacturers and exporters.
He is a member of the Advisory Committee of Sustainable Textile Asia Region (STAR) and has previously worked with the Government of Punjab as a consultant. His industrial exposure is spanned on two decades during which he has served some of the leading global companies. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.