Door to prosperity: trade and market access for Pakistan

Dr. Hassnain Javed

December 28, 2018

 

 

The current state of Pakistan’s economy seems to be in tethers with the trade deficit rising to approximately 371.6 Billion in November 2018 from 246 Billion in the corresponding month last year. Although the exports have improved to 18.7 % but the effect is marred by a jump in imports to 23.2% from the last fiscal year. Many debates have surfaced, regarding the deteriorating condition of the economy, since the Pakistani rupee has devalued against the US dollar. All of which are pointing towards the fact that the Pakistani economy has been trapped in a vicious cycle. According to World Bank the inflation in Pakistan is expected to remain high till the fiscal year 2020. The currency devaluation and hike in crude oil prices will increase cost of transportation and manufacturing and hence, all commodities produced locally. Due to this fact, many local manufacturing companies are off shoring or outsourcing their manufacturing lines to countries like China, where the cost of manufacturing is substantially low. The mismatch in manufacturing costs is such that a single unit of a flag-badge that is sold for a cost of Rs. 15 in Pakistan corresponds to only Rs. 2 selling price in China.

The situation of Pakistan’s economy is in a financial dooms loop, where most of the key economic indicators are falling and others are stagnant. According to Blomberg, Pakistani rupee has been the worst performing currency amongst all of the Asian economies. Amidst these daunting challenges, the account deficit is expected to remain under a stressed condition as the trade deficit is predicted to stay at an elevated level during fiscal year 2018-19. In view to the fact that the CPEC project is moved from its first phase and entered into the second development phase, more foreign shipments for construction and machinery are expected to increase the import bill of Pakistan. Keeping in view the balance of payments, the issue posits a serious damage to the economy during the current fiscal year, mostly as the deficits are swelling and foreign exchange reserves depleting further down the line. Consequently, the liquidity position may leave the government with be no choice but to lower its non-development and administrative expenditures to reduce fiscal deficit. Further speculation regarding currency devaluations is also expected, coupled with the fact that the foreign currency reserves are also depleting, seeking help from IMF has become inevitable for the Pakistani economy to survive.

However, seeking help from IMF is no solution for Pakistan at the moment as it will be only treating the symptom in the short term whereas the actual problem at surface, Pakistan is not self-sufficient. Currently, Pakistan has put too many of their eggs in one basket. Reliance on support from foreign countries is burdening the already fragile economy of Pakistan. Therefore, the solution for Pakistan’s economy is obvious that Pakistan needs to be integrated with the global economy, in a bilateral trade arrangement.

Approximately, 69000 Pakistani companies are registered in China, almost all of which has their production lines in China. Pakistan should focus, on bringing these factories in Pakistan. In order to do so, Special economic zones will be of utmost importance for facilitating the process. Right now, Pakistan has three key operational SEZ’s at Rashaki, Dhabeji, and Faisalabad; additionally more zones are under construction connected via rail and road. However, despite of the presence of the right infrastructure since 2012,

Pakistan has not been able to market these opportunities to entrepreneurs. Therefore, in order to communicate the advantages of backward integration to these entrepreneurs’ proper marketing efforts need to put in action by capitalizing the right medium.

With the desperate need to develop Pakistan’s industrial sector, Special economic zones will be crucial for the fast development of high quality products, to position Pakistan in the international market. One of the many opportunities that the construction of special economic zones in Pakistan can yield is the capacity building by means of vocational and technical training that will enable the work force here to establish quality skills. The two fold advantages of this would be the improved employment rate, skill formation and, knowledge and technology up gradation. The trading channel is very important in order to transfer the economic distress from Pakistan to developed nations of the world. In order to exploit the full potential of Special economic zones in Pakistan, the government would have to play a more proactive role in terms of capacity utilization and allocation of resources, in order to realize the full potential.

Along with the creation of Special Economic Zones, vocational training and the human development of the labour in Pakistan is also imperative for success. There is a need to establish modern vocational and technology institutes in order to facilitate the supply of technical labor. These centers must be equipped with state of the art training equipment as well as well-versed staff with practical knowledge of the factories to provide in service training programs. These programs, will enable the Pakistani workforce to produce quality products that conforms to international technology and quality standards.

These measures will hence play a pivotal role in order to maximize the utility for the entrepreneurs to base their production back in Pakistan. The gap in value chain can be further filled by capitalizing on the principles of total quality management in production. The goal should be to reduce defects per million opportunities and costs without compromising on the quality standards. An important rationale for quality management is the preoccupation of the idea of quality costs. A common hoax most companies in Pakistan fell victim to is the idea that the primary goal of a business is to minimize costs in order to improve profits. However, on the flip side, quality improvement can be just as effective and sometimes substantial more effective in boasting profits for a business. The concept of Total Quality Management (TQM),can be implemented through technological innovation, with newer quality technologies, price falls, quality rises and average production cost declines.

Conclusively, although the collateral effect of all firms quickly adopting quality technology, will generate equitable returns on investments but the jump in revenues would be enormous. However, firms that would fail to invest in quality related technology will be forced from the market, like most of the previous Pakistani exports.