Industries: from sunset to sunrise

Interestingly, the best advice the prime minister has received so far about how to increase exports and revenue has come from his special advisor on institutional reforms and austerity, Dr Ishrat Hussain. Speaking at a Karachi Chamber of Commerce and Industry (KCCI) webinar recently, Dr Hussain, who is also a former governor of the State Bank of Pakistan (SBP), suggested that Pakistani businesses should diversify out of sunset industries, those that are past their peak and in decline, and invest in sunrise industries, those that are new and growing. He also very wisely said that Pakistan should take advantage of the rapidly growing market for commercial services, especially Information Technology (IT) and IT-enabled services, and also try and integrate itself into the supply chains of China and other dynamic Asian markets. The idea is to emulate countries like Taiwan and South Korea and gear our industrial production away from import substitution, which means we only get to export our surplus, and towards what is demanded in growing export markets. The overwhelming focus so far on import substitution industrial production has left us in a position where we hardly produce any raw material anymore, except agri products.

Countries of the economic size and strength of Pakistan cannot afford to swim against international trends for too long. Yet that is exactly what we have been doing for decades. As Dr Hussain pointed out, engineering goods currently account for 67 percent of total global exports while textiles make up about only six percent. In our case, though, textiles form 60 percent of all exports and engineering goods only 6-7 percent. And the fact that Pakistan’s export structure in 2020 is the same as it was in the early 1990s while the rest of the world and even our neighbouring countries have moved way ahead just about says it all. Little wonder then that while world exports have grown from $2.5 trillion in 1992 to $20 trillion in 2020, Pakistan market share of the total declined from 0.18 percent to 0.12 percent in the same period. “Had Pakistan maintained even that share our exports level would have been $36 billion at least – 50 percent more than what we have actually realised,” he noted.

This means that all these years successive governments have been doling out tax incentives and subsidies to the wrong industries and kept at it even in the clear absence of any encouraging results. That way they also ignored up and coming sectors that were trying to penetrate international markets and would have been a far more productive bet. India, on the other hand, has been able to increase its share of total exports from 0.4 percent at the start of the 1990s to 1.7 percent now precisely because governments there did a far better job of keeping an eye on what expanding markets required most urgently and adjusting their local production accordingly.

Pakistan can no longer delay overhauling its export machinery. Fortunately, there are a number of examples, especially in the region, to learn from. Rather than look, without any notable success, for fresh markets for our stale export mix, the commerce ministry must identify new demand trends and then look to become part of the supply chain. Much has changed in the new century about how much of the world conducts its commerce. Yet Pakistan, for some reason, has latched on to ideas and incentivised industries that never really did too many favours to national reserves. This tendency will have to change for the revenue position to improve. Everybody knows that tax collection is not going to improve in a hurry and the surge in remittances is of a very temporary nature, so exports will have to be the game-changer when it comes to the country’s fiscal position otherwise soon there won’t be enough donors and bailout programmes to keep us on our feet. The present government seems pretty determined to focus, and spend, on sectors that can deliver export earnings in the medium- to long-term. It should take Dr Hussain’s advice and look for sunrise industries that it can cater to, and let the sun set on the old model that has got it nothing to write home about in so long.

Ijaz Nabi is the Board Chairperson, Consortium for Development Policy Research (CDPR)