Raza Khan

Lack of value-addition, innovation, and competitiveness, as well as low productivity of the industrial sector, have been identified as major reasons for exports stagnation in Pakistan, according to a report published by Pakistan Institute of Development Economics (PIDE). The report said the country’s exports were recorded at $31 billion during the last fiscal year (2021-22), which were very low compared to the regional competitors. “During the last two decades, the contribution of exports to the country’s GDP witnessed a decline from 16% to 10%,” the report mentioned, adding that Pakistan’s share in global trade also dropped from 0.15% in 2005 to 0.12% in 2021.

The stagnancy in Pakistan’s exports brings about a number of challenges, such increasing current account deficit, burden of foreign debt, and other macroeconomic problems, said the report. Dr Sajid Amin, research fellow at Sustainable Development Policy Institute (SDPI), told WealthPK that the country’s exports are still low despite the support given by the government to the industrial sector over the period of time.

“Pakistan’s exports are still below expectations despite concessions and subsidies being provided to the sector,” he noted, adding that lack of research and innovation is the primary cause of low exports. He said that the sector needs to be innovative and efficient enough to make itself regionally competitive instead of demanding subsidies and concessions all the times. Amin said that people are paying the price of subsidies being provide to the industrial sector on electricity and gas. “People also endure power cuts so that interrupted power supply can be ensured to the sector,” he pointed out.

He said that the industrial sector did not grow up to the level it should have been now despite getting the desired protection from the government. “Factories are being run by installing inefficient machines which consume extra amount of energy,” he noted. According to the PIDE report, key factors behind the country’s stagnant exports include low productivity of firms, uncertain exchange rate, lack of competitiveness and diversification, lack of value addition and research and development (R&D), limited access of firms to global markets and high import duties on raw material.

“Lack of export competitiveness is considered a prominent reason behind Pakistan’s stagnant exports,” the report said. Pakistan’s export competitiveness is shrinking, while the competitors like Bangladesh, India, and Vietnam are witnessing expansion in export competitiveness, the report added. The PIDE report mentioned that manufactured goods demonstrated export competitiveness from 1995 to 2014, while during the last few years (2015 onwards), the competitiveness has been lost.

Citing the World Bank statistics, the report revealed that Pakistan is exporting conventional products with little value addition. “There is no significant increase in the number of products exported over the last 16 years,” the report said.

It is also pointed out in the report that manufacturing firms and companies make limited investment on R&D. “Pakistani firms are engaged in producing conventional product varieties, and not spending much on R&D to innovate their products,” the report pointed out. Low quality has also been identified as one of the paramount reasons for low value addition in export products by Pakistani firms. The major export segments of Pakistan, textile and apparel, have low quality products compared to their competitors, the report said.

Low productivity of Pakistani firms has also been seen a problem. “Firms have failed to grow as productive ones with the passage of time,” the report noted. The report added that low productivity is mainly because of limited integration of Pakistan into the global marketplace. “Contribution of more than 50% of businesses in exports is zero,” the report added. Other factors for stagnant exports include exchange rate volatility, over-regulation which discourages businessmen and exporters to expand their activities, institutional barriers, and massive decline in cotton production, the report said. It suggested that Pakistan must develop effective policies for small and medium-sized enterprises (SMEs) that can enable them to enhance their capacity of productivity.

Credit: Independent News Pakistan-WealthPk