Andleeb Abbas Article
Old bottle with the same wine is an old cliché. Old bottle with no wine is more current. Every industry screams and yells of crisis. They make appeals, give threatening advertisements, negotiate with the government and finally, a relief package comes along. Somehow, the relief package has a heavy packaging of hundreds of billions. It does look enticing and sound inviting but rarely ever does provide the impetus it is supposed to provide to the faltering industries. The kissan package, the women development package, and the textile package came, made headlines, had fancy event launches but then disappeared. The latest package for exporters totalling a hefty Rs 180 billion will, hopefully, not follow the tradition as exports need some emergency measures. Exports are a major foreign exchange earner and any country that cannot expand its exports will be forced to resort to getting more and more debt to survive.
The truth of the matter remains that exports are dependent on the textile industry of Pakistan, which is the backbone of our economy. The value chain that backs this industry is suffering from years of neglect and politicisation. The cotton crop has been badly hit by the agricultural demise. For the first time in the history of this country, agriculture has nosedived to a negative 19% reduction. This reduction itself spells doom for our textile and related industries. Exports, therefore, have become an embarrassment. Pakistan’s exports have declined to $21 billion— the lowest since 2010— as per Pakistan Bureau of Statistics in a recent report. About 100 member factories have halted operations while at least 500,000 people have lost jobs in the past two years alone. About half of Pakistan’s exports are shipped to only six countries and 40 percent of total textile exports are primary commodities. According to data by World Bank, Pakistan’s textile industry grew only at half the rate of that of Bangladesh and Vietnam during 2005 to 2012.
The sad part of this comparison remains that despite hardly producing an ounce of quality cotton, Bangladesh has still gone ahead of Pakistan. This obviously points to the fact that at all levels—government, industries and individuals— their strategic policies and plans have worked much better. The problem with offering packages in lieu of having a strategic plan is that it is a short-term booster, which is more of a reactive approach rather than a well thought-out, proactive, long-term solution. Take the present incentive package of Rs 180 billion announced by the government. The government will implement this package from January 2017 to June 2018 by abolishing customs duty and sales tax on the import of cotton and man-made fibre other than polyester, and sales tax on the import of textile machinery.
As a result of these measures, the government expects gains of $2 to $3 billion in exports by June 2018. Part of the deal is that there will be no condition on getting duty drawback in the first six months (January to June) of the scheme. However, exporters will have to record 10 percent growth in exports during the next fiscal year 2017-18 as compared to the ongoing financial year. This will encourage false filling of exports to take advantage of this incentive.
The history of short-term incentives has been dismal as they have not yet resulted in short term boosts. According to the Institute of Policy Research, the finance minister announced in July 2016 that exports will receive a boost with zero-rated facility for five export sectors. The exports actually declined in the last six months, when compared on a month-to-month basis with 2015. The zero-rated facility proved ineffective in boosting exports. The real issues of exports are much more deep rooted than just removing a tariff or increasing rebate. The real issues underlying the decline of textiles and broadly export sector are an uncertain cotton crop, low productivity owing to poor quality of human resource at the design and quality stages, uncertainty in energy supply, an inward looking protective tariff regime, artificial support from the government, and a general lack of international marketing expertise.
The problem with government dependence on solving these issues is that most of the industry support activities are going to be hijacked by vested interest groups who are the who’s who of ministers and MNAs etc. For example to solve Pakistan’s problem of lack of product diversity and value addition from 2005 to 2008. No maj Pakistan’s government spent Rs50 billion in research and development of subsidies for the textile sectoror impact of this was visible in the export quality or quantity.
The tradition of empty packages continues. The Agri/kissan package was almost double of the export package i.eRs 341 billion. In a recent discussion in the parliament on it, the relevant ministries reluctantly admitted that it remained a number that was more of shifting already allocated an amount to other heads rather than any groundbreaking support to the ailing sector. The knee-jerk approach by the government is that to lull a brewing storm make a great paper framework, have a grand launch event, do a few cosmetic buildups and then move on. In the Agri package case, cotton growers were lulled as they were on streets but the other cash crops were completely ignored. While the government has focused on cotton and rice, the long-term policy problems remained mostly unaddressed. The country had substantially higher surplus stocks of rice and wheat but found it really hard to get international buyers in view of the price disadvantage. Over Rs100bn were reported to be stuck up in these stocks, without any tangible solution to liquidate them.
These packages are at best steroids that may give a temporary relief to the industry and that also to some favoured industrialists but will do a lasting damage to any industry’s ability to develop and operate independently. What is required is to have Agriculture and Water debates and dialogues at all levels with major stakeholders to come up with Agriculture policy and Water policy. These policy frameworks then become the governing light for developing industry and sector policies guiding exports and domestic demand. These demand patterns, in turn, should determine the relative incentives and boosts required to support these industries. However, this is a visionary approach requiring strategic intent and strategic planning, both ingredients that seem to be endangered species in the present ecosystem of the political environment.