Export-Oriented Economic Growth: Prospects for Pakistan

The developing world is striving to achieve high economic growth and the developed world is endeavoring to maintain the established economy. However, the high economic growth remains the major concern for both worlds. Every country, whether it is developing or developed, uses different strategies to achieve high economic growth. Pakistan is no exception. Pakistan has been using different strategies to achieve its dream to become a strong economy for over several decades but these strategies could not produce desired outcomes. The country’s economy has been surviving on external debt and foreign aid. The major structural issues and the unwillingness of the leadership further deteriorated the economic conditions of the country. The present government of Pakistan has adopted the policy of export-oriented growth and is aggressively working to save the crippling economy of Pakistan. It is important to note that this policy has generated positive results so far, but the objective of high economic growth is still a long way to go.

Export-led economic growth is a strategy that helps to speed up the industrialization process of a country by exporting goods for which the country has a comparative advantage. It is also about opening the domestic markets to foreign competition in exchange for market access in other countries. The adaptation of this strategy by the government of Pakistan is generating positive results.

Despite COVID lockdowns, Pakistani exports especially textile and IT exports have witnessed exponential growth in recent months.

The textile sector is the largest contributor to Pakistani exports. The timely reopening of industrial sectors by the government of Pakistan after the nation-wide lockdown and their policy to encourage exports have played a central role in the dramatic rise of the textile and clothing exports in the last few months. According to the Pakistan Bureau of Statistics (PBS), textile and clothing exports have increased over eight percent to $8.76 billion on a year-on-year basis in the seven months of the current fiscal year.

Moreover, the global textile trade that stands at $837 billion had an average growth rate of 0.1% over the last decade. When it comes to the global market for textile sector exports, it is dominated by China, which accounts for over 32% of overall textile exports, valued at $266 billion. Presently, Pakistan’s share is only 1.6% in the world textile trade, but it has the potential to increase its share if the government supports the industry and investors increase the production capacity. The Government of Pakistan is also working on a ‘Textile Policy’ that will increase the country’s textile exports target to $25.3 billion by 2025 and up to $50 billion by 2030.

The implementation of this Textile Policy is essential and eagerly awaited, as it will lead to the streamlining of recent export growth and allow continued expansion in the textile sector. The proposed package carries special duty-drawback rates, rationalization of duty on the textile value chain, and subsidy on long-term loans and development of the sector. The policy aims to reduce the input cost of the textile and clothing sector and make it competitive with the regional players.

The lockdowns, owing to the global pandemic, were disastrous for the businesses and economies around the world. However, the lockdown associated with the coronavirus outbreak pushed people toward cyberspace to meet their social and economic needs. Consequently, there has been a significant increase in the demand for IT services. Pakistan has also witnessed a significant rise in its IT exports in the previous year.

Pakistan’s IT exports surged 38 percent to $1.1 billion in the first seven months of the current fiscal year of 2020/21 -Pakistan Software Export Board (PSEB)

The IT exports now constitute a third of Pakistan’s total export of services but the IT sector has great potential to grow at a very good pace which can significantly contribute to Pakistan’s goal towards high economic growth. According to a report by the Overseas Investors Chamber of Commerce and Industry (OICCI), Pakistan has the potential to enhance its IT exports up to $10 billion. The report further stated, “By digitizing most, if not all, key segments of the economy could boost IT exports to $10 billion annually, provide a significant growth to gross domestic product (GDP), attract billions of dollars in foreign direct investment (FDI) and create new jobs within a short period”.

Similarly, another promising domain for ameliorating the economic growth of the country, through exports, is the fishery sector. The demand for seafood has increased significantly over the period, marking that the fishery sector of Pakistan can produce surprising results in the next three to five years and strengthen the national economy if the government and investors focus on the blue economy. The exports and preservation of fish amount to over $451 million but given vast fishing resources available in the country, current foreign earnings are far below the threshold of consummation. With the assistance of the Government of Pakistan, like through the provision of subsidies, the country can levitate fish and seafood exports to a billion dollars industry within the next three to five years. However, with a consideration of sustainability factor, exploiting the resource systemically, and attracting investors in the nascent domain of fisheries and marine resources.

Last but not the least, Agriculture sector of Pakistan also holds significant importance in the economic growth strategy and rending the country as an export-based economy.  It contributes 18.9 percent to the national GDP and absorbs 42.3 percent of the labor force. It is also an important source of foreign exchange earnings and stimulates growth in other sectors. Apart from exporting food crops like rice, wheat and corn, and citrus, the country is also known for its quality cash crops like cotton, sugarcane, tobacco, etc. The agriculture sector has been a dominating contributor to Pakistan’s economy since independence but the performance of this sector has witnessed a significant decline due to political, climate, social, and environmental problems. Lack of advancements and technological disuse has further deteriorated the situation. If the government of Pakistan incentivizes the farmers and provides technical support to them, the agriculture sector has the potential to become the leading industry in the national exports and ultimately will have its trickledown effect on poverty alleviation and expediting the national economic growth.

It is pertinent to mention that the government of Pakistan is working to incorporate the agriculture sector in the broader CPEC framework. China has approved technical assistance for 13 mega-agriculture sector projects under CPEC and it is appreciable that the government of Pakistan is now taking practical measures to achieve desired growth in this sector.  China is the most populous country in the world with a 1.39 billion population and even though it is the leading country in agriculture production, fulfilling the food needs of its gigantic population is a great challenge it imports a high amount of agricultural goods from different countries. China spends more than 100 billion USD on agricultural imports every year and Pakistan’s share in these imports is almost negligible. CPEC offers opportunities to export agricultural goods to China –last year the country’s food imports accounted for 115.1 million tonnes of grain. Through increased connectivity, Pakistan can increase its agricultural exports to China. It is a win-win situation for both China and Pakistan. Due to low transport costs, China should import agricultural goods from Pakistan.

In the pursuit of this strategy of export-oriented growth, Special Exclusive Economic Zones (SEZs) are also being constructed under CPEC in Pakistan. These economic zones will not only reduce the imports in Pakistan but will also significantly increase Pakistan’s exports. The government of Pakistan has announced incentives for Special Economic Zones which will enhance the Foreign Direct Investment (FDI) in the country. For instance, the SEZs will be exempted from all taxes on income for 5 years for developers and 10 years for enterprises.

The government of Pakistan has expedited its efforts to generate the desired results from the proposed special economic zones in the country. Recently, Asad Umar, the Federal Minister for Planning, Development, Reforms, and Special Initiatives has visited FIEDMC. During his visit, he has said that Allama Iqbal Industrial City will be completed on a war footing so that process of industrial development can be further accelerated.

To conclude, the macroeconomic indicators and economic diplomacy agenda of the government of Pakistan hint that the country is moving in the right direction. The strategy of export-oriented economic growth is generating positive results for Pakistan’s economy, which has been facing severe crises for over several decades. While focusing on exports and keeping the impetus of the upward trajectory, the decision-makers will have to map a strategy to overcome the trade deficits, focus on sustainable economic policies, and create fiscal space for investment in human capital and improved human security. Moreover, the success of this export-led strategy will help Pakistan to get rid of the chains of external/internal debts and foreign aids which often have a detrimental impact on Pakistan’s foreign policy.

 

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