Pakistan aims to unlock manufacturing and export potential

Islamabad: Pakistan has put into action an ambitious strategy to bolster industrial strength by mobilising the local talent and offering incentives to achieve export-oriented economic growth with a new focus on trade with landlocked but energy-rich Central Asian states, Uzbekistan, Tajikistan, Kazakhstan and Kyrgyzstan.

In 2018 when the current government came into power, the emphasis was on “stabilising the economy and now that we have moved to the beginning of growth, all efforts are concentrated on sustainable economic growth “ said Abdul Razak Dawood, adviser to Prime Minister Imran Khan on commerce and investment, in an interview with Gulf News.

With eyes on the 4.8 per cent growth target for 2021-22 financial year, Khan’s government aims to unlock manufacturing potential and facilitate industrialisation to create new jobs, boost exports and make the local production dynamic and competitive as the country is seeking to end its reliance on foreign loans and bailouts.

“Make in Pakistan is our top priority now” Dawood asserted. Pakistan’s policy in the past has been to support trading rather than manufacturing which is now changing under Khan’s administration. “Manufacturing is wealth creation. It helps build industries, create more jobs” which Pakistan, a country of 220 million people, desperately needs. The large-scale manufacturing sector recorded nine per cent growth during July-March 2020-21 – indicating a strong post-pandemic recovery. Industrial support packages, incentives such as gas and electricity at regionally competitive rates for export-oriented businesses, tax exemptions for high-performing sector manufacturers helped achieve this growth.

Improving the share of exports in the economy and incentivizing import substitution is the prime focus. Imran Khan “is always pushing for boost in exports” to put the country on the path of economic development, he said.

To bolster exports, Dawood explained that the government has removed three barriers: Shift from fixed parity that artificially overvalued rupee, giving refunds to exporters and industrialists on time and exemptions on customs duties mainly on raw materials.

In last three years, “We have removed high custom duties on 4,000 tariff lines out of a total of 7300 lines” which means the 54% of raw materials and intermediate material for industry are now coming to Pakistan at zero per cent duty, making our industries more competitive. Dawood says a few businessmen have claimed that they are now able to produce goods at cheaper rate than China, which he calls the “real impact” of the government’s new policy. “The tariff rationalisation policy will encourage industrialisation” and reduce reliance on manufactured foreign imports. The increased import of raw materials may initially widen trade deficit but the government is willing to pay this price to help strengthen the industrial base, which will benefit the economy in the long run in form of increased exports which would improve trade balance.

Exports up to a record $31.3b

The biggest achievement of the current government, Dawood said, is the record high $31.3 billion export of goods ($25.3b) and services ($6b) during fiscal year 2020-21 despite the pandemic challenges which slowed global economic activity. The Ministry of Commerce has set its eyes on the export target of $35 billion in the next fiscal year, Dawood told Gulf News.

Ambitious target

But how will Pakistan achieve this ambitious target? Product diversification, incentives for key industries and access to new foreign markets are the key goals that the Commerce Ministry is focused on.

Pakistan has traditionally relied on exports of limited products including textiles and clothing, leather products and rice that account for larger part of export earnings. This is where the shift will come under the strategic trade policy framework which will help “diversity our product range to reach new markets” the adviser explained. As the country plans to move beyond simple manufacturing, the five key areas of focus will be: pharmaceutical, engineering, food processing, fisheries, fruits and vegetables. Pakistan government’s new policies offer incentives and tax breaks to mobile phone and vehicle manufacturers to promote local industries, encourage foreign direct investment and joint ventures and boost exports. The country is also aiming to double its IT exports to $6 billion in two years.

Regional connectivity

Pakistan’s port city of Gwadar, described as the rising investment destination, is expected to become the country’s manufacturing hub, opening up new avenues of opportunities for regional trade, said PM Khan recently at the launch of development projects in Gwadar. A range of incentives are offered to foreign investors in the Special Economic Zones and Free Trade Zones in Gwadar – the centrepiece of China Pakistan Economic Corridor (CPEC) – connecting South and Central Asia and the Middle East.

“Improving regional connectivity” to build commercial linkages particularly with Central Asian states is a key priority for Pakistan as part of its newly formulated geoeconomics strategy. “Currently we are concentrating on western borders” which means expanding trade with Afghanistan, Uzbekistan and beyond. “Pakistan is aiming to build strong business ties with the Central Asian states under its Silk Route Reconnect Policy to tap into over $90 billion economy and offer them access to Pakistani seaports” he stated. Improving access to Russian and European Union markets is also vitally important for Pakistan, he said.

New markets and trade ties

Pakistan has signed free trade agreements (FTA) with China, Sri Lanka, and Malaysia and has preferential trade agreements with Indonesia, Mauritius, D-8 and OIC countries. The country also enjoys GSP+ status, allowing duty-free access to European Union. Pakistan is currently in negotiations with Turkey for FTA and preferential trade with Uzbekistan, Afghanistan and Gulf Cooperation Council (GCC) states to expand market access.

To identify new markets and boost trade ties and investments, Pakistan is eyeing massive participation in Expo 2020 Dubai. “It offers Pakistan an opportunity to present itself to the world as a progressive, tolerant, diversified country with rich culture, heritage, tourism destinations and business opportunities. Although we are a new country but an old civilisation”, Dawood said, adding that Pakistan will showcase its unique culture and significant tourism and economic potential at the Expo.