Focusing on ethnic markets
By Shahid Javed Burki
Monday 10, August 2009
THE government announced last month a policy for increasing the contribution trade makes to economic growth and poverty alleviation.
The policy was first approved by the federal cabinet and then announced by the commerce minister in late July with the support of the political masters who currently govern from Islamabad. This is, of course, a positive development since in the past trade policy was largely made by the bureaucracy with little political input.
I will concentrate on some of the issues that have not been touched upon by trade policy analysts. I will look at how the policy has presented the current situation, what is proposed to be done in the next three years and what are some of the omissions..
The commerce minister presented a somber picture of Pakistan’s situation in terms of its participation in international trade.The way the situation was analysed, it is clear that those behind the formulation of the policy are well aware of the changes that are taking place in both the system of international trade as well as in the system of international production. This was not always the case. I have argued for some time that the policymakers need to be fully informed of the economic environment in which they are operating before they can improve the situation.
The minister underscored the important but depressing point that Pakistan had gradually lost even the little bit of space it had in the international market place. Its share in international trade declined from a low of 0.21 per cent in 1999 to 0.13 per cent in 2009, a drop of almost 31 per cent. As against this, both China and India – the former more than the latter – have increased their shares. Why did this happen? The policy answered this question implicitly. Had it been more explicit about the reasons for the slippage, it would have focused more public policy attention on some of the areas that were not covered. I will get to this point later in the article.
The data presented in the policy document suggest that the country has done poorly in all the items of export which were the subject of much public policy attention in the past.While the value of exports declined by 6.8 per cent in 2009 compared to the year before, the declines were much sharper in the case of traditional exports. Textile exports declined by 9.4 per cent. Within this group there were some significant reductions: the value of export of readymade garments declined by 21.7 per cent, yarn by 15 per cent, and bed-linen by 10.2 per cent.
There are several reasons for these reductions including the severe global recession, particularly in the markets of the country’s main trading partners; increasing competition from other suppliers, particularly from China and India; and the concentration of exports in the items that are losing shares in international trade anyway. The conclusion from this brief analysis is that in order to have a dynamic export sector, Pakistan has to concentrate the attention of public policy on other sectors and items, those the trade policymakers usually refer to as non-traditional items.
Pakistan has done well in increasing the export of rice since it produces a variety – the basmati rice – that enjoys a large and expanding market.There is an important lesson in this for the policymakers. Market surveys have shown that even during periods of economic stress, the commodities and products that have appeal for the relatively well-to-do segments of the population continue to do well. Even those who can’t spend too much on luxury items, tend to economise on low quality and low price items than those of better quality and higher price. Basmati rice falls in this category. Pakistan, in other words, would do well to concentrate as much rice acreage as possible on growing this type of rice. But that is not all the country can do for this important export commodity.
There is anecdotal evidence to indicate that some of the packaged basmati rice that sells in the ethnic markets of the United States and Britain – the markets that cater to the needs of the people from South Asia – is produced by Indian exporters operating out of Dubai. They buy the Pakistani rice in bulk, package it in smaller lots, and then export it under their brand names. They thus capture the value added in this trade, leaving the Pakistani producers with relatively lower earnings.
The trade policy incorporates a number of financial incentives and proposes to establish a number of new institutions to push the export sector towards greater modernity and dynamism. It also promises to strengthen the government’s capacity to do analytical work in the area of trade. An effort will be made to understand the underlying dynamics of international trade and relate that to Pakistan’s potential in some of the products for which there is a growing market even in difficult times. One area where the government should concentrate some effort is on analysing the ethnic markets and de termine how these could be served by the producers in Pakistan.
I will illustrate this point with one other impression. I am presently working on a book at Singapore’s Institute of South Asian Studies.There is a large population of South Asian origin in this country which shops for ethnic products. However, my visits to many stores shows clearly that Pakistani products are mostly absent from the shelves. Has an effort ever been made to promote Pakistani products in this very rich market and introducing the retailers here to what the Pakistani producers and exporters could provide? If such an effort was made why hasn’t it produced results?
I will close with a brief reference to an item that is totally missing from the trade policy. I did not find any reference whatsoever to the South Asia Free Trade Area. Pakistan is one of the few countries around the world that has ignored the gravity model of trade in determining its trade policy. This model suggests that much would be gained by promoting trade with India. Given India’s tendency to be protective, it would be better if Pakistan does this in the context of a regional arrangement such as SAFTA. Why are we ignoring this arrangement as one way of increasing exports?