Stuck in low productivity cycle | The Express Tribune
There is significant volatility in published data for trade – both exports and imports – in recent months.
According to a summary released by the Pakistan Bureau of Statistics (PBS), exports increased by 18.24% in September 2020 compared to shipments in August 2020, while imports increased by 28.28%.
More interestingly, exports were 6.12% and imports were 13.22% higher than the prices reported in September 2019.
This was the reverse of the trend reported in August 2020, when exports fell by 20.84% month-on-month and 14.75% yoy, while imports were 9.53% month-on-month and 10.65% year-on-year. Declined.
This describes the W-shaped Kovid-19 recovery curve. Business recovered from the Kovid-19-induced dip receded in August 2020 and increased in September 2020.
Rapid movements in trade figures should certainly raise concerns as they pose significant challenges not only for economic policy makers but also for businesses and bureaucracy.
For example, it creates uncertainty about import tax collection and can also give rise to an unexpected backlog in trade-related paperwork during unforeseen unforeseen crises.
It is necessary to understand some of the dynamics that can cause such instability, especially because Pakistan faces significant deficiencies in its manufacturing and trade related sectors.
The low productivity level in manufacturing has led to a vicious cycle involving low export growth due to low levels of trade openness and high tariffs on imported inputs.
Volatility in numbers becomes more prominent. Economic growth in Pakistan has been stable for the first two decades compared to the growth rate experienced by India and Bangladesh in the 21st century.
According to data extracted from the World Development Indicator, Pakistan performs better in agricultural productivity (added value per worker) within the South Asian region. However, the food production index for Pakistan is lower than its counterparts.
Furthermore, Pakistan is lower in terms of productivity in the industrial sector than the other two economies. Pakistan has a lower level of employment in the industrial sector as a percentage of total employment in agriculture than its South Asian counterparts, but is at a comparable level to India in industry.
The level of productivity in the service sector for each worker in Pakistan is lower than India but higher than Bangladesh.
Furthermore, it is important to note that Pakistan consistently reported lower levels of per capita gross domestic product (GDP) in 2010 US dollars compared to Bangladesh and India in 2019.
In short, the productivity of workers in Pakistan has remained relatively stable in the three regions, while for India and Bangladesh, there has been an increase in recent years.
Lower GDP per capita translates into lower overall productivity. The low average growth rate for per capita GDP over the last decade reflects stability in productivity in Pakistan.
balance of payment
Low productivity in the industrial sector may limit the ability to convert imported producers into high value-added exportable goods that can earn significant foreign exchange and reduce the balance of payment concerns.
Pakistan reported lower levels of exports and imports as a percentage of GDP relative to India and Bangladesh. This was not the case in the 1990s and earlier, when exports and imports as a percentage of GDP exceeded the reported values for both India and Bangladesh.
While Bangladesh is considered as a star performer in the world in terms of its stellar export growth in recent years, India has also performed better than the world average for several years since 2000.
On the other hand, Pakistan has experienced many examples of export growth below the world average, which confirms the stagnation. Between 2014 and 2017, Pakistan reported negative export growth for each year, while the world average remained positive above 3%.
Interestingly, the rapid recovery in 2018 and 2019 again points to the volatile nature of exports from Pakistan.
Pakistan reported higher growth rates for imports of goods and services compared to growth rates for exports of goods and services, especially between 2014 and 2017, as imports grew by more than 60%.
Interestingly, Bangladesh and India have also registered comparatively high import growth rates in recent years. The difference is that India and Bangladesh have been successful in increasing their overall exports.
On the other hand, as foreign exchange reserves in Pakistan declined between 2016 and 2018, the widening trade deficit contributed to the balance of payments crisis.
Global value chains
Using the Asian Development Bank’s multiple regional input-output model, calculating the share of domestic value-added goods and foreign value-added goods in gross exports, Pakistan’s participation in global value chains is lower than that of India and Bangladesh.
However, goods of Pakistan origin are more likely than Indian and Bangladeshi goods to be exported as intermediate goods to be re-exported by their trading partners, to Pakistani exporters of raw materials and intermediate goods It is less likely to convert imports into exports.
This not only highlights the lack of productivity in Pakistan, but also the inability to participate in global and regional value chains.
Even though Kovid-19 has devastated supply chains around the world, Pakistani exporters’ failure to establish strong trade contacts and networks can pose challenges as the intensity of global export competition intensifies.
To improve trade competitiveness, Pakistan not only requires lower import duties, which promotes participation in regional and global value chains, it also requires greater transparency and better trade practices.
For example, a national trade repository, which provides accurate information to exporters and importers about trade processes and procedures, is an extreme necessity. Many low-income countries such as Sub-Saharan Africa have an operational trade portal that provides important information to traders.
It needs to be supported by an effective cross-border paperless trade program and a national electronic single window that reduces the need to interact with various governmental and regulatory bodies.
Although the government has set a 2022 deadline for its operation, its success will hinge on the effectiveness of the main agency – Pakistan Customs.
The author is an assistant professor of economics and research fellow at the CBA, IBA
Published in The Express Tribune, 19 OctoberTh, 2020.