Pakistani rupee during the last two months stands considerably devalued. The question however is that does this help exports? Though the November figures have been somewhat disappointing - exports have in fact gone down - the good news is that Pakistani textiles, which constitute almost 67% of national exports, may be seeing a much awaited up-turn; one that has perhaps been awaited for almost a decade! By conservative estimates if the level of current international-buyers’ interest sustains itself in 2019, the textile sector may add up to $2 billion worth of exports while of course adding accompanying jobs and economic activity in the markets. And if it happens, it would surely add some credibility to government’s rationale on its abrupt devaluation of the national currency. However, the government needs to be careful on making too much out of it, not only because devaluation is never a sustainable solution, but also that capturing short-term industrial gains requires a lot of focused efforts. First, to harness the full potential of this ‘short-term’ competitive advantage of Pakistani textiles, it will need to fully support the industry by primarily allowing it a conducive environment and a free-run to optimise its efficiencies and production. Meaning, counterproductive governmental oversight will have to be curtailed, whereas, the opposite seems to be the case at present! Second, it needs to take into account that owing to previous government’s poorly thought through industrial policies, a big chunk of the industry either stands dismantled or is lying closed. In order to rekindle this dormant capacity, giving the textiles entrepreneurs a renewed confidence will be the key. This can only be done by quickly unleashing a five years industrial policy vision that aims at facilitating manufacturing rather than squeezing it. And third, it will need to craft a sound growth strategy that not only takes into account the global trade games currently being played, but also has the capacity to succeed amidst a new modern industrial structure that relies more and more on ‘innovation & productivity’ as the new tools of competitiveness instead of the traditional or the old tools of labour, currency and state support. Moreover, since Pakistan’s exports in general measure quite low on the value-addition scale and as the underlying diversity base of its exportable products is fairly narrow, policymakers will have to be careful to not fall into the trap of simplistically correlating export gains to a devaluation exercise or to even think of conducting any type of precise trade–off calculations between gains from surge in exports (through devaluation) vs. the likely economic fall–outs (such as: increase in foreign national debt in rupee terms; decrease in underlying dollar value of market assets (for example stocks); increase in short–term foreign currency liabilities borrowed to support FE reserves; raising barriers to capital investment in the economy (especially in plant & machinery); distorting dollar based targets of annual corporate revenues; and last but not least, unleashing of a sort of involuntary inflation tax on the common man) – the latter invariably ends up outweighing the former. Also, the oft-used argument of using devaluation as a tool to discourage imports may not be entirely effective in case of Pakistan, because our imports to a large extent are inelastic. To avoid the fall-outs from devaluation, modern day management practices have developed new and cleverer tools to curb or control imports, so why not use them instead.

Importantly, it is essential for the Pakistani policymakers to wake up to the reality that the days of orchestrating ‘export-led manufacturing growth’ by using the tools-of-the-past (as outlined above) are now over. Earlier this year in Mexico City, in a landmark joint study presented by Bruce Greenwald and Joseph E. Stiglitz, they explained that while undoubtedly the export-led manufacturing’s growth model created economic growth miracles in the 20th century, where East Asia saw unprecedented economic growth via exports, the traditional model in today’s global reality has possibly become a victim of its own success. In that today we are faced with a situation where productivity over the years has far exceeded the rate of increase in actual demand. Also, one is seeing that some vertical disintegration of the service components of manufacturing, automation and robots have in-effect resulted in a far greater (proportionate) loss of jobs in the manufacturing domain. As we know that a vertical disintegration in any sector’s chain can have strong negative implications on wages and knowledge-flow of that sector and naturally manufacturing has been no exception. Even with the emerging or the developing markets today taking up larger a share of manufacturing jobs – with a shift of say jobs from China to Vietnam or Africa over the last 5 years – the dilemma remains, as the jobs resulting from the new or modern manufacturing only absorbs a fraction of the new entrants coming into the labour force of these developing economies. In short, they argued that while one can surely argue that export-led manufacturing growth still carries significant advantages to a country’s economic growth: job creation, earning of necessary foreign exchange and building a nation’s manufacturing capacity without having to worry about domestic demand, the reality is that the modern day world is unlikely to see a repeat of the yesteryear growth success stories of China and East Asia as the new manufacturing techniques neither create the same magnitude of fresh jobs nor rely too much on savings through cheap labour.

So, the relevant question for us is that how does this alter current policymaking at home? The answer lies in the recommendation that going forward while we should surely be looking for an export-led growth, it should however be a part of a much broader multifaceted growth strategy, with varied facets reflecting different aspects of export-led manufacturing growth. This means: Combining the outcome of structural transformation with the natural resultant pressures on urbanisation; moving towards a learning economy, creating an openness to manage trade transactions in a way that directly links them to adequacy of available foreign exchange; and last but least, overtly supporting sectors that fulfil the requirements on job creation. What we are witnessing today in the new global model of growth is that the governments are combining multiple-strategies to make manufacturing more directed in order to take advantage of a nation’s natural sources (minerals, oil, agriculture, etc.). The idea is to exit from one’s weaknesses and simply focus on one’s strengths – Situ:  conservation or preservation of components of diversity outside their natural habitats and in a shared policy environment.

Finally, though deconstructing and reconstructing policy frameworks is all very good, the reality is that Pakistan faces problems with its external account now, which require an immediate solution and not merely a futuristic notion. Its exports are under threat, largely because its textile sector that (directly or indirectly) drives about two thirds of the total exports has been faltering of late. Given the widening current account deficit and with pressure on foreign exchange outflows likely to further increase in the coming months – external debt repayments, expected firming up of oil prices in 2019, rising imports and fast increasing profit/dividends repatriation - boosting or at least stabilising exports will be critical – that is maximizing any gains coming our way, even if they happen to be short-run oriented. The good news though is that partly the competitiveness issues confronted by our manufacturing seem to have been addressed by the recent devaluation, still more work will be needed by the government to ensure that power and energy inputs remain in check and that it quickly unleashes a sound industrial policy aimed at cementing these potential short-term gains.

 

The writer is an entrepreneur and economic analyst.

 kamal.monnoo@gmail.com