Boosting exports with strategic infrastructure investment in Pakistan

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Exports play a vital role in driving economic growth, creating employment opportunities and managing the balance of payments of a country. In recent years, Pakistan has faced an alarming decline in its export sector. The total exports declined by about 6% in 2015, and a further 12% in 2016. The total exports for Pakistan in 2015-2016 stood at 20,787 million US dollars, which is 4,023 million less than that for the year 2010-2011. The shrinking of the exports sector coupled with increasing imports means that the trade deficit of Pakistan has increased considerably over the last 5 years putting a huge burden on the country’s foreign reserves. The economy of Pakistan is at a critical stage and with an increasing debt burden and upcoming loan repayments, there is a need for policies that can boost exports at a swift rate.

In order to formulate effective policies, both the federal and provincial governments need to identify the potential impediments that have led to stagnant exports of the country. One possible reason for low level of exports in Pakistan is its poor infrastructure. According to the World Bank’s Logistic Performance indicator (LPI), Pakistan is ranked 69th globally in terms of trade infrastructure, well behind developing countries like India (36th), Turkey (31st) and South Africa (21st). Trade related infrastructure considered in LPI includes rail, roads, ports (air and maritime), and communication systems, all of which play a crucial role in facilitating trade both domestically and internationally.

The quality of infrastructure of a country has a significant impact on the competitiveness of its products. There is a direct relation of infrastructure with costs, time of delivery and uncertainty. Countries that have poor infrastructure are likely to have higher costs associated with transportation resulting in higher prices of their products and making them less competitive in international markets. The time dimension is important because poor infrastructure leads to an increase in time taken for transportation of goods, for example according to a World Bank report, in Pakistan the combined effect of poor infrastructure and old fleet of trucks means that, on average trucks travel at speeds of 20-25 km/h, compared to an average speed of European trucks of 80-90km per hour. Uncertainty arises because poor infrastructure increases the risk of accidents and increases the probability of delivery failure. Both uncertainty and time dimension make holding excess inventory necessary which is costly to the firms.

Road transport is the most widely used mode of freight movement in Pakistan; it accounts for more than 90 % ton-km. Therefore, properly developed extensive road networks and modern paved all weather roads are essential for low cost and high speed movement of goods. Road density measures the ratio of a country’s total road length to the total area of the country. Higher density would mean greater connectivity within the country via land and therefore would reduce costs associated with transportation of goods. It could also improve labor mobility, and can provide access to larger markets for rural producers. Higher road density can thus help increase the trade-flows of a country. As per the latest available statistics Pakistan has a road density of 32 km (per 100 sq. km of land area) which is very low compared to 140 km of India and average of 90.7km of ASEAN countries. Moreover, only 73% of these roads are paved.

The province of Punjab, being the largest contributor to the country’s GDP, needs to lead infrastructural reforms that can help boost the exports of the country. A cursory look at policy documents shows that the Punjab government realizes the importance of promoting exports as evident by its growth strategy for 2018, which has specifically set out a goal of increasing exports by 15% every year by following a strategy of export-led growth. The government of Punjab has also tremendously increased its roads development allocations in the Annual Development Program (ADP). In the ADP of FY2014-2015, only 31,560 million rupees were allocated for roads network development which has increased more than twofold to 85,917 million rupees (12% of total ADP); setting a goal however does not guarantee its successful implementation. In the past we have seen numerous instances where the government has set out targets that they have failed to achieve due to poor planning and implementations strategies. The economy of Pakistan is in a critical state and is not in a position to afford the losses from inefficient utilization of its limited resources. The government of Punjab must therefore strategically utilize the allocated money for developing extensive quality road networks in areas where it would help reduce the cost of transportation for export-oriented goods. If the allocated budget is used by the government merely to reconstruct and modify roads within the urban areas, the potential benefits for exports would be limited.

There are obviously certain caveats for this analysis. The policy of improving road network alone may not provide the required boost to exports; the policy must be used in conjunction with other measures that facilitate exports, such as easing custom procedures, establishing export processing zones, reducing cost of doing business, improving ports infrastructure (air/maritime) and providing skills training to enhance productivity in export oriented sectors.

The writer is Assistant Research Fellow at Punjab Economic Research Institute (PERI).

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