Commodity composition of foreign trade

2018-05-22T22:55:55+05:00 Yusuf H. Shirazi

With important structural changes in Pakistan’s economy, the commodity composition of the country’s imports, as well as exports, has transformed. At the time of independence, the country had no industrial base. Imports thus consisted mainly of consumer goods, of which the most important were textiles and primary goods, such as, cotton, wool, hides and skins – among others.

KOREAN BOOM AND BUST: During the Korean War boom, there was a considerable capital accumulation in the commercial sector and after the busting of this boom the liberal import policy in respect of consumer goods had to be abandoned. This was the ideal setting for putting up consumer goods industries with the help of the commercial capital. This trend towards import substitution resulted in a systematic drying-up of imports of consumer goods and stepped up the imports of machinery - capital goods.

PAK RUPEE DEVALUED: Gradually, the position of Pakistan had become rather critical due to increasing domestic processing of raw-materials that formed the country’s staple exports. On the other hand, the home market was found to be extremely limited for the recently developed manufactures, which were thus in dire need of an alternative external equilibrium. Pakistani rupee was accordingly devalued as a signal for a temporary switch over from industrial expansion to industrial consolidation and to enable the growing domestic manufactures to make their debut in the competitive export market. Imports of industrial machinery were also sought to be discouraged through the clamping of customs duties. The export-boosting effect of devaluation of Pakistan’s rupee was extremely short-lived. Food shortages necessitating imports of food grains had also raised their ugly head at least in part due to a substantial shift of rural population to the newly emerging urban industrial centers. Many liberal export concessions had to be offered. Domestic manufactures had, however, by now moved on from their earlier role of import-substitution to a new one of export orientation, although they were having a rather difficult going in export markets not only due to higher costs but also due to tariff, quota and other barriers, particularly those put up in the developed countries against the manufactures of the developing countries.

EXPORT BONUS SCHEME: Accordingly, Pakistan’s foreign trade entered into a new phase with the inauguration of the Export Bonus Scheme and massive inflows of foreign aid, which combined to give a semblance of external equilibrium to the economy. Exports of manufactures now increased virtually rapidly and imports of capital goods and industrial materials became somewhat easier. The export barriers for Pakistan’s exports became even more stringent.

PROBLEM OF PER CAPITA INCOME: Many of the characteristics of Pakistan’s foreign trade are conditioned by the low per capita income in the country, a problem shared by the entire developing world. Gross national product per capita is low for the developing world as compared to the developed countries. Pakistan, with its comparable figure, comes low even on the scale of the developing world. Added to this low purchasing power is the problem of its mal-distribution, shared by Pakistan with most of the developing world.

Due to the low purchasing power, the domestic market is very narrow. Optimum sized industrial plants, assuring low cost of production, are thus not feasible. Even the smaller sized plants cannot sell all their output in the domestic market. Their costs are thus raised still further and they must sell in the highly competitive export market despite their high cost.

The mal-distribution of the purchasing power, particularly in the rural sector, results in an intense demand for cars and other items of luxury consumption side by side with a deficiency of effective demand for items of mass consumption.

The present exports are normally commodities and raw materials – cotton, cotton yarn, rice and semi manufacturers, textiles, apparels, support yarn which do not lag behind in quality and generally competitive. Recent entrants are also tractors and motorcycles. On import side are machinery and technology. Joint ventures are quite welcome in fields like oils, gas and generally minerals exploration, which have tremendous scope. This include oil, gas and gold and coal mines which if properly followed will change the shape of Pakistan economy from developing to developed economy in due course of time.


The writer is the Chairman of the Honda Atlas group of companies.

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