Transcript 2008 Southern Business Expo

Manufacturing Trade
Liberalization in Pakistan,
with a Special Focus on the Textiles and Clothing Sector
Presented by: Abeer Masood,
Senior Research Fellow,
Mahbub Ul Haq Human Development Centre
MHHDC,
HDSA 2009
15th June, 2010
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Presentation Outline
Characteristics of manufactured exports
Trends in manufacturing
Explaining the characteristics and trends
Impact on human development
Policy recommendations
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software
Characteristics of Manufactured Exports
 Undiversified basket of export products: Textiles and garments accounted
for 55.26% of total exports in 2007-08.
 Unsophisticated, low value-added products: Hi-tech goods only made up
1.37% of merchandise exports in 2007. This is problematic because the share of
high-tech goods in world trade is rising rapidly.
Source: Medium Term Development Framework, GOP, 2005-10.
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software
Characteristics of Manufactured Exports
 Poor product quality: For example, in the textiles and clothing (T&C)
sector, Pakistani yarn is of poor quality coarse and medium counts and
fetches low prices in world markets.
Average Export Price of Yarn (1990-2006), $/kg
World
3.4
Pakistan
2.3
South Korea
3
India
2.6
US
3.6
China, Hong Kong
3.5
China
3.3
0
0.5
1
1.5
2
2.5
3
3.5
4
Source: UN Comtrade Database, 2009.
 Few export destinations: In 2008, 25.7% and 18% of merchandise
exports went to the EU and US alone, leaving the sector very
susceptible to shocks in a few economies.
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software
Trends
 Net manufactured exports have declined: From US$2.6 billion in
2000, to -US$3.4 billion in 2007.
 Manufacturing’s share of GDP, employment and fixed investment is
stagnant or falling:
Manufacturing as % of:
2005
2010
GDP
18.3
18.5
Employment
13.6
13.0
Fixed Investment
22.0
16.2
Source: Economic Survey, GOP, 2009-10.
The steep decline in fixed investment is of particular concern for the
future prospects of the sector.
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software
Trends
 In the Textiles and Clothing (T&C) sector, exports have fallen as a
percentage of world trade in the post-2005, post-quota period:
(US$ million)
2000
2004
2005
2006
2007
2008
355,017
456,110
479,479
529,509
586,194
613,086
Pakistan’s Total T&C
Exports
6,676
9,151
10,691
11,376
11,177
11,092
% of World Trade
1.88
2.01
2.23
2.15
1.91
1.81
Total World T&C Trade
Source: Economic Survey, GOP, 2009-10.
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software
Explaining the Characteristics and Trends
 Policy instability: Recent imposition of 15% regulatory duty on exports
of cotton yarn is a prime example.
 Industrial policy was centred on creating domestic self-reliance in
consumer products and exploiting perceived comparative
advantage.
 Poor marketing skills: Includes poor branding, labeling, certification
and standardization.
 Poor public institutions create an unfavourable business
environment: In the Global Competitiveness Index 2009-10, Pakistan
ranks 100th and 103rd in the enforcement of property rights and
efficiency of dispute settlement legal frameworks, respectively, out of
133 countries.
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software
Explaining the Characteristics and Trends
 Low investment in human resources, R&D and industry-academia
linkages:
Indicator
Ranking (Out of 133 Countries)
Higher Education and Training
118
On-the-Job Training
109
Firm Level Technology
Absorption
99
University-Industry
Collaboration in R&D
92
Source: Global Competitiveness Report, 2009-10.
 Infrastructure constraints: Some examples:
 Over a third of roads are unpaved
 Port-handling and customs procedures are lengthy and cumbersome
 Unavailability of treated water means modern machinery such as water-jet looms cannot
be adopted in the textiles and clothing sector
MHHDC,
HDSA 2009
15th June, 2010
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Explaining the Characteristics and Trends
 Energy shortages: Low energy availability cost 2-2.5% of
GDP during 2009-10. Total energy consumption in the
industrial sector fell by 11.7% between 2008-09 and 200910.
 War on terror: In 2009-10, the war-related costs to the
economy stood at 6% of GDP and led to sinking investor
confidence.
 Recent developments: In 2008 and 2009, the financial
crisis led to a decline in US imports of textiles and clothing
by 5.2% and 7.5%, respectively.
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software
Impact on Human Development
 Poverty and employment: Removal of tariffs and
quotas and reduction of subsidies to food and utilities
have increased the vulnerability of the poor. Set-backs
to the textiles and clothing sector, which employs
about 40% of the manufacturing workforce, have been
particularly damaging for employment.
 Gender dimension: There have been improvements
in women’s participation but increasing disparities in
the male-female wage-gap in the manufacturing
sector during the post-liberalization era.
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software
Policy Recommendations
 Invest in human capital through innovative solutions
 Stop supporting failing manufacturing entities;
instead, invest in improving the competitiveness of the
manufacturing sector
 Identify and develop new, more sophisticated products
 Encourage the growth of SMEs
 Promote trade links with new destinations
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software
Thank you for listening!
MHHDC,
HDSA 2009
15th June, 2010
Copyright © Wondershare Software