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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.

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  1. Manufacturing Trade Liberalization in Pakistan,with a Special Focus on the Textiles and Clothing SectorPresented by: Abeer Masood, Senior Research Fellow, Mahbub Ul Haq Human Development Centre MHHDC, 15th June, 2010 HDSA 2009

  2. Presentation Outline MHHDC, 15th June, 2010 HDSA 2009

  3. 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, 15th June, 2010 HDSA 2009

  4. 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. 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, 15th June, 2010 HDSA 2009

  5. 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: The steep decline in fixed investment is of particular concern for the future prospects of the sector. Source: Economic Survey, GOP, 2009-10. MHHDC, 15th June, 2010 HDSA 2009

  6. 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) Source: Economic Survey, GOP, 2009-10. MHHDC, 15th June, 2010 HDSA 2009

  7. 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, 15th June, 2010 HDSA 2009

  8. Explaining the Characteristics and Trends • Low investment in human resources, R&D and industry-academia linkages: • 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 Source: Global Competitiveness Report, 2009-10. MHHDC, 15th June, 2010 HDSA 2009

  9. 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 2009-10. • 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, 15th June, 2010 HDSA 2009

  10. 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, 15th June, 2010 HDSA 2009

  11. 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, 15th June, 2010 HDSA 2009

  12. Thank you for listening! MHHDC, 15th June, 2010 HDSA 2009

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