Copyright © Wondershare Software Manufacturing Trade Liberalization in Pakistan, with a Special Focus on the Textiles and Clothing Sector Presented by:

Copyright © Wondershare Software

Manufacturing Trade Manufacturing Trade Liberalization in Pakistan,Liberalization in Pakistan, with a Special Focus on the Textiles and Clothing Sectorwith a Special Focus on the Textiles and Clothing Sector

Presented by: Presented by: Abeer Masood,Abeer Masood, Senior Research Fellow, Senior Research Fellow, Mahbub Ul Haq Human Development Centre Mahbub Ul Haq Human Development Centre

MHHDC, 15th June, 2010 HDSA 2009 MHHDC, 15th June, 2010 HDSA 2009


Presentation OutlinePresentation Outline


Characteristics of manufactured exports

Trends in manufacturing

Explaining the characteristics and trends

Impact on human development

Policy recommendations


Characteristics of Manufactured ExportsCharacteristics 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.


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.

Characteristics of Manufactured ExportsCharacteristics of Manufactured Exports


3.3

3.5

3.6

2.6

3

2.3

3.4

0 0.5 1 1.5 2 2.5 3 3.5 4

China

China, Hong Kong

US

India

South Korea

Pakistan

World

Average Export Price of Yarn (1990-2006), $/kg

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.


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.

TrendsTrends


Manufacturing as % of: 2005 2010

GDP 18.3 18.5

Employment 13.6 13.0

Fixed Investment 22.0 16.2Source: Economic Survey, GOP, 2009-10.


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)

TrendsTrends


2000 2004 2005 2006 2007 2008

Total World T&C Trade 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

Source: Economic Survey, GOP, 2009-10.


Explaining the Characteristics and TrendsExplaining 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.



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



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.


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.




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.

Impact on Human DevelopmentImpact on Human Development



Policy RecommendationsPolicy 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


Thank you for listening!


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Copyright © Wondershare Software Manufacturing Trade Liberalization in Pakistan, with a Special Focus on the Textiles and Clothing Sector Presented by: