1. Copyright © Wondershare Software 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, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009

2. Copyright © Wondershare Software Presentation Outline MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009 Characteristics of manufactured exports Trends in manufacturing Explaining the characteristics and trends Impact on human development Policy recommendations

3. Copyright © Wondershare Software Characteristics of Manufactured Exports MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009  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.

4. Copyright © Wondershare Software  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 Exports MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009 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.

5. Copyright © Wondershare Software  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. Trends MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009 Manufacturing as % of: 20052010 GDP18.318.5 Employment13.613.0 Fixed Investment22.016.2 Source: Economic Survey, GOP, 2009-10.

6. Copyright © Wondershare Software  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) Trends MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009 200020042005200620072008 Total World T&C Trade355,017456,110479,479529,509586,194613,086 Pakistan’s Total T&C Exports 6,6769,15110,69111,37611,17711,092 % of World Trade1.882.012.232.151.911.81 Source: Economic Survey, GOP, 2009-10.

7. 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 100 th and 103 rd in the enforcement of property rights and efficiency of dispute settlement legal frameworks, respectively, out of 133 countries. MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009

8. Copyright © Wondershare Software  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 Explaining the Characteristics and Trends MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009 IndicatorRanking (Out of 133 Countries) Higher Education and Training118 On-the-Job Training109 Firm Level Technology Absorption 99 University-Industry Collaboration in R&D 92 Source: Global Competitiveness Report, 2009-10.

9. Copyright © Wondershare Software  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. Explaining the Characteristics and Trends MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009

10. Copyright © Wondershare Software  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 Development MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009

11. Copyright © Wondershare Software Policy Recommendations MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009  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

12. Copyright © Wondershare Software Thank you for listening! MHHDC, 15 th June, 2010 HDSA 2009 MHHDC, 15 th June, 2010 HDSA 2009