Shift­ing pat­terns

Enterprise - - Editor’s desk -

The Mid­dle East and the United States are de­creas­ing in im­por­tance as ex­port mar­kets for Pak­istan, as ex­porters in­creas­ingly tar­get coun­tries in South Asia and East Asia.

While the Euro­pean Union is still by far the largest des­ti­na­tion for Pak­istani ex­ports, South Asia – which in­cludes Afghanistan, Bangladesh, Bhutan, In­dia, Mal­dives, Nepal, and Sri Lanka – is now the sec­ond-most im­por­tant mar­ket for Pak­istani prod­ucts. The EU ab­sorbed 24.6% of Pak­istani ex­ports, com­pared to 28.4% in 2003. By con­trast, South Asia used to ac­count for just 6.3% of Pak­istani ex­ports in 2003 and is now the des­ti­na­tion for 16.7% of Pak­istan’s ex­port earn­ings.

This growth ap­pears to be led by Afghanistan, which is now Pak­istan’s sec­ond-largest sin­gle coun­try mar­ket, be­hind the US. Pak­istan ex­ported $3.8 bil­lion worth of goods to the US in 2011 and about $2.7 bil­lion to Afghanistan. The US and Canadian share of Pak­istani ex­ports has dropped from 24.7% in 2003 to 16% last year.

Per­haps sur­pris­ing, how­ever, is the grow­ing im­por­tance of East Asia – par­tic­u­larly China – as an ex­port des­ti­na­tion for Pak­istan. Peo­ple are familiar with the fact that Pak­istan’s im­ports from China have been ris­ing sub­stan­tially. Yet most seem un­aware that China is also one of the two fastest grow­ing ex­port des­ti­na­tions for Pak­istan (the other be­ing Afghanistan). Pak­istani ex­ports to China have been grow­ing at 26.3% per year for the last eight years, mak­ing China the num­ber four des­ti­na­tion for Pak­istani ex­ports, up from num­ber 13 eight years ago.

Pak­istan’s trade with China is, nonethe­less, highly un­equal and some­what colo­nial­ist in na­ture. More than three-quar­ters of Pak­istan’s ex­ports to China are raw ma­te­ri­als, with cot­ton ac­count­ing for 70% of goods leav­ing Pak­istan for Chi­nese ports. (China ac­counts for more than half of all raw cot­ton ex­ports from Pak­istan.) Mean­while, China’s ex­ports to Pak­istan – which to­talled $6.5 bil­lion last year – are mostly elec­tronic equip­ment and industrial ma­chin­ery.

An even more sur­pris­ing fact: the im­por­tance of the Gulf Arab states to Pak­istan’s ex­porters ap­pears to be de­clin­ing rapidly. The Gulf Co­op­er­a­tion Coun­cil (GCC) – com­pris­ing Saudi Ara­bia, United Arab Emi­rates, Kuwait, Qatar, Bahrain and Oman – now ac­counts for 11.1% of Pak­istan’s ex­ports com­pared to 15% about eight years ago. Much of this shift is at­trib­uted to the fact that Pak­istan now ex­ports many more goods di­rectly to In­dia, com­pared to only a few years ago, when the UAE served as a con­duit be­tween the two coun­tries.

And de­spite not granted pref­er­en­tial trade sta­tus to Pak­istan, the EU has main­tained its po­si­tion as the largest des­ti­na­tion for Pak­istani ex­ports. Within Europe, the big­gest mar­ket for Pak­istani ex­porters is Ger­many, fol­lowed by the United King­dom and Italy.

While Pak­istan’s trade bal­ance has been con­sis­tently de­te­ri­o­rat­ing over the past few years, it has not done so uni­formly. The bulk of the in­crease Pak­istan’s trade deficit can be at­trib­uted to higher oil prices, which have taken Pak­istani im­ports from the Gulf to $16.1 bil­lion in 2011, from just $3.8 bil­lion in 2003.

The data on Pak­istan’s trade pat­terns re­flects an im­por­tant point: Pak­istan is no dif­fer­ent from the rest of the world when it comes to the fact that it re­lies in­creas­ingly on ex­ports to Asia, rather than the older, de­vel­oped mar­kets of Europe and the US.

How­ever, some­what dis­tress­ingly, Pak­istan’s ex­ports do not seem to have moved up the value chain: Pak­istan’s sin­gle big­gest ex­port has re­mained the same since 1972 – raw cot­ton. Be­fore 1972, the big­gest ex­port earner for the coun­try was raw jute from what was then East Pak­istan.

And while the in­creased di­ver­si­fi­ca­tion has meant that Pak­istani ex­porters are now less vul­ner­a­ble to eco­nomic slow­downs in Europe and the US, Pak­istan is now more vul­ner­a­ble than ever to a slow­down in the Chi­nese econ­omy. In ad­di­tion, much of the ex­ports to Afghanistan are likely to begin dry­ing up once US forces exit that coun­try in 2014. The pic­ture for Pak­istani ex­ports is a lot less rosy than it first ap­pears.

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