THE financial year 2013-14 ended with merchandise exports of $25.13bn, showing a paltry growth of 2.75pc from $24.8bn in financial year 2010-11. These exports have been hovering around $23-25bn over the last four years, and this stagnancy reflects a structural weakness in the economy.

The composition of the export structure is heavily tilted in favour of consumption goods. Within this group, the share of textiles is around 55pc. The country exported around $13.75bn worth of goods in FY2013-14, up 5.3pc from FY2012-13.

Pakistan connects to the international textile markets at the lower end of the value chain. These exports comprise mainly low value-added goods, with medium value-added goods having a slight share. These low-value goods reflect the lack of ‘product sophistication’. During a recession, the purchasing power of the consumers goes down, and they can afford to buy cheap goods and in lesser quantities. Hence, the less sophisticated goods cannot fetch precious foreign exchange under the current global economic conditions of low growth.

One notable exception is the petroleum group, whose exports fetched precious foreign exchange of $720m in 2013-14

The US and EU are the major trading partners of Pakistan in terms of textile exports. These two markets capture bulk of the country’s textile exports, and it shows the lack of ‘geographical diversification’.

Moreover, this also shows that the exports remain contingent on the historical event, ‘quota’. Even the post-quota regime could not bring about a meaningful change to the industrial structure in general, and the export structure in particular.

Food is also a part of the consumption goods sector, and its exports declined by 2.9pc in the outgoing financial year. This group usually reflects the performance of the agriculture sector. The negative growth shows that our farm sector is not producing appreciable exportable surplus. This surplus is significant from the point of view of foreign exchange, as well as industrialisation. The low growth of this sector is due to lower output yields, reflecting lower agriculture productivity.

The exports of the other manufacturing group declined 9.5pc in FY2013-14. This category comprises carpets, sports goods, leather goods, footwear, surgical, cutlery, chemical, cement, engineering goods etc. The export performance of surgical, chemical and engineering goods improved slightly. These sub-sectors produce medium value-added products.

However, their contribution to foreign exchange earnings is less owing to low output. The overall decline in exports of the manufacturing sector does not bode well for the state of economy and manifests itself in the phenomenon of ‘de-industrialisation’.

One notable exception in the composition of the export structure is the petroleum group, whose exports fetched precious foreign exchange of $720m in 2013-14. This shows a meaningful improvement in the production and exports of crude and petroleum top naphtha. Yet, petroleum top naphta also falls in the category of low to slightly medium value-added good, and its contribution to foreign exchange is minimal.

The cumulative share of the agriculture and industrial sector in GDP is around 42pc, while the share of the services sector is around 58pc. Historically, the structural change took place from agriculture to services sector in the last four decades. The export structure is mainly dependent on the cumulative share of 42pc of agriculture and industrial sector. There is a need to enhance this cumulative share to get quantitative expansion in exports, which is only possible through a deliberate structural change from low value-added services to high value-added industrial products.

In a nutshell, the overall export performance of merchandise goods has been range-bound in the last four years, and our dollar-earning capacity is mainly dependent upon these consumer goods. The exports are less diversified and sophisticated, and too dependent on a few geographical areas. Besides, low agriculture productivity impacts farm exports. The composition of exports heavily favours consumption goods, which cannot bring precious foreign exchange.

Pakistan is vulnerable to frequent liquidity or balance of payment crises. A significant contributing factor in these crises is the structural weakness in the economy in general, and stagnant merchandise export performance in particular.

The writer is a PhD in Economics from the School of Business, University of New South Wales, Canberra, Australia

Published in Dawn, Aug 4th, 2014