Fourteen years ago, in FY10, Pakistan’s top 10 destinations for goods exports included the USA, UAE, Afghanistan, China and the UK, respectively. A decade later, in FY20, the top five export destinations changed a bit. The USA remained top but was followed by China, UK, UAE and Germany. Afghanistan disappeared from the list, data compiled by the State Bank of Pakistan reveals. These five countries continue to retain their position in the same order, according to FY23 stats.

Between FY20 and FY23, export earnings from both the US and China have risen faster than from the UK, UAE and Germany. This growth in exports to the world’s two largest economies is largely attributable to our exporters’ ability to retain and increase their share in American and Chinese markets.

However, it is also partly attributable to the fact that the state of Pakistan has painstakingly maintained a balanced approach in global and regional politics, making sure that its growing relationship with China does not affect its interest in the US markets and US administration.

However, the Russian war in Ukraine and now the Israel-Palestine war, plus Pakistan’s fragile external economy, has created more complex challenges for Islamabad to back up its trade relations with the West with as much fine-tuned and balanced geopolitics as it has pursued for long.

Pakistan can focus on niche products to boost its market share in global trade

The fragility of Pakistan’s external economy continues to push Pakistan more and more towards seeking large foreign funding from China, Saudi Arabia and the UAE. But to qualify for such funding, it also needs to remain in the good books of the International Monetary Fund (IMF), where the US influence is overwhelming and is expected to remain huge even in future.

The IMF executive board recently approved a US-backed proposal for a 50 per cent increase in quota resources to be contributed by the member countries. If the board of governors okays the proposal in its December 15 meeting, it will not only add more to the lending firepower of the IMF but will also help the US to continue to influence the Fund’s policymaking.

So, logic dictates that Pakistan must gradually shift its focus from seeking emergency lending from China and the Gulf Cooperation Council countries to attracting more investment and export earnings.

But in so doing, it cannot afford to ignore the need to continue to export more to the US and the Western markets, attract foreign investment from there and remain a well-disciplined borrower of the IMF. Easier said than done. Doing all these things at the same time is too difficult for a country where foreign-sponsored militancy and terrorism are on the rise and where national politics revolve around the whims of the civil-military elite.

Nearly half of Pakistan’s goods’ export earnings come from five destinations. Diversification of export markets is as important from a sustainability point of view as retention of major markets is.

Competing with economic giants China and India in exports of traditional items is impossible in the near future due to the ever-escalating cost of production and lack of the required level of technological advancement and innovation

That is where the problem lies. Avoiding further concentrations of export revenue in just five major markets is possible only when the share of not only the next five main markets increases but also the individual share of all export markets.

Currently, Pakistan’s next five main export markets following the top five are Spain, Italy, Bangladesh, Belgium, and Afghanistan. Increasing exports to three of them — Spain, Italy and Belgium — presents the same challenges as increasing exports to the entire West does, both in terms of product diversification and quality and in terms of geopolitical policy support.

Boosting exports to Afghanistan must always be a desirable thing because of the low costs involved but this objective currently is — and may remain in future — a huge challenge because of the volatile nature of Pakistan’s relationship with Afghanistan and because of the uncertainties revolving around Kabul’s Taliban-led interim regime.

Pakistan has no such problems in the case of Bangladesh. But in this case, as well as in the case of boosting exports to other Asian countries, the main problem is export competitiveness. Intra-Asian trade is growing, opening opportunities for all regional countries to sell more to each other. But taking advantage of their growing economic and political clout, China and India remain dominant.

For others to export more within the region or to the world at large, it is important to beat — or at least come close to these two major export powerhouses — in pricing and quality of products. Alternatively, smaller Asian countries can boost their exports by capitalising on the exports of their niche products.

Competing with economic giants China and India in exports of traditional items is impossible for Pakistan in the near future due to the ever-escalating cost of production and lack of the required level of technological advancement and innovation. Capitalising on niche products is possible. But there, too, we lack miserably.

One option for Pakistan is to export more traditional items to Western Asia, including the GCC region and South-East Asian countries. But in so doing, there is a need to ensure that export growth does not get centred disproportionately on food items, particularly low-end products. That fuels food inflation at home. At the same time, the importance of normalising trade ties with India can never be overemphasised. Exploring all possible ways to export more to Iran and to the Central Asian nations is also equally important.

Published in Dawn, The Business and Finance Weekly, November 13th, 2023