High Trade Costs Are Causing Problems for Pakistani Exporters

Pakistan must reduce its trade costs by enhancing productivity which would enable it to grow sustainably, according to World Bank (WB) Senior Economist, Gonzalo Varela.   On Pakistan’s state of trade, he said the country has a decent number of exporters but they’re small. He observed that the cash-strapped economy has limited integration in Global Value Chains (GVCs), and the cost of doing trade is high. Underlining Pakistan’s profile compared to other economies in the region, he said the country fares well in terms of share of exporting firms, which stands at 14 percent. “Share of exports of these firms is at 5% comparable w/ region and world,” he pointed out. Further addressing the matter at hand, Varela also highlighted that the main challenge faced by Pakistan is its exporting firms are small, resulting in small exports. “Average exporter ships 1.4M compared to BGD’s 3.8M!” he added. Another challenge is Pakistani firms’ limited integration in GVCs, visible in the limited share of imported inputs used in production. Less than one in five firms use imported inputs, compared to one in three in South Asia (SAR), and more than one in two in the world. Varela said the limited use of imported goods is a problem because they “help with technology transfers and boost productivity & growth”. He pointed out that when the costs of importing inputs increase by 1 percent, then factors such as Total Factor Productivity (TFP), labor productivity, sales, and wages fall. “Part of the limited integration of Pakistan in GVCs is a story of trade costs. One element of these – delays in customs are reported by firms as a challenge,” the researcher added. In his final remarks, Varela emphasized that trade continues to be an important agenda for Pakistan to grow sustainably through productivity increases. Reducing trade costs is the way forward, he concluded.