Exports & industrialisation

Dr Kamal Monnoo
November 28, 2018

In principle, one can endorse that the present economic managers want to focus on the
right area of the economy: Increasing exports. To achieve this one comes across a
number of proposals, as elementary as facilitating the exporters to the rather complex
initiative of re-negotiating all bilateral trade deals where Pakistan seems to be at a
disadvantage. However, the trouble is that unless we can first create export surplus the
other steps – even though good - will just be meaningless. Pakistan’s manufacturing
sector for quite some time now has been grappling with the impact of high cost of
production and unfriendly government policies, resulting not only in closure of the
installed capacity, but also in failing to attract fresh investment to create new jobs.
Adding new factories and manufacturing has simply been unviable of late and arresting
this de-industrialisation in the economy will be the key for PTI to deliver on its promise
of increasing exports. Actually, Pakistan is not the only example where poor
governmental vision let the manufacturing slip. There is also a great deal of realisation
today in the West, especially the United States, where Trump’s policies are geared
around returning the American Industry to its glory days. The beauty of such an
endeavour is that it is a double whammy: as the home industry develops not only are
new jobs created, but also the dependency on imports automatically gets reduced.

However, the real inspiration on the ‘return-to-manufacturing’ initiative comes from

China. Surprised, as China is already hailed by far the largest global engine of industrial
production? Don’t be, because the Chinese always think beyond the present – “Only he
who keeps his eye fixed on the far horizon will find success. Vision and action go
together.” ~ Confucius. So what exactly are the Chinese planning anew now? Answer:
Despite supporting almost half of world’s production facilities on output weight age
basis, China has unleashed its 2025 vision with not only a renewed emphasis on
industry, but what they are officially calling “Return of Industrial Policy”; as if they are at
present not satisfied with their current industrial strength! The 2025 Made in China
policy was released in 2015, and the preamble of its blueprint reads as follows: “Since
the beginning of industrial civilisation, it has been proven repeatedly by the rise and fall
of world powers, that without strong manufacturing, there is no national prosperity.”
Implicit in the plan is the idea that the world is in the middle of a Fourth Industrial
Revolution where technology and automation will play a key role. In the view of China’s
industrial planners, domestic factories may be large but not yet ‘strong’. By attempting
to gain an edge in new technologies and integrating them into the manufacturing supply
chain, China 2025 aims to retain the existing capacities and at the same time add to the
same by capturing the value added and high-tech products’ international markets. While
within China there is a complete on-going shift of basic labor intensive industries from
its East to the West Coast – a move that will not only take advantage of the new OBOR
(One Belt One Road) routes being created in different countries (Pakistan included), but
will also be instrumental in eradicating poverty cum raising the living standards of its
comparatively less well-off Western population – the overall industrial plan is to in
addition identify 10 key sectors that will be the targets of the new modern China in order
to gain an even more enhanced share of the total global industry.

These sectors being: Advanced information technology; Digitally controlled machine

tools & robotics; Airplanes; Ocean equipment and shipping; Rail-transportation
equipment; Agricultural equipment; New materials; and Biopharmaceuticals and medical
equipment. The aim being, to boost research and development and the production
capacity, in all these sectors, to ultimately displace the foreign components with the
domestic ones. Add this up, and it is the most ambitious attempted market grab the
world has ever seen.

What is interesting in these modern times post 2008 financial crisis, is that China’s
industrial planning is not too dissimilar to other global manufacturing powerhouses.
Japan’s rise to dominance in industries from automobiles to home electronics would not
have happened without the strategic vision of its industrial planners at the Ministry of
International Trade and Industry and today like China, the Japanese economic
managers are talking about a fresh new wave or push to regain some of the lost
Japanese space in manufacturing. Likewise, we are already witnessing a very
protectionist mindset emerging from the US and Europe that is funnelling enhanced
public funding to shore up respective industrial competitiveness. In essence, we see
that even for the most developed economies the scale of government support can be
crucial between success and failure. With committed direct investments from the centre,
the local governments, State owned banks, and existing State enterprises, the
ownership of China 2025 is extraordinarily strong. Just in 2 years, 2016-17, Chinese
banks funded local companies to undertake mergers & acquisitions (M&A of non-
Chinese companies) amounting to $40 billion in the technology sector alone. The
Chinese Ministry of Industry and Information Technology by itself has placed $1.5 billion
at the disposal of Chinese entrepreneurs to simply locate, explore and negotiate
potential M&A – i.e. success at any cost, even if it has to be bought! While all this is
surely great for China, it obviously is a cause for concern for its trading partners
(Pakistan being one of them). And going by these developments, the lessons for us are
primarily two: a) Unless we can timely put our safeguards in place, China’s east to west
industrial swing can adversely affect our domestic manufacturing, and b) Pakistan
needs to devise its own industrial vision that visibly promotes “Made in Pakistan” – the
share of ‘domestic manufacturing’ in Pakistan’s economy, as we know, already stands
reduced to 17% of GDP from being about 20% of GDP in 2005; by the way in the late
60s & early 70s it was estimated at around 35%. More importantly, without a clear
national industrial vision that out-rightly supports home manufacturing and without a
strong governmental backing, any meaningful Industrial revival in Pakistan will only
remain a pipe-dream.

The writer is an entrepreneur and economic analyst.

 kamal.monnoo@gmail.com