One of the premier goals of the incumbent government since it has come into power has been fixing Pakistan’s endemic balance of payments issue. This near single minded purpose to reduce the current account deficit does make sense in many ways.
A country’s balance of payments tells you whether it saves enough to pay for its imports. It also reveals whether the country produces enough economic output to pay for its growth. So it is not a stretch to say that focusing on making the numbers better would help the economy in the long-term. The problem here is that a lot of the times when bureaucrats are assigned the duty of managing a problem like this, they begin suggesting quick fixes that will immediately give a cosmetic makeover to the numbers.
However, while this may make things look better, they do not always have the desired lasting impact. The government’s current approach has been to adopt a pro-export policy in which it encourages and gives benefits to manufacturers capable of producing products to export. Now, more exports mean we are earning money that we can then spend on buying imports, but the government has ignored another important avenue that could act as a major catalyst to this problem – import deletion.
The concept of import deletion is that instead of (or at least in addition to) focusing on making products that can be exported to other countries, the import bill be focused on and items that can be produced locally be deleted from the import bill. A number of different people have suggested this strategy, and the most recent proponent of the concept has been the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM).
PAAPAM is an association of more than 600 SME units involved in the production of automotive parts. Members of the association produce an impressive range of products from metals, to rubbers and plastics. In a recent letter to the Federal Minister for Industries and Production, Hammad Azhar, the association has asked that the government meet with them to discuss the possibility of import deletion of industrial replacement parts, in addition to the automotive parts, through public-private partnership.
The suggestion is a common sense solution to a problem that is one of the government’s pet issues. Even more so, the formula being suggested by the PAAPAM is one that can apply not just to their industry, but across the board.
Essentially, what this would look like is the government declaring that it is going to stop importing, for example, Pakistan Railways has a long list of critical parts that is on their import list which can easily be replaced by local vending industry saving millions of dollars to the exchequer. Similarly, there would be hundreds of such products which can be indigenized for other public sector bodies, corporations and industries . But before deleting this product off the import bill, the government needs to make sure that there are local producers that can make products of the same quality and sell them.This is where PAAPAM comes in.
There are, currently, quite a few industries that are capable of producing products that Pakistan is importing almost exclusively . The only question is, if they are capable of producing these products, why do they not simply begin producing them? The problem is that the government shows little interest in these, and normally shelves these products7 because of bureaucratic red taping. In the experience of the PAAPAM, many of their members have put in significant effort, and investment in making these products only to be rejected by uninterested segments of the government that use flimsy excuses to dismiss their products. The government must consider this vending industry at par with the exporting industry in terms of support and concessions. A paradigm shift in the bureaucratic mind set is a big ask for sure, but worth a shot.
This is a simple issue of the government being stuck in its ways, something it will have to snap out of if it is to ever achieve the lofty but noble targets it has set for itself with regards to the balance of payments problem. How do organizations like PAAPAM propose this problem be solved? Simple, through public-private partnership.
A public–private partnership is a cooperative arrangement between two or more public and private sectors, typically of a long-term nature. In other words, it involves government and business that work together to complete a project and/or to provide services to the population.
What has happened by this point is that these industries and associations have lost faith in the government. And they have a point, unless you have connections or are lucky enough to meet a forward looking person in charge, chances are that they will be more than happy rejecting your product and continuing to import freely and make the import bill balloon. However, if the government were to throw its hat in the ring and provide certain guarantees to these producers, it would mean that they would be accountable to someone and the government would actually be interested in solving the problem.
In the case of the PAAPAM, such an arrangement is entirely possible because the members of the association have actually managed some impressive feats. One of the hopeful signs has been that over the years, these SMEs have successfully learnt the science of reverse engineering technology and now are capable of producing products of the same quality at home. Under this process, they acquire a small number of samples of the product in question, deconstruct it, and in the process figure out its design plans and through this learn how the production process works. If they can do this for enough products, and the government agrees to take their hand in public-private partnership, the association could very well make a significant dent in the import bill by simply taking these products off it. And eventually, if production can be ramped up, the excess can then be exported.
Here, the association has come to the government with a plan. Ideally, it should be the government approaching producers to take part in such partnerships. However, in this case, where the PAAPAM has come to the government with a detailed plan, no response has been received as of yet. The government would do well to at least hear them out.