The Export Promotion Bureau: Constraints to Full Effectiveness Perspective Contributed by M A Wajid Jawad, Ex-Minister of State & Chairman, Export Promotion Bureau, Government of Pakistan This year s Executive Forum focuses on the question: Is Your Trade Support Network Working?. The question has to be answered from the perspective of the exporter/the aspiring exporter, as well as, of the national export strategy-maker. The author of this research paper happens to have both the perspectives- as an established exporter of textile garments from Pakistan with 30 years good standing, and also as the ex-chairman of Pakistan s principal TPO, the Export Promotion Bureau, which works as a field department of the Ministry of Commerce. 2. The ITC/SECO have defined Network as comprising the following elements: (a) Competitiveness enhancement support to exporters: 1. Start-up and capacity development financial support. (e.g. access to capital, credit/guarantee scheme, matching grant for export marketing) 2. Start-up and export competency development support. (e.g. export incubators, advisory services, export management & specialized training support) 3. Technology acquisition support. (e.g. investment promotion, technology match-making) 4. Supply chain management support. (e.g. purchasing and sub-contracting arrangements with local SMEs and international procurement) 5. Information. (e.g. market requirement, incl. e-market, commercial opportunities, standards/quality requirements) 6. Off-shore promotional support. (e.g. commercial representation services abroad, trade fairs, trade missions, publicity) 7. On-shore promotional support. (e.g. e-promotion, incoming buyers, exhibitions) 8. On-shore capacity development support. (e.g. export consortia, forward supply linkages, product and design development) 9. Facilitation. (i.e. export/import documentation and procedures) 1
10. Advisory services. (i.e. general export management and specialized advisory support) 11. Business advocacy. (i.e. support from sectoral/export associations and chambers of commerce) (b) Mainstream trade into national economic development effort. (i.e. economic development policies-industrial and infrastructure development, value-added investment/fdi measures-and social development policies i.e. education and labour.) (c) Ensure geographic dispersion of exports. (d) Ensure trade support services to meet the demands and needs of established exporters, new exporters, potential exporters. 3. The answer to the question whether the trade support network is working will depend on, firstly, a postulation of the objectives and expected deliverables of the network, as set out in para 2 above, and, secondly, on an assessment of the achievement of the objectives/deliverables, in terms of the following parameters: (a) For the Exporter/Aspiring Exporter 1. Improved short/medium term export performance. 2. Enhanced enterprise competitiveness. 3. Increased export earnings/profitability. 4. Business contacts. 5. Geographic activity. 6. Subsidized cost-shared export effort nation-wide. (b) For the National Strategist 1. Improved medium/long term national export performance. 2. Enhanced national entrepreneurship. 3. Greater aggregate support. 4. Enhanced national export capacity. 5. Maximized value-addition. 4. The results of the export efforts, under various heads, by the exporters and by the national strategist, are to be assessed in terms of success or failure. Lastly, in the end, a best/good practice model of the structure, operation and coordination of a national trade support network for the national export strategy maker, has to be developed. 5. In the following paragraphs, in respect of each of the various elements of the existing trade support network, the ground situation in Pakistan is described and analyzed, with a record of actual performance on each count. This paper will end with developing a best/good practice model of trade support network for Pakistan. 2
6. (a) Competitiveness enhancement support to exporters 1. Capacity Development Financial Support The central bank (State Bank of Pakistan), in the national credit plan for 2000-01 (July-June), provided for a credit of Rs.93.5 billion for the private sector and public sector commercial enterprises. In the current year 2001-02, this credit ceiling has been raised to Rs.99 billion (US$1.5 billion) though still inadequate. The new credit plan identifies five priority sectors to be accorded special attention: agriculture, exports, small and medium enterprises (SMEs), information technology (IT) and construction & housing. A good part of this credit would go to the export sector, predominantly the textile sector, but sectoral ceilings are neither provided nor protected. The credit would meet the requirements both for fixed investments and working capital, and, in the case of textile sector, for purchases of cotton by the spinning industry. For the working capital requirements of the export sector, concessionary export finance is provided, outside the national credit ceiling, for all export products except cotton yarn and grey fabrics, under the State Bank s Export Finance Scheme at an interest rate of 13%, compared with prevailing commercial rate of 15%. An Export Credit Guarantee Scheme has been in place for nearly 30 years, but has been largely non-functional due to its inadequate capital base. This scheme has now been wound up and replaced by a new agency called Pakistan Export Finance Guarantee Agency (PEFGA). Established with the assistance of ADB Manila, this new Scheme will go into operation from 16 th July 2001. It will provide insurance guarantee against non-payment of export proceeds. These will be bankable guarantees that will be acceptable to the banks as collateral for extending export finance for working capital. PEFGA will offer a spectrum of separate guarantee products and services to the exporter, indirect exporter and finance communities: Specific Transaction Guarantees Whole Turnover Guarantees Group-wide Guarantees Facilities Upgrade Countertrade/Barter Bid Bond Performance Guarantees Inventory Replenishment Agency Sales Future Receivables Discounting / Factoring E-trade/EDI Post-shipment Guarantee Advisory A new export finance facility has been started up this year, with funding from ADB Manila (US$ 150 million), to provide foreign exchange funds to the exporters for import of their requirements. Backed by PEFGA guarantee, the import LCs, against FCEF funds, will give AAA rating, instead of CCC rating, for the connected import LCs. 3
EPB finances a number of export promotion schemes. Under one such scheme, to be launched this year as already announced, EPB will provide funds to small and medium enterprises/exporters for product development, quality upgrade, cost reduction measures and sale promotional efforts. For the first year, an amount of Rs. 20 million (or approx. US$ 3.0 million) has been provided for start-up which is too meager an amount to make a headway. Another scheme for capacity development envisages financial assistance to all exporters, including the textile sector but excluding the spinning and weaving sub-sectors, on a matching grant basis in the ratio of 50:50 between exporters own investment and EPB assistance. This will be for product upgradation and export marketing, including the arrangement of joint ventures between Pakistani companies and compatible foreign firms. This calls for a much larger financial outlay of the order of about Rs. 2 billion. The scheme is however not clearly spelled out. 2. Competency Development Support EPB has a network of information and advisory centres established in 12 EPB offices located across the country. EPB holds export management seminars in principal cities from time to time. EPB has funded the establishment of 35 technical training institutes for various export sectors located mostly in Karachi and some up-country. 3. Technology EPB has not played a significant role in technology acquisition so far, but technology match-making will be available in the new scheme for product upgrade. EPB provides financial support in acquisition of ISO 9000 and ISO 14000 certification. EPB has funded the establishment of a prestigious organization in Karachi, called Synthetic and Fibre Development Assistance Centre, in collaboration with Sweden. 4. Supply Chain Management Support EPB has so far had rather limited role in supply chain management support e.g. helping to provide refrigerated storage and transportation of fresh fruits and vegetables; developing a programme for ensuring contamination-free cotton for the textile sector; improvements in the Karachi Fish Harbour to ensure internationally acceptable hygienic conditions for fish catching and processing; setting up common facilities centres for sports goods, cutlery, surgical instruments, gold jewellery and gemstones, electrical appliances and electronics including assembly of TV sets and mobile phones. 5. Information 4
EPB plays a strong role in keeping the exporters informed of commercial opportunities by disseminating information on individual trade enquiries received from commercial representations abroad and other sources through its weekly information bulletin and its website. Where standards/quality requirements are indicated, these are also made available to the exporters. 6. Off-shore Promotional Support Trade enquires received from commercial representations in the Pakistan Missions abroad are publicized to exporters. EPB participates in some 35 specialized international trade fairs every year. Exporters of good standing are selected for display of their exhibits and their participation costs are subsidized. Some 10 exporter delegations are sponsored by EPB, every year, on a travel cost-sharing basis. EPB also considers individual exporter s requests for subsidizing cost of foreign publicity of export products. EPB invites foreign buyers to international trade fairs held in Pakistan annually e.g. Pakistan Leather Show, Pakistan Carpet Exhibition, Gems and Jewellery Exhibition, Defence Products Exhibitions, exhibition for Mangoes, Citrus Fruits and Dates. The major exhibitions are held in the newly constructed Expo Centre at Karachi. 7. On-shore Promotional Support EPB encourages the establishment of Export Houses, but there has been little response despite continuing efforts. A culture of creating consortia has not yet developed. EPB has funded and established the Pakistan School of Fashion Design for the textile sector at Lahore. The design and development functions are also undertaken by a number of technical training institutes functioning in Pakistan with initial funding by EPB. 8. On-shore Capacity Development EPB has contributed to simplification of export/import documentation and procedures in various government departments and agencies. EPB has also published a Handbook of Export Policies and Procedures in which all regulations and procedures about export of all products, the incentives and facilities available and the regulatory framework where applicable, have been put together for the facility and education of exporters. 9. Facilitation EPB has institutionalized an Export Facilitation Committee in which the principal export-related agencies are represented. These agencies include Customs, Sales Tax, Central Excise Duty, Pakistan International Airlines, Civil Aviation, Karachi Port Trust and any other concerned. Exporters are encouraged to bring before the Committee specific cases of export where 5
facilitation is required. Their problems are resolved in spot decisions and early dispensations. 10. Business Advocacy The chambers of commerce and other trade bodies regularly develop proposals for policy dispensations with a view to facilitating the exporters. These proposals are grandfathered by the EPB though intercessions with the concerned government agencies. 11. Advisory Services Specialized advisory support has not yet been provided by the EPB but new programmes are underway. 7. To mainstream trade into national economic development effort, no conscious and deliberate effort is made. On the other hand, there is an anti-export bias in government s fiscal and financial policies where revenue collection has been the principal objective, often at the expense of export interests. There are several on-going and completed projects for infrastructure development that would promote exports, like water, power, transportation and communications, but linkages with development of exports are not conceptualized. 8. Until recently, there was no pre-planned export strategy framework. Only export targets, with sectoral breakdown, were established, mostly by extrapolation of actual exports and past trends. No specific plans and policies were formulated to achieve those targets, on a product to product basis. The EPB has recently developed a export strategy related to specific product-wise export targets with focus on selected 24 product categories, 10 in the textile sector, 5 other core categories and 9 developmental categories. In this export strategy, special emphasis is given to geographic expansion in exports. Selected markets are identified for selected export products and targets given to Pakistan Missions in the selected market countries. This strategy is more of a wish list than a concrete plan. 9. Trade support services are currently available for all exporters across the board. Lines are not drawn between established exporters, new exporters and potential exporters. In the new Trade Policy for 2001-02, it has been announced that small and medium exporters and emerging exporters would be specifically targeted for support services. 10. From the foregoing, it will be observed that the EPB has a somewhat mixed record of achievements and failures or lack of adequate efforts. Pakistan s overall export performance in the last five years has been quite dismal. Total exports, in dollar terms, have increased from $8.7 billion in 1995-96 to $9.14 billion in 2001-02, posting an increase of about 5% over five years, or an annual average of 1%. There are many adverse factors for this dismal growth trend. It is not possible to establish any co-relation, positive or negative, between the efforts made by the EPB or the exporters and the export performance from year to year. There is an obvious need to develop measurement techniques so that actual export performance can be rated with reference to the export promotion strategies and plans. 11. Is the Trade Support Network Working? Notwithstanding the sincere efforts by the EPB to help increase exports mainly through facilitation, the painful answer to the question whether our trade support network is working is that it is not working as well as it could and should. There are a number of constraints that need to be discussed here: 6
(a) Firstly, there should be a fuller alignment between the Ministry of Commerce (MOC) and the EPB. The Ministry has overall responsibility on matters relating to foreign trade, and is wholly empowered but financially dependant on releases by Ministry of Finance, to deal with all matters concerning management and promotion of exports. The EPB operates as a field department of the Ministry and is structured to implement the policies formulated in consultation with MOC. Once the broad policy parameters have been determined, and an annual export promotion strategy developed by EPB and integrated with the MOC policy, the EPB undertakes promotional activities and operations. EPB will need to take the MOC on board for major programmes, particularly those involving financial outlays beyond the financial powers of the Chairman EPB. (b) Secondly, a useful institution exists in the form of the Federal Export Promotion Board (FEPB) headed by the President and Chief Executive of Pakistan and comprising the Commerce Minister, Finance Minister, the Chairman EPB, the Secretary MOC, Secretary Finance, Secretary Industries, Governor State Bank, Vice Chairman EPB, and a number of private sector representatives. While the annual Trade Policy is formulated in consultation with the EPB and the private sector as well as the concerned Ministries and is approved by the Federal Cabinet, major policy issues that come up during the year are placed before the FEPB in its quarterly meetings and fast track decisions are taken, even though record of implementation has been dismal. (c) Commercial representation in Pakistan Missions abroad needs to be reorganized. The Trade Commissioners are appointed by, paid by and administratively controlled by MOC. While the administrative control of the Trade Commissioners remains with the MOC for organizational purposes, they are equally responsible to the EPB for their performance in terms of the fulfillment of specific marketing tasks assigned to them by EPB. Their annual performance reports should however be initiated by EPB and finalized by MOC. (d) Fourthly, and more importantly, there should be a genuine alignment between EPB and the Revenue Departments. While the EPB has no difficulty in mounting its promotional programmes, it faces difficulties in facilitation issues due to the indifference or even resistance of the Revenue Departments for whom taxation and revenue collection has higher priority, at times at the expense of our vital export interests. The Revenue Departments need to realize that, since the country is saddled with about $37 billion external debt, and a good 40% of total revenues are dedicated to debt servicing, any increase in export earnings would contribute to reduction of external debt and the debt servicing costs. Saving of such expenditure is as good as accretion to revenue. The Revenue Departments are often persuaded to facilitate exports but there are numerous cases of over-regulation and over-control and, there are inordinate delays in clearances that hold up the process of exportation. Where taxes and duties are refundable to the exporters, on the principle of zero-rating exports, the refunds are subject to long delays, some times even refused on technical grounds. This weakens the financial liquidity of exporters. In fact half amount of export finance by SBP is stuck with the Revenue Department permanently. EPB has however not played the role of solving exporters problems as once an issue relating to exports is brought to its attention, it should not be the headache of the exporters but of EPB. 7
(e) In the EPB, there is a lack of expertise for handling regulatory, procedural and promotional aspects of exports. A professional service of officers, called the Commerce & Trade Group, is in place, but the officers are not adequately trained, nor properly motivated. For staffing the Economic and Commercial Wings in the Pakistan Missions abroad, which are prestigious positions with diplomatic status and privileges including substantial extra remuneration, atleast 50% officers are seconded from other occupational service groups for short periods of three-four years, and at the end, they go back to their own service groups, depriving the EPB of the marketing expertise acquired by them. Most of the present strength of EPB officers and employees are not adequately trained and lack clarity of the functions and responsibility. A management audit is therefore need of the hour. 12. Best Practice Model for a Trade Support Network: To be effective, the Export Promotion Bureau needs to be reinvigorated and reorganized on the following lines: (a) The EPB should be made a more vibrant organization functioning under an advisory board comprising representatives of MOC, other relevant economic ministries and departments, the State Bank and the private sector. (b) While the MOC should be a policy making organization, the EPB should have all the line functions, with full authority and responsibility. (c) The EPB Advisory Board should be headed by the Federal Minister for Commerce, and coordination between MOC and EPB should be done at the Minister s level. The trade service, comprising career officers of the Commerce & Trade Group, should function under the EPB. (d) EPB should be empowered to hire any functionaries as required. These functionaries could be inducted into the trade service on a permanent basis offering a career and also could be employ professionals on a contract basis. (e) The commercial representation in Pakistan Missions abroad should also function and report to EPB. Officers of service groups, other than the Commerce & Trade Group, should be appointed as Trade Commissioners on merit, but once appointed, they should be inducted into the Commerce & Trade Group for a specified period of not less than ten years. (f) EPB should have more financial autonomy for its personnel. (g) The Export Development Fund, generated from the realization of Export Development Surcharge on all exports, as well as additional budget for export promotion (the current EMDF), should be at the disposal of the EPB with full authority for appropriation of funds for specific promotional programmes, within the broad policy set by the MOC and according to the export strategy developed by EPB and concurred by MOC. MOC should continue to have a supervisory role. (h) The EPB should have three-year perspective plans for export promotion and annual export strategy and programmes. These strategies and plans should be cleared with MOC and agreed with the trade and industry on an institutionalized basis. To that end, a Business Executive Forum should be created on a permanent basis, with fixed two-year tenure for its members to be selected in 8
consultation with the chambers of commerce and the trade associations. This forum should be used for effective consultations with business community. (i) The annual strategy should focus on selected export products and selected market countries for each, with specific targets by values and by volumes. The country targets should be given to the commercial representations abroad. (j) The trade and industry in the private sector should be consulted, as frequently as necessary, for the identification of export products to be focused, determination of the size of market demand, the ways and means for ensuring production of adequate export surpluses, identification of infrastructure services required, provision of trade finance requirements. Within the EPB, there should be a clear cut distribution of responsibility by export products and by market countries. 9