The economy of Pakistan is gearing up to revive itself after the country was given a GSP plus status by European union on 12th December last year. The GSP Plus status will play a big role in the revival of the country’s war-torn and flood hit economy. Pakistan will benefit a lot from these duty-free privileges given that the opportunity was successfully utilized. However, the country faces many challenges, and the GSP plus status comes coupled with many conditions that must be fulfilled for the status to stay intact for the next ten years.
The GSP Plus status means a lot for Pakistan. The economy of the country has been shattered by a decade-long war as an ally of West in the war against terrorism. On top of that, the destructive 2010 floods drowned the country’s economy even more. This long awaited GSP Plus status is significant for Pakistan as it would usher in a new era of economic progress and prosperity for the country.
The status allows Pakistan to have exported 20 percent of its goods with zero tariffs, while 70 percent would have a preferential rate policy. Also, these concessions are not just confined to the textile industry. More than 600 kinds of goods could be exported duty-free after receiving this status. It has the potential to turn the country’s economic graph on an ascending curve. When Bangladesh received the same status, its exports increased from $5 billion to $25 billion. In the same way, if the opportunity were properly utilized, Pakistani exports could as well see the same or even better results.
Also, the GSP Plus status brings Pakistan at par with Bangladesh and Sri Lanka who were already enjoying the same privileges from some time. Earlier, Pakistani exporters were at a disadvantaged position as they had to pay heavy export duty on their goods. The status has given a level playing field to Pakistani exporters to compete with them.
Moreover, the duty-free privileges are going to attract many local and foreign investors towards the industrial sector of Pakistan. The country is sure to become a center of investment for foreign investors. They look for such opportunities where they could export their goods duty-free. Many Pakistani investors had gone to Bangladesh and had setup industries there to benefit from that country’s GSP plus status. Now that Pakistani exporters have at their disposal the same privileges, those deserted local investors are going to be tempted to bring the investment back into Pakistan. However, even if they will not bring back their investment, the GSP Plus status is surely going to stop any further flight of capital.
Subsequently, with an increase in the exports of Pakistan to 28 European countries, a softer image of the country will emerge. Until now, not many know Pakistan for its high-quality products that the country produce. With a wider access to Europe, Pakistan could cease this opportunity to build a softer image of the country and let it be known by the quality products that it produce.
On top of that, after having easy access to Pakistani products Europeans are going to develop a preference for Pakistani products due to a psychological effect called mere-exposure. According to this effect, people develop a preference for things merely because of familiarity to them. This phenomenon could work best for Pakistan, keeping in view the brilliant quality of its products. Europeans are going to build preference, not just for the products but the quality as well.
Back home in Pakistan, above all, thousands of jobs will be created due to the revival of the industry. There is a high rate of inflation in Pakistan. By the end of 2013, it was around 10 percent. These jobs will help equip people better fight the high level of inflation prevailing in the country. Also, the crime rate which grows due to an increase in joblessness, will surely see a downturn.
However, having explained all the dividends that Pakistan is expected to reap with its GSP Plus status, there are certainly many problems in fully utilizing the trading benefits. Pakistan has to face some tough challenges both at home and in the European market. The problems it faces at home are more challenging than the other ones.
Many tough conditions accompany the GSP Plus status. These conditions have to be fulfilled to retain the status. They stipulate that Pakistan has to ratify and effectively implement 27 conventions of the United Nations. About 17 of these UN conventions have already been ratified by Pakistan that pertain to human, labour, women, children, minority rights and freedom of expression. However, the rest have to be ratified soon. Also, it must be made sure that they are effectively implemented as an EU committee is going to oversee the progress.
Moreover, a big percentage of Pakistani industry is nonfunctional. Many industrialists have gone into other countries such as Sri Lanka and Bangladesh and have setup their industries there. In order to gain maximum benefits from the GSP Plus status, quick and drastic measures are going to be needed to encourage people to invest in this sector.
The biggest reason of the closure of many of these industries is a power shortage. It is the mother of all problems that the industrial sector face in Pakistan. Also, to add insult to injury, the government has increased electricity tariff rates to an unbearable level. Natural gas which is a cheaper alternative to electricity, is also non-existent. The industry could somehow bear the otherwise unbearable high power tariff rates, but it can’t survive the long and persistent power blackouts.
Additionally, European economies are in a recession at the moment. In a recession, the purchasing power of the people gets significantly reduced. It is thus is going to be a big problem for Pakistan in getting maximum benefits from its GSP Plus status.
In addition to a recession in European economies, Pakistan has to compete against tough competitors like Bangladesh and Sri Lanka. Though the GSP Plus status has provided Pakistan a level playing field, but still, both of these countries have had this same status from long time. They have established a firm base there. Buyers do not easily change their preference. So Pakistani products have to compete against all these odds.
Another problem is that Pakistan’s leading trading partner is United States, especially for textile exports. Pakistan exports about 55 percent of its merchandise to US, while some 25 to 30 percent to European Union. Also, buying capabilities of both of them differ significantly. US tends to place big orders, while EU places small but usually continuous orders. Pakistani exporters have to readjust to that.
In order to gain maximum benefits from these duty-free privileges, Pakistan will have to take some quick and important steps.
First of all, urgent measures have to be taken to fix the power shortage problem. Though it is not the kind of problem that could be fixed in a short time, but still, there are certain measures that could be taken to help alleviate it. The most speedy and viable way would be to complete the Iran-Pakistan gas pipeline project. Iran has already completed its share of the pipeline to the Pakistani border. All Pakistan has to do is to complete its own share of it. It could enable Pakistan to generate up to 4000 megawatts of electricity as soon as the pipeline is completed.
Secondly, Pakistan must seriously implement all the 27 UN conventions. The continuance of GSP plus status is conditioned with the successful implementation these conventions. Although the government has formed a special working group to track progress of the ratification and implementation of these conventions, it has to be effective one. It must not be like those typical committees of Pakistan, which are formed for no other reason but to deceive and to employ delaying tactics. Because if it is, in this situation, no one but Pakistan is going to be deceived.
And finally, Pakistani products are known for their high quality. Government must ensure that level of quality is maintained. Only those products which would have maintained a certain threshold of quality should be allowed for export. Also, it must be a recurrent practice to check products for their quality. Because, once consumers are alienated from a product due to its bad quality, it becomes very hard to restore their confidence in it.
In conclusion, the ten year GSP plus status for Pakistan by the European Union is a blessing for the country. It will revive the industrial sector of Pakistan and create thousands of new jobs for the people. However, there are many challenges being faced by Pakistan to fully avail all benefits from its GSP Plus status. But with dedication and an unflinching resolve on part of the government, these problems could easily be solved.
