Pakistan is largely multilingual, multi-ethnic and multicultural society. The present Pakistan territory has been occupied and settled by many different rulers, each of whom has left their imprint on the current inhabitants of the country. Some of the largest occupying elite were the 'Aryans', Persians, Arabs, Turks, Mongols, Afghans, Buddhists and British.
Islamic ideology was leading movement of Pakistan creation, and 95 percent population of the country is Muslim, it is therefore Islam is the official religion of the country and his widely practice in social life, living, food and communication.
Pakistani culture can be called as "Mixed Culture". Although the majority of people in Pakistan are Muslims by birth and faith, even there is a strong influence of Hindu (Indian) culture on the present Pakistani culture because of centuries long living together under a single state. The shadows of this influence are quite visible on the marriage ceremonies and festivals in Pakistan.
Pakistani society is a "Male Oriented Society", where they are given full protection and great respect.
The family is headed by a male member, usually the oldest male member of the family guides the other members. Old people are given positions of prestige, honor and respect in Pakistani culture.
Dress in a Muslim society like Pakistan is designed and intended to cover human body, as nudity is prohibited in Islam. So, people of Pakistan prefer to wear simple dresses according to their climate.
Cricket, Hockey, Football, squash, badminton, and wrestling are the major sports in Pakistan.
---Page | 12 Chapter 2
THE ECONOMY OF PAKISTAN
2.1. SHORT POLITICAL ECONOMIC HISTORY OF PAKISTAN:
At the time of independence in 1947, Pakistan had 30 million people with per capita income of US$ 100 approximately. Agriculture accounted for almost 50% of economic output with hardly any manufacturing in the country. In addition, from 1947 to 1958, four governments were changed in ten years’ time period, due to which no clear economic or political policy could be made and Pakistan had a very poor economic growth in that period.
In October 1958 Military Chief General Ayub Khan took and brought a new era for development in Pakistan. Economic and social reforms were high on Ayub’s agenda with proper economic planning.
Economic performance in the 1960s with GDP growth of 7% per annum during the 1960’s economic performance compared to the previous decade was the result of both massive increases in investment, technological breakthroughs in agriculture and; better and more coordinate economic policies. Hence, General Khan's era is called the 'decade of development.' Since then, no such spurt of development has been witnessed in Pakistan. In his tenure, Pakistan implemented Second Five-Year Plan (1960-65) agriculture led Industrialization successfully which surpassed its major goals and targets.
Then, the second democratic era of Zulfikar Ali Bhutto (1972-76) through nationalization of industry policy brought all major industry to Government control. It shattered the foreign investors’ confidence on sustainability of country’s economic policies and added inefficiency to national economy as doing business was not bureaucratic or government job. Still Pakistan is suffering aftermaths of that policy as Public Sector Enterprises are causing hemorrhage on average US$ 5 billion from the national exchequer at present.
The Second military period of Zia-ul-Haq (1977-88) was another period of economic growth averaged 6.6% per annum. In this period Pakistan adopted liberal export oriented economic policies by providing incentives to the invertors.
While 1990s regime with four democratic governments in ten years was another political failure resulted weak economic growth period. The economic situation became more adverse when US imposed Economic Sanction due to 28 May 1998 nuclear tests.
Page | 13 From October 1999 to August 2008, another military dictatorship by General Pervez Musharraf ruled Pakistan for eight years. It was consumption based economic growth on average 7 percent 2004-08 and macroeconomic stability era led by liberalized foreign investment policies and privatization.
From 2008-2013 first time any democratic government completed its five-year tenure, however, on economic front there was not that much improvement due to energy crisis and government lack of well to continue the economic reform agenda.
In result of general election 2013, new democratic government led by Prime Sharif came into power with economic recovery and resolving the energy crisis at top priority agenda. First year of tenure government performance on economic from is largely on track like GDP in fiscal year 2014 grew by 4.14 %, Large Scale Manufacturing (LSM) grew by 4.2 %, mainly due to addition of 1700 MW power in the system since July 2013. Government revenue grew by 16.44 %, forex reserves after touching about US$ 8 billion in February 2014 returned back to a safe mode of US$ 14.3 billion as in August 2014, stock exchange showed an increase of 45 % in last one year. In the same period ifis confidence on positive economic attitude of the present government resulted inflow of $ 1.1 billion from IMF, $ 400 million from ADB, selling 3 / 4-G licenses of $ 1.2 billion, floating $ 2 billion $-based Euro bond in the international market and the divested the shares of United Bank Ltd and Pakistan Petroleum Ltd amounted US$ 700 million under privatization program. Pakistan-China Economic corridor multipurpose project with expected $ 32-34 billion Chinese assistance is one of the main initiatives taken by Prime Minister Sharif government.
2.2. CURRENT ECONOMIC REVIEW:
Pakistan has consumption economy in nature. By consumption economy means an economy more focused on borrowing, government spending and imports; and less concerned on domestic production to fulfill domestic needs which may assure a sustainable and viable economic cycle for the economy. The base of the economy is still mainly depends on the agriculture sector which provides raw materials to the industry and engage the population under services sector.
Periods of internal political disputes, war on terror in the neighboring Afghanistan, energy crisis and low levels of foreign investment have resulted the slow economic growth and underdevelopment in Pakistan.
Agriculture sector accounts for more than one-fifth of output and it engages two-fifths of the total employment. Textiles and apparels account for more than half of Pakistan's export earnings.
According to official statistics, unemployment remained at 6% in fiscal year 2012-13, but this fails to capture the actual picture, because much of the economy is informal and underemployment remained very high. Over the last decade, low growth and high inflation, led by hike in food prices, have augmented the amount of poverty in the country. The rupee to dollar parity has depreciated more than 40% since 2007.
Page | 14 Remittances from overseas workers remained about US$1 billion a month since March 2011. However, after a slight current account surplus in fiscal year 2011 (July 2010/June 2011), Pakistan's current account is facing deficit since the last two years, augmented by higher prices for imported oil and lower prices for exported cotton. Pakistan remained stuck in a low-growth trap, low-income, with GDP growth averaging about 3.5% per year from 2008 to 2013 while energy crisis alone contributing about fall of 2-3 percent in GDP growth.
Pakistan needs to address long standing issues related to government revenues and energy production on immediate basis in order to expedite economic growth that will be necessary to employ its growing and rapidly urbanizing population, more than half of which are under the age of 22. In addition, Poor condition of education and healthcare, climate change and natural disasters remained the serious challenges for the government of Pakistan.
2.3. ECONOMIC COMPOSITION OF PAKISTAN’S ECONOMY
The economy of Pakistan is consists of three main sectors: agriculture, Industrial and services sector.
Among these three sectors, agriculture sector is the most important as it provides food items and raw materials for industrial units.
AGRICULTURE SECTOR accounts for 21.4 percent of GDP and 45 percent of employments are engaged with this sector. Moreover, it contributes in the development of other sectors as a supplier of raw materials to industry as well as a market for industrial products and it is also the core source of foreign exchange earnings. The agriculture sector consists of various sub-sectors which include crops, livestock, fisheries and forestry. The major crops included wheat, maize, rice, sugarcane and cotton. Livestock is an important sub-sector of agriculture, which accounts for 55.44 percent of agriculture value addition with its share in GDP as 11.9 percent. The fisheries sector having 2.05 percent share in agriculture in FY 2013-14.
INDUSTRIAL SECTOR contains 20.9 percent of GDP having sub sectors: manufacturing, construction, mining & quarrying and electricity and gas distribution. This sector possesses immense importance as it engages the labor force and processes the raw materials to fulfil the domestic demand and earn revenues through exports.
The manufacturing sub-sector captured 63 percent share of the overall industrial sector. The construction sub-sector sector is one of the potential components of industrial sector having 11.42 percent share in overall industrial sector. The mining and quarrying component comprises 14.74 percent share of the overall industrial sector.
Page | 15 Pakistan has huge and economically exploitable reserves of coal, rock salt, limestone and onyx marble, china clay, dolomite, fire clay, gypsum, silica sand and granite, as well as precious and semi- precious stones.
SERVICES SECTOR has emerged as the main driver of economic growth and playing a vibrant role in sustaining economic activities in Pakistan. The services sector makes to 57.7 percent of GDP in FY13. The services sector further consists of the sub-sectors: Transport, Storage and Communication;
Wholesale and Retail Trade; Finance and Insurance and Housing etc.
2.4. MAJOR INDUSTRIES OF PAKISTAN:
The economy of Pakistan is relying on various industries which are contributing in the GDP and development of the country through multiple channels. Few industries are given as under which are relatively more important due to their significant shares in national income.
TEXTILE INDUSTRY: Textile being the most important industry of Pakistan making 60 percent in national exports. It has long production chain, with inherent potential for value addition at each stage of processing, from cotton to ginning, spinning, fabric, processing, made-ups and garments. The sector contributes nearly one-fourth of industrial value-added, provides employment to about 40 percent of industrial labor force and accounts for 8 percent of overall GDP. However, in spite of being the 4th largest producer and 3rd largest consumer of cotton worldwide, Pakistan’s comparative advantage is largely pre-empted by low value added exports as reflected in country’s 12th rank in world textiles exports.
AUTOMOTIVE INDUSTRY: The local auto industry contributes nearly 16% to the manufacturing sector, which comes to about 2.8% of the GDP. And average ownership rate in Pakistan is about 10-12 cars per 1000 persons. Pakistan auto industry is highly tariff protected for CBU (completed build units) to protect the local manufacturers dominated by Japanese brands SUZUKI, TOYOTA and HONDA. They are producing cars, LCVs, jeeps, buses, trucks, tractors, rickshaws and motorbikes but their production is limited and substandard against the huge demand due to above explained reasons.
FERTILIZER INDUSTRY: The fertilizer industry being supplier of one of the key inputs for crop production has substantial role in the agricultural growth of the country. There are nine urea manufacturing plants in the country, which are running on its half against overall production capacity of 8,965 thousand product tones per annum due to short of natural gas in the country while the national demand was 6000-7000 thousand tons per annum in FY 2013-14.
Page | 16 VEGETABLE GHEE AND COOKING OIL INDUSTRY: At present, over 150 vegetable ghee and cooking oil mills are operating in Pakistan and mainly running on imported raw material.
CEMENT INDUSTRY: Pakistan is among the top 20 leading cement producers and top 5 leading exporters of cement in the world. There are 29 companies currently operating under the cement industry in Pakistan. The cement industry has continued to grow and posted over 2.7% growth in the fourth quarter of 2013-14. Pakistan cement is being exported to Afghanistan, South Africa, Iraq, India, Sri Lanka, Tanzania, Djibouti, Mozambique, Sudan and Kenya.
Page | 17 Chapter 3
3.1. TRADE POLICY OF PAKISTAN:
Pakistan is one of the founder Members of the World Trade Organization (WTO) since 1995. Pakistan is following an export led growth strategy and under such policy open market access has vital importance.
The Strategic Trade Policy Framework 2012-15 (STPF-2012-15) provides trade policy roadmap. It is the 2nd Strategic Trade Policy Framework (STPF) of its kind followed by STPF 2009-12.
The major trade policy objectives given in STPF 2012-2015 included:
Focus on regional trade
Strengthening of the institutional framework for promotion of exports,
Creation of regulatory efficiencies
Export development initiatives
Increase exports from less developed regions of Pakistan
Promotion of domestic commerce
Strengthening the monitoring and evaluation mechanism.
The ministry of commerce, Pakistan has finalized Tariff Protection Policy to create a competitive environment through certain reforms:
Ensure conformity to international agreements and practices
Promote domestic and foreign investment
Create level-playing field for Pakistani firms in international as well as domestic markets.
Cater to the changing needs of Pakistan’s economy
Create an enabling environment to pursue the legitimate goal of industrialization in Pakistan
Moving forward on STPF, the following measures have been initiated by the government of Pakistan;
- Establishing Pakistan Land Port Authority : to strengthen regional trade by adopting the following measures:
Trade integration with South Asia, China and the Economic Cooperation Organization countries is likely to increase the volume of trade flows across Pakistani land borders.
Pakistani borders at land ports lack world class trade facilities. In order to transform the land ports into efficient facilitators of trade while simultaneously being responsive to security issues and smuggling, human.
Page | 18 - Setting up of Exim Bank:
With the help of provincial governments, this bank would not only provide export credit, it would also provide supplier’s credit and export credit guarantees.
- Promoting of services sector exports:
To tap the enormous potential of export of services, especially to Asia, it has been decided to establish a Services Trade Development Council in collaboration with the relevant sectors.
- Creating regulatory efficiencies :
A Resource Management Unit in the Ministry of Commerce and an International Trade Dispute Arbitration Council will be established.
It would give the country a more efficient, time saving and relatively inexpensive mechanism for trade dispute resolution.
3.2. GLOBAL EXPORTS AND IMPORTS OF PAKISTAN:
Pakistan is facing consistent trade deficit since its independence. This trade deficit remained US$ 22.2 billion for the year 2013. Pakistan’s import bill is of US$ 47.07 billion against the exports of US$ 24.87 billion in 2013.
Looking at the export basket of Pakistan it comes forward that more than half of Pakistan’s exports comprise of products belonging to textiles and apparel group with export value of US$ 13.97 billion. As Pakistan is agriculture based economy so 2nd major chunk of Pakistan’s exports consist of agricultural products making about one-fourth of the total exports with export value of US$ 5.32 billion. The other main products groups in the import basket include Mineral Products, Metals and Manufactured Articles Made Mostly of Metal and Non - Consumable Animal and Plant Products with export value of US$ 1.54 billion, US$ 1.49 billion and US$ 1.35 billion respectively. The detailed table of Pakistan’s imports and exports is given as under:
Table 3.1: Exports and Imports of Pakistan to the World
Values in US$ Billions Product Groups Exported value in 2013 Imported value in 2013
Agricultural Products 5.32 4.87
- Percentage Shares 21% 10%
Chemical and Related Products 0.82 7.38
- Percentage Shares 3% 16%
Metals and Manufactured Articles Made Mostly of Metal
- Percentage Shares 6% 25%
Mineral Products 1.54 15.55
-Percentage Shares 6% 33%
Page | 19 On the import side, Mineral Products are the top imports of Pakistan under which Pakistan used to import petroleum products. The import shares of this group are 33 % with import value of US$ 15.55 billion. Metals and Manufactured Articles Made Mostly of Metal is the group with 2nd highest imports which makes on forth of the total imports of Pakistan with import value US$ 11.64 billion. The other main imports of Pakistan include Chemical and Related Products, Agricultural Products and Other Highly Manufactured and Special - Purpose Goods with imports value of US$ 7.38 billion, US$ 4.87 billion and US$ 3.47 billion respectively.
3.3. BILATERAL TRADE BETWEEN PAKISTAN AND THE REPUBLIC OF KOREA:
Pakistan has bilateral trade of 1.103 billion with Republic of Korea. The trade balance remained largely in favor Republic of Korea where Pakistan’s imports from Republic of Korea remained US$ 729.79 million and Pakistan’s exports to Republic of Korea remained US$ 373.23 million in 2013.
Table 3.2: Bilateral Trade between Pakistan and Republic of Korea
Values in US$ millions
Agricultural Products 128.3 2.12
- Percentage Shares 34% 0%
Chemical and Related Products 3.18 253.12
- Percentage Shares 1% 35%
Metals and Manufactured Articles Made Mostly of Metal 26.8 332.67
- Percentage Shares 7% 46%
Mineral Products 44.69 50.11
-Percentage Shares 12% 7%
Non - Consumable Animal and Plant Products 1.35 0.92
- Percentage Shares 5% 2%
Non - Metallic Mineral Products 0.06 0.25
-Percentage Shares 0% 1%
Other Highly Manufactured and Special - Purpose Goods
-Percentage Shares 1% 7%
Textiles and Apparel 13.97 3.00
- Percentage Shares 56% 6%
All products (Total) 24.87 47.07
-Percentage Shares 100% 100%
Source: Authors’ own calculations based on ITC Data
Page | 20
Non - Consumable Animal and Plant Products 33.02 12.91
- Percentage Shares 9% 2%
Non - Metallic Mineral Products 0.99 3.65
-Percentage Shares 0% 1%
Other Highly Manufactured and Special - Purpose Goods 5 8.31
-Percentage Shares 1% 1%
Textiles and Apparel 131.35 66.57
- Percentage Shares 35% 9%
All products (Total) 373.33 729.79
-Percentage Shares 100% 100%
Source: Authors’ own calculations based on ITC Data The top imports of Pakistan from Republic of Korea are Metals and Manufactured Articles Made Mostly of Metal, Chemical and Related Products and Textiles and Apparel with export value of US$
332.67 million, US$ 253.12 million and US$ 66.57 million respectively. The other import items and their import shares in the total Pakistan’s imports from Republic of Korea are given in the table 3.2.
On the exports side, Pakistan leading exports to Republic of Korea include Textile and Apparels, Agricultural Products and Mineral products with export value of US$ 131.35 million, US$ 128.30 million and US$ 44.69 million respectively. Other import items are given in above table with their import values and import shares.
3.4. LEADING 15 TRADING PARTNERS OF PAKISTAN:
The table 3.3 below shows the top 15 trading partners of Pakistan along with trade balance with the given partners. Out of 15, there are only four countries with which Pakistan’s trade balance is positive, otherwise with the remaining eleven partners Pakistan is facing trade deficit.
Table 3.3: Top 20 Trade Partners of Pakistan
Values in US$ millions
Serial No. Partner Countries
Pakistan’s Average Exports
Pakistan’s Average Imports
1 United Arab Emirates 1972 6261 8233 -4289
2 China 1875 5964 7839 -4089
Page | 21 3 United States of
America 3634 1705 5340 1929
4 Saudi Arabia 441 4042 4484 -3601
5 Kuwait 90 3297 3386 -3207
6 Malaysia 198 2096 2294 -1898
7 Germany 1014 1190 2204 -175
8 Afghanistan 1888 203 2091 1685
9 India 306 1574 1880 -1269
10 United Kingdom 1200 666 1866 534
11 Japan 157 1686 1843 -1529
12 Italy 628 563 1191 65
13 Indonesia 141 987 1128 -846
14 Korea, Republic of 325 724 1049 -399
15 Thailand 103 761 864 -658
World 22759 40716 63475 -17957
Source: Authors’ own calculations based on ITC Data
These four countries include United States of America, Afghanistan, United Kingdom and Italy.
Republic of Korea is 14th largest trading partner of Pakistan with bilateral trade volume of 1.04 billion.
And under this bilateral trade Pakistan is facing deficit of US$ 399 million. The details of all fifteen trading partners along with exports, imports, trade volume and trade balance is given in table 3.3.
3.5. TOP COMPETITIVE PRODUCTS OF PAKISTAN AND THE REPUBLIC OF KOREA:
A. TOP COMPETITIVE PRODUCTS OF PAKISTAN:
Table 3.4 shows the top 10 chapters of Pakistani industry which are competitive in international market and capturing significant export shares of Pakistan. The leading chapters show that Pakistan’s export advantage remained only limited to low tech chapters or products being used as raw materials.
Table 3.4: Top 10 Competitive Chapters of Pakistan
Country Product code Product label
Pakistan '52 Cotton
Page | 22 Pakistan '63 Other made textile articles, sets, worn clothing etc
Page | 22 Pakistan '63 Other made textile articles, sets, worn clothing etc