Friday, February 15, 2008

ADB calls for new industrial policy

By Ihtasham ul Haque

ISLAMABAB, Feb 14: Expressing concerns over Pakistan’s falling exports, the Asian Development Bank (ADB) has urged the policymakers to develop a new industrial policy, which should ensure “strategic collaboration” between public and private sectors with a view to effectively compete in the international export market.

This strategic collaboration between the two sectors, the bank believes, is an important tool to increase exports and achieve the objectives of higher productivity.

In its latest analytical report - A Note on Competitiveness and Structural Transformation in Pakistan - it said the share of the top 10 exports in Pakistan’s total exports had decreased significantly in the last two decades, although it is still highly concentrated in textiles.

The weighted average of the per capita GDPs of the countries importing Pakistan’s top 10 exports has declined significantly, indicating that the country is stuck in exports that are being exported by even poorer countries. And the income level of Pakistan’s exports, a proxy for the country’s export complexity and competitiveness, is at the same level it was two decades ago.

It also said that Pakistan‘s growth rate-cum structural transformation-have been lower and slower than those of other countries in Asia.

“Accelerating the rate of structural transformation must be a key objective of Pakistan’s policymakers,” it added.

It called for undertaking sector-specific reforms with a view to fostering competition so as to transforming the economy. This requires a dose of good policy as the market alone will not do it.

“Industrial policy is not about picking winners”, the bank said adding that identification of the product space along the lines of the new literature is the way to identify sectors.

The idea is that a country has given capabilities that allow it to produce some products. These capabilities should also allow it to produce similar goods (because they require similar capabilities). Jumping successfully from the production of less sophisticated products (e.g., textiles) into the production of more sophisticated ones (e.g., electronics and automobiles) is not simply a matter of training more engineers and scientists at school, but of mastering the steps in between, the way the successful Asian countries did it. Without this, the effort at industrial upgrading will be an exercise in futility.

The bank said that as Pakistan’s growth rate had accelerated in recent years and the contribution of investment to overall growth has increased, policymakers must seize this momentum to implement a growth strategy that aims at transforming the economy in the direction of the successful Asian countries.

This does not mean that Pakistan should aim at emulating Korea, for example. It is not possible to do this, not only because the international environment is very different (perhaps less favourable to Pakistan today than to Korea 30 years ago), but also because the initial conditions of both countries are also very different (e.g., Pakistan’s degree of poverty and social inequalities).

Despite this, there are lessons that can be studied and appropriately adapted. Perhaps the most important is that structural change requires purposeful actions and a political will.

The bank also said that the industry and services output growth rates are significantly higher than agriculture’s, and given the service sector’s high share in output, services are the major contributor to total output growth rate (over 50 per cent).

The contribution of agriculture and industry are significantly smaller.

Pakistan is a service economy from the point of view of its output structure, but an agricultural economy from the point of view of its employment structure.

Intra-sectoral labour productivity growth has contributed substantially more than reallocation of labour from agriculture into the other two sectors to overall labour productivity growth.

The latter factor in fact plays a minor role accounting for overall labour productivity growth.

Reallocation of labour from agriculture into services has been much more important than from agriculture into industry.

Pakistan, the bank said, suffers from falling labour absorption as the absorption capacity of the service sector is not enough to compensate the falling capacity of agriculture and the stagnation of industry.

Although Pakistan’s manufacturing share is not low, given its income per capita, trade ratio in GDP, and population, the share of this sector in total output has been stagnant since the 1970s. This contrasts with what has occurred in Indonesia, Malaysia, and Thailand, for example, which have seen their shares increase.

The manufacturing sector, it said, is heavily concentrated in food and beverages and textiles. Together, they account for close to half of the sector’s value-addition. The level of technology of Pakistan’s manufacturing sector is relatively low compared to that of other countries in Asia.

Moreover, the share of manufacturing value-added accounted for

by high-technology products is low and has remained stagnant during the last 40 years. Pakistan’s level of labour productivity has increased very slowly since the 1970s. There is still plenty of room for catch-up with the developed world.

Hike in toys valuation rates slated

By Parvaiz Ishfaq Rana

KARACHI, Feb 14: Importers of plastic toys have criticised the customs for suddenly enhancing valuation rates for determining customs duty on all categories of toys.

It is being apprehended that this move will open floodgates of smuggling, and imports through official channels will come to an end.

The directorate-general of customs valuation in a circular on Jan 26, 2008, had directed all collectorates to assess and determine customs value of all categories of plastic toys under new the valuation based on value of raw material plus manufacturing cost and freight.

The new valuation of plastic toys had been prepared on receiving a reference from the Collector of Customs, Model Collectorate of Customs (MCC), regarding valuation of toys on the basis of cost of raw material used therein.

According to importers, the rise in valuation and assessment rates on imported toys based on raw material prices and other manufacturing inputs had been made unilaterally by the customs and no stakeholder was taken into confidence prior to making such an unrealistic decision.

The directorate of customs valuation enhanced the assessment and valuation on toys after finding an abnormal valuation trend in the range of $0.758 per kg to $.0918 per kg which is even lower than the raw material used in the manufacture of toys.

The authorities also claimed that several meetings were convened to share these findings with the stakeholders, and barring a few importers, a majority of them abstained.

Under new valuation rates, the minimum rate has been fixed at $2.50 per kg and highest at $15 per kg. However, importers argued that it is sure that the raw material prices were not the consideration while fixing the value, otherwise, the fixed values would not have been more than $1.50 per kg as suggested by the Collectorate of Customs.

The manufacturing cost and other over-head charges, importers challenged, would not go beyond $1.50 per kg under the prevailing price of toy.

Furthermore, the collectorate also confirmed that the assessable customs value should be at $1.50 per kg for a non-battery operated toy and $1.75 for a battery-operated toy.

The importers alleged that it was evident from the record that four leading importers of toys were never invited to meetings called by the customs authorities prior to increasing valuation prices on import of toys.

They also said that saleable prices of toys in the local market are much lower than the ascertained prices in the new valuation ruling.

The prices have been arbitrarily enhanced without taking stakeholders into confidence.

The importers claimed that toys imported from China were of average quality and were being sold at common markets whereas price valued by the customs authorities was of superior quality.

The prices taken by the customs authorities are from retail and posh area markets rather than wholesale markets.

Above all no joint market survey had been conducted as it should have been deemed to include trade representatives and importers.

Importers of toys further said that import of toys varies with many factors, like quantum of imports, terms and conditions of payments, availability of stocks and other business terms.

Withholding tax likely on vehicles

By Khaleeq Kiani

ISLAMABAD, Feb 14: The government is considering certain tax adjustments to overcome revenue shortfall estimated to have occurred owing to law and order situation following the assassination of Benazir Bhutto in December.

Sources in the Federal Board of Revenue said a set of proposals was currently under discussion, but a final picture would emerge in the next few days.

One of the proposals relates to levy of 2.5 per cent withholding tax on all imports, sale and purchase of vehicles by introducing amendments to Section 231(B) of the Income Tax Ordinance, said the sources, adding it means a proportionate increase in the prices of vehicles.

As such, the price of small car being sold at Rs400,000 would increase by Rs10,000, while a vehicle being sold at Rs1 million would become expensive by Rs25,000.

The FBR has been indicating to reduce revenue target because of shortfall that started to emerge in the early days of December and later aggravated with the assassination of Benazir Bhutto.

It has, however, been asked to make efforts to bridge the gap through tax adjustments to partially offset the shortfall in the remaining five months of the current year.

Higher revenue shortfall is expected because of slowdown in exports which occurred due to gas and electricity shortages the industry faced during the last two months.

The textile industry alone has estimated a loss of $1 billion in its exports as a result of energy shortages although the government disagrees with the estimate and believes it has been put on the higher side to seek better compensation in the shape of incentive packages from the government.

The overall industrial sector has also shown signs of a slowdown in the first five months of the year — even much before the turbulent month of December.

Official data puts manufacturing growth rate for July-November period at 6.9 per cent, much lower than the annual growth target of 10.5 per cent.

The FBR has been saying that it has suffered a revenue shortfall of about Rs30 billion in first six months.