The current account crisis did serve to shake up the Ministry of Commerce enough to announce some measures to try to correct the balance. Unsurprisingly, the Ministry chose the oft-travelled path (control imports) than carve out a more difficult one (give exports a leg-up).
‘Import management’ – slapping more duties and additional barriers – is the easier and the wrong part of the equation. The needed part, a robust export growth strategy, went ‘missing in action’ – unless the MoC sees bacteria-laden crumbs (untargeted subsidies) as sufficient cure.
It was a missed opportunity.
Crises provide for leverage, and here was a crisis big enough to silence the anti-export voices. Government, by definition, is a game of thrones where inter-se interests often collide, but there comes a tipping point – like the current account crisis, even if it was not the unpredictable Black Swan – to turn things in your favour. MoC was either not equipped or bold enough to capitalize on this tipping point and put Exports centre stage.
Or was the export growth of recent months the sleeping pill that lulled MoC into focusing on the import end of the current account equation? In congratulating itself on the recent uptick in exports did it deliberately choose to ignore the low base effect?
Exports is all about competitiveness. Indeed, the classic 3Ps – right product, right price, and right place – are even more relevant for exports. You can have duty-free market access to the whole world, the most favourable trade agreements, all the good will of the super powers, but it will all be laid to waste if you are not competitive.
Exporters err in not distinguishing ‘cost of doing business’ (over-regulation, bureaucratic over-reach, corruption, policy uncertainties) from ‘cost of production’ (capital costs, materials, utilities, labour). These are two separate battles, each requiring its own stratagem; but it is the higher cost of production that is more telling when it comes to competing with other suppliers from around the world.
Exporters err too in not highlighting the core issue impacting their competitiveness. On top of an out of whack exchange rate, they rightly point out the lower energy, transport, and wage costs of their competitors (though, to be fair, we have yet to see a holistic cost comparison; mostly it is ‘cherry picking’). What they do not highlight is the multiplier effect of ‘imported costs’.
High tariffs go beyond inducing an anti-export bias (making the domestic market more interesting). They have a debilitating impact on competitiveness. The much higher (than global) prices, a natural consequence of our escalating tariff and non-tariff walls, permeate through our production costs like a silent killer. It doesn’t matter if it is steel or cement or automobiles or milk and wheat. Higher domestic prices (inefficiencies compounded by high tariffs) add up. They translate into cost penalties. The government is then left with only one instrument to compensate Exporters: the exchange rate, which has its own cost penalties.
The least that the MoC could have done was to have the Cabinet agree to an independent study to see the extent to which high tariffs are hurting exports.
It is of course nonsensical to think of tariffs as the sole culprit. There are several other fault lines to contend with, most notably flogging what we produce rather than producing what the markets flag. The FTA with China is instructive in this regard: of the scores of (zero-duty) tariff lines our exports remain concentrated in the same few products, diverted from other markets. We have neither adapted our product-mix nor gone up the value chain.
This is where presence abroad becomes relevant. It is only through B2B partnerships, that a presence abroad enables, that you get a handle on what the market wants, not today but tomorrow. Also, these partnerships go beyond marketing; they lend you technical support to position you better through a restructuring of your product lines and production processes. Our trade offices abroad are simply not geared to facilitate such B2B contacts. The only way to secure this is to encourage and assist trade associations to set up their offices abroad. We need to accept the limitations of our trade offices. It will be unrealistic to expect even the brightest and the most committed Trade Officer to perform this role: There is no way he can have sufficient industry knowledge of the dozens of products exported to his jurisdiction.
The least that the MoC could have done was to commission a study on the role of trade offices. Until we know exactly what we want them to do – what they can do – we can’t even begin to select the right person for the right job and hold him accountable for reasonable performance.
MoC has now announced the preparation of the new Strategic Trade Policy Framework. This apparently puts a closure to any new initiatives to boost exports, or for that matter roll back the invidious import duties, until post-elections. Prime Minister has already said (in the context of Textiles) that all that could be given has been given and nothing more should be expected.
Regarding the forthcoming framework, two things stand out. First, MoC has asked public and private stakeholders for ideas. Has MoC run out of any ideas of its own? We would expect the government to first lay out the road map, a sense of direction – set the boundaries, so to speak. Otherwise, stakeholder inputs would be like wish lists, and quite possibly what is sauce for the goose (e.g. tarn) could be poison for the gander (e.g. made ups).
Second, the life of the framework is now proposed to be extended to five years, from the current three years, and the annual feature that it used to be until some genius decided to add the sobriquet ‘strategic’ and spanned it to three years. What it means is that the Secretary leading the effort will no longer be around to answer why things didn’t work out as promised!
The least MoC could have done was to commission a study on why all these strategic frameworks failed to increase exports. There are lots of lessons to learn there.
Has the MoC got tired of its errant child (exports), and adopted the cuddly domestic retail child? Or it doesn’t know what to do for exports. We suspect it is a bit of both. email@example.com