Welcome dinner with business leaders
Speech delivered by ITC Executive Director Arancha González
30 January 2017 - Karachi, Pakistan
Ladies and Gentlemen,
I am delighted that my first official visit in 2017 is to this region- to Pakistan and India. This is actually my first time in Pakistan and already I am feeling at home. Thank you for the excellent hospitality I have already received.
It is especially fitting that I begin my tour of the country here in Karachi, a city that is not only the financial and business capital of Pakistan, but also is a gateway to international trade given it is home to Pakistan’s largest seaports and airport.
These are indeed very strange times in which we live. The trade and geopolitical landscape has taken turns that many of us did not expect and many are still trying to determine where they will fit in this new paradigm. But what remains absolute is that trade is a critical lever to ensure growth, job creation especially by SMEs and deeper insertion into value chains, and that the twin elements of improved transportation and technology have opened incredible new opportunities to diversify how and what you trade.
Why trade? Because businesses that import or export tend to be more productive, grow faster and generate higher-quality, better-paying jobs.
Why SMEs? Because they employ the vast majority of people. For most economies and especially emerging markets, SMEs are one of the key drivers of growth and employment. Pakistan is no exception: SMEs make up nearly 90% of all enterprises in the country, employ 80% of the non-labour agricultural force and generate 40% of its annual GDP.
A vibrant, internationally linked SME sector translates to better jobs and income gains spread across large sections of society. In other words, it translates to inclusive growth.
This is why helping SMEs internationalise is at heart of ITC's work. We create and maintain a suite of free, online trade and market intelligence tools that provide the information that all companies need to identify potential market opportunities and understand the tariff and non-tariff measures they would encounter. We work with SMEs themselves, often in partnership with multinational private sector firms, to help them boost their productivity and connect to international market opportunities. We work with trade promotion agencies and business associations to improve the support they offer to entrepreneurs seeking to trade. We conduct cutting-edge analysis of factors influencing SME competitiveness, and set out road maps for developing countries to determine the policy reforms and institutional investments that will yield the highest bang for the buck.
And, because a conducive business environment is critical for trade success, ITC works with policymakers in developing countries. We support them to expand their analytical toolkits and build bridges to the private sector so they can jointly contribute to better understand the practical trade-related problems businesses are facing, and thus to devise more effective policy solutions.
How easy is it to conduct business and trade in Pakistan? Our research indicates that much progress has been made on te economic front in the last years. But we also know there is still room for improvement. There is a need to continue to invest in strengthening the business environment, explore deeper integration with neighbouring countries, and better link hard and soft infrastructure so that you provide what 21st century businesses need: reliable energy, good ICT networks, and competitive production and transport costs.
Pakistan is a country rich in innovation, culture and entrepreneurship. Your millions of SMEs have the potential to offer high quality products and services to the outside world. The question is how we can help them internationalise and become more competitive. Primary in this is ensuring the business environment supports the priority of SMEs to move to that other level. Currently Pakistan ranks 144th out of 190 countries in the latest World Bank doing business index for 2016 and 6th among the eight South Asian countries. Businesses report that the regulatory environment could be improved as they experience delays when establishing a business, obtaining construction permits and import licences. They have also said that high fees and port delays can hinder their growth. But this is half of the battle won already- the identification of the barriers that they face. And with Pakistan ratifying the WTO Trade Facilitation Agreement and with what I know to be the personal commitment of the Minister of Commerce to embrace reforms that would make the economy more favourable to growing SMEs, you are well on your way to winning the other half of the battle.
I am very happy to note that Pakistan has recently introduced various reforms in customs and local governments to make it easier to set up businesses, obtain financing and trade. Effective implementation of the Trade Facilitation Agreement, will directly address the transaction costs of trading by reducing the time goods spend in transit, minimizing customs and transit-related fees and adding transparency and predictability to trade procedures. Tackling some of the key barriers that saddle traders with high trade costs and long delays has very strong potential to result in increased bilateral trade, greater export diversification, enhanced foreign investment and improved national competitiveness.
From a business perspective, it will contribute to an estimated 13-15% reduction in transaction costs and the reduction in delays will enable SMEs to diversify into products that require just-in-time inventory or have a lower shelf life (e.g. perishable goods, pharmaceutical and fashion products etc.).
The faster, more efficient and predictable exporting is, the more businesses can climb up the value chain into higher-margin products. This will ignite the engine of growth which will in turn lead to increased FDI.
Since you are the primary users of trade policy reforms, your role is extremely important to ensure that such reforms are designed in a transparent way and address your problems and also that you become key partners of the government in implementing and monitoring them. And most importantly, for business associations representing SMEs, it is very important to ensure that the capacity of SMEs is enhanced to improve their compliance with evolving trade procedures and requirements and subsequently benefit from trade facilitation measures.
As the business environment becomes more conducive, there will be many opportunities for businesses to diversify. Diversifying implies identifying the potential of emerging sectors and helping them realize it.
In order to truly unlock the potential of trade Pakistan should look for new sectors to promote. The EU GSP plus scheme provides a great opportunity to Pakistani businesses to do just that. It has the potential put the country in a tremendously advantageous position compared to its competitors in the region and Asia. Under GSP+, all products of Pakistan’s export interest are entitled to duty free treatment which includes all textiles, textiles made ups, bed linen, garments, leather products, footwear, plastics, ethanol, agriculture products and processed food.
There is scope for Pakistan to grow further its exports to the EU by tapping deeper into the GSP+. As part of an EU funded project in Pakistan, ITC published practical guides for businesses on the EU GSP+ scheme and how they can benefit from it. I would encourage the business associations present today to disseminate these publications as widely as possible within the vast Pakistani SME community.
One of the biggest opportunities for Pakistan lies in trade in services, the most dynamic sector in the current global economy. Services currently account for one fourth of global trade and one third of employment. In Pakistan, they make up around 60% of its GDP and $5.8 billion of its exports in 2015. And it will likely only grow in importance.
Closely intertwined with the rise of trade in services is the emergence of e-commerce. The e-commerce market in Pakistan is still modest, achieving sales of $30 million in 2015 but, if the country taps into its potential, its size could reach several hundred million dollars by 2020.
Pakistan is already heading in that direction. In the last two years, the number of broadband users in the country has increased from 25 to 35 million people. New businesses are benefitting from this increased connectivity to set up online business models and join online work platforms in areas as diverse as hotel booking and programming.
These are all good news, but several challenges lie ahead. The development of efficient services regulation is pivotal to support the establishment of online platforms, enable payment solutions, foster better performing logistics and distribution, as well as protecting consumers through insurance. Similarly, joining the WTO Information Technology Agreement (ITA) will also contribute to this booming market by promoting affordable access to ICT products and put you on par with other countries in the region such as the Philippines, Thailand or Indonesia.
Pakistan Vision 2025 has recognized these challenges and will prioritize the growth of services and e-commerce in the way leading to 2047.
The message I want to leave you with is that although the trade landscape may seem unpredictable at the moment, Pakistan is on the right path. By looking at opportunities to diversify and seeking to invest and develop in value chains where there are markets- agri-processing, ICT, services- you are leading the way in creating opportunities for the men, and importantly the women, SMEs that make up the vast majority of the economic tissue of this country.
I look forward to seeing all of this progress with my own eyes over these next three days