Service providers in Pakistan lack export orientation and
are unaware of the immense export potential that exists in the sector.
Just like international trade in goods, the international
trade in services profile of Pakistan is also very much concentrated in a few
sectors and markets. Therefore, there is a need to explore ways to tap its
comparative advantage by exploring new sectors and markets.
Just like previous years, the contribution to the economy is
dominated by the services sector, which contributes 59.61% to the overall
economic growth. The existing higher growth of the services sector can give a
new dimension of stability to the country’s growth process.
A recent World Bank study concluded that services is the
largest and fastest growing sector in the world economy, accounting for the
biggest share in total output and employment in most developed countries. The
share of services in total GDP is 47% in low-income countries, 53% in
middle-income countries and 73% in high-income countries.
Pakistan being a developing country has gained a foothold in
the global market for services but in terms of orientation and growth, it is
lagging behind the peers. India is emerging as one of the major exporters of IT
services. There are expectations that this could grow to $50 billion.
Pakistan, Bangladesh and even the Maldives have the
potential to have a share in the fast growing IT market but due to lack of
orientation and awareness they do not get the advantage.
Despite its immense economic growth potential, Pakistan has
been unable to achieve a balanced high growth. A high growth and competitive
economy has now become a matter of national security as it is imperative for
sustained job creation, income generation and poverty alleviation.
In this situation, a dynamic services sector can contribute
to the quest for more inclusive growth, by bringing broader population into the
economic growth process and spreading more widely the fruits of growth.
According to data compiled by the State Bank of Pakistan
(SBP), the services sector recorded a growth of 3.7% in 2012-13. This was mainly
contributed by finance and insurance services at 6.6%, general government
services 5.6%, housing services 4%, other private services 4%, transport,
storage and communications 3.4% and wholesale and retail trade 2.5%.
In addition to concentration in a few sectors, the services
export base is also quite narrow and limited to 7-10 foreign markets. Major
export destinations are USA (29.69%), UK (8.82%), UAE (7.23%) and Saudi Arabia
(5.56%).
In order to avoid a crisis, Pakistan needs to diversify its
service exports across markets and sectors to reduce the vulnerability of the
export portfolio to partner-specific shocks and to extreme volatility in export
prices.
In the current scenario setting up of the National Steering
Committee by the Ministry of Finance to devise a long-term strategy for
significantly improving exports of services and introduction of a new
long-term financing facility for the services sector by the SBP for adoption of
new technologies and enhancement of capacities are small steps in the right
direction.
Another dilemma on the government side is that it has not
focused on professional services in terms of incentivising them for exports.
Fiscal incentives are not the only and most effective pushing factors for
increase in exports, there may be some other incentives in the form of use of
foreign exchange for duty-free import of inputs, etc. The incentive schemes may
be designed after consultations with the industry and taking into consideration
their needs.
In order to enhance services exports, professional foreign
service providers should be encouraged so that the market becomes competitive
and learns from such providers in terms of knowledge and business techniques.
An effort to enter into bilateral arrangements with major
markets such as the US and EU would prove very beneficial for the industry.
India, for example, has many bilateral arrangements, both at the government and
industry levels, with the US and has preferential access to their markets.
Pakistani service exporters would also benefit from
economically priced and quality service inputs as well as more transparent
regulatory environment. Although the investment environment is generally open
at the national level, carefully crafted service commitments could be used to
attract foreign investment.
Overcoming trade constraints through negotiations can
improve the ability of services firms to grow and compete globally.
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