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Offset Mechanism

Third World countries which are acutely short of foreign exchange are increasingly turning to one of the many forms of Countertrade as a force-multiplier trading vehicle. Not only does this provide a direct linkage but also acts as a balancing factor. In Pakistan, we have long standing Barters (in name only because the correct word is SCAM) with various socialist countries, Sweden (SUKAB) and Finland (KEMIRA OY), and an excellent but ineffective Special Trading Agreement (STA) with Bangladesh besides various other similar impotent agreements with Indonesia and Kenya. Having deliberately failed to earmark/support a public sector corporate institution like the Trading Corporation of Pakistan (TCP) to handle Barter and/or Countertrade, we have made a mockery about an effective trade instrument used effectively by many Third World countries designed to protect a country’s economic integrity by instituting linkages to imports. Vested interests combine and contrive to ensure that Third World countries be dependant upon importation of goods from outside and our mainstream planners (who never change), have permitted, through benign neglect and/or criminal intent, a turkey shoot on Pakistan’s economy.

We have reached an economic crossroads of sorts coinciding with the fall of the Junejo Government. We do not have anyone in the bureaucracy with a penchant for change and no political technocrat powerful enough to either conceptualize and/or implement Countertrade, given the reflexive attitude of our bureaucratic gnomes to snarl all new initiatives in a welter of bright red tape. The wholesale abolishment of the mundane and routine must necessarily become a national pastime if we are to break loose from the suffocating vise of economic monotony that has stunted industrial growth. We cannot hope for any kind of economic emancipation within the various confines of bureaucratic parameters that one has to contend with at the present time and our salvation lies in innovative, daring and futuristic policies having no bearing on the past except that of learning from experience. We must dare to make our visions for this country come true, not allow them to slip into nightmare through passive inaction, tempered by the fear of tampering with the system. A pace has to be set designed to traverse the span of centuries in a matter of years. “Catching up with the rest of the world” should not only be a slogan for us anymore but a matter of survival.

Basically, Countertrade (CT) is a trading process where baskets of acceptable goods and commodities are exchanged between two entities. There are a number of variations of CT but we are going to target two crucial sectors in Pakistan and discuss how best we can use OFFSET as a growth-accelerating mechanism. Since Pakistan has an agriculture base, maximizing agriculture production through export orientation becomes a potent and relevant issue. Beset by external enemies and threatened by internal strife due to extraneous reasons, defence is also relative to our analysis inasfar as the defence material being produced for domestic production can be made cost effective by manufacturing for exports.

In a world beset with shortages of food, we are blessed by having surplus production. Primarily this is because of our strong agricultural orientation for tens of centuries. A farming talent that has carried on through generations utilizes effectively one of the finest agricultural lands in the world, deltas fed by gushing rivers from high mountains, bringing fresh fertile soil down to the plains year after year. While a lot of effort has gone into raising agriculture production particularly in the last three decades, a scientific and modulated approach to rapid acceleration of agricultural growth is still awaited. A major superhuman effort is necessary to carry out comprehensive mechanisation of agriculture to take Pakistan into the 21st century, anticipating alarming food shortages in most Third World countries.
We have major tractor manufacturing facilities but the indigenisation has been atrocious to the point of contrived criminal neglect. None of the tractor plants in operation for a good number of years boast of a major percentage of the vendor parts being domestically made. A two pronged effort is necessary. One is the establishment of tractor leasing companies having branches at every Thana level, with equipment available for hire and/or purchase, making it comparatively economical for all our agriculturists to utilise machinery to cultivate their lands. The other is to make it obligatory for the foreign tractor manufacturing companies to buy-back at least 50% of the manufactured/assembled tractors and a fair amount of vendor parts for exports. In this manner we would ensure (1) cost effectiveness in production (2) quality control (3) value added in manufactured exports and (4) increased job opportunities for labour. There should be no restriction on the type of tractors to be manufactured because a perceptive agriculture community is a good enough market force to drive out equipment found not feasible for our environment. The bogey of standardisation has just been used as a ploy to delay new induction as well as to fill corrupt bureaucratic coffers.

Mechanisation can be carried further by manufacturing agriculture combines and utilising them in the same manner as above. This would facilitate the opening up of small workshops in rural areas, providing job opportunities to the landless peasants who then do not have to journey to their urban cities in need of employment, reducing pressure with commensurate benefits for the worsening law and order situation. OFFSET as a mechanism is used to pay directly in the form of manufactured products from the facilities being purchased in the first place. The industry not only pays for itself but one gets compound benefits as a bonus. Similarly one can talk about low level irrigation pumps, agriculture implements, etc.

We have the best fruits in the world but they either rot in the fields and if exported, do not get the price they should. Our efforts must be to maximise the production of fresh fruits and create downstream industries for exports with joint ventures with foreign Principals purchasing on a buy-back basis to cover the cost of the facilities. This would mean extraction of juices and manufacture of concentrates besides the new process of drying-out the fresh fruits and vegetables. The affluent first world has a large demand for our produce and we should aim to install such production facilities in every suitable sub-division. At the same time, we must gear up our export facilities, utilising the airport facilities of intermediate cities like Multan, Faisalabad, Sukkur and Nawabshah for exports of fresh fruits by air. As the demand for our fruits increases, our agriculture community will be encouraged to grow more and more of these “cash” crops, getting into mechanisation, thereby maximizing job opportunities through a broad spectrum as the support facilities come on the ground.

A major effort can be made in defence production. Defence services need (1) small arms (2) heavy weapons (3) tanks (4) a wide range of transportation equipment (5) aircraft (6) naval vessels (7) telecommunication and electronic equipment (8) ammunition (9) missiles, etc, etc, most of which is imported from abroad but can be made in the country. With “excellent” neighbours like India and Sovietized-Afghanistan we do not see any let up in our continuing and expanding need of defence material. Needless to say this entails large scale expenditures, most of it in hard earned foreign exchange. The solution lies in exploiting the large defence establishment by making the equipment required pay for itself by manufacturing indigenously for re-export of a part of the production. Obviously anything that we have to purchase has to be in large numbers and part re-export will make it exceedingly cost-effective. If there is a definite WILL and no vested interest it should not take the General Staff of the Army (and its equivalent in the Air Force and the Navy) longer than a week to make up its mind about certain equipment, given the necessity of field testing and trials under our conditions and the technical side giving its preferences, etc. The present General Staff has the potential and can take positive decisions for a smooth transition of the defence services into the 21st century. Enough material in various publications abound in plenty about the quality of various defence equipment. We have the advantage of various first-rate armies not only having inducted such material but also having tested them under actual combat conditions, given the amount of internecine conflict in today’s world.

We should mothball our trusted Rifle G-3s or better still give it to the Police and para-military forces as calibre 7.62 mm has to be replaced by Calibre 5.56 posthaste in today’s fighting world. If the number of rifles has to be a million or half a million pieces we can talk to the foreign company and ask them that they should accept as part payment to (1) purchase our ancient Enfields (and/or Rifle G3s) and ammunition thereof (2) buy-back 50% or more of the Calibre 5.56 rifles to be produced for at least 5-10 years and (3) in balance take a basket of goods and commodities composed of 30% traditional 70% non-traditional items. Soldiers cannot afford bureaucratisation and decisions must be made without delay without consigning them to committee or into some file cabinet. The Pakistan Defence Services, overburdened by an awesome responsibility cannot afford to be a 9 to 5 outfit. Soldiers (and sailors and airmen) must also remember that while technical evaluations are necessary particularly in high-tech fields, combat necessities demand that requirements for particular equipment should be dictated by combat soldiers and decision-making should not be taken over by the technical personnel. This is not meant to be disparaging but simply stating a fact of uniformed life.

The same analogy applies for a broad spectrum of other defence material needs, particularly transportation equipment. Our disadvantage of large numbers can be converted into cost-effectiveness on economy of scale. We should take early decisions on a wide range of subjects like tanks, frigates, corvettes, submarines, aircraft, armoured personnel carriers, first line transportation equipment ranging from jeeps to 10 ton trucks, communication radars, computers and electronics, etc. Without exception, foreign companies would be interested in establishing facilities in Pakistan keeping into consideration the quantities required if they are firmly told about the necessity of doing so for obtaining any sales. At the same time once the local private sector has been assured of a captive market for a particular item for a number of years they would rush in with local investment. Coupled with vendor and ancillary industries supporting the manufacture, job opportunities would increase manifold, indeed act as a force-multiplier on the whole economy. Above all we must not even look at obsolete equipment and patchwork creations made by spending colossal amount of public money. Without naming any project, let it be said that some of the ones displayed are atrocious in their obsolescence, infantile in their concept and counter-productive in their cost effectiveness. With budgets of tens of millions of rupees having been wasted on asinine “R and D” projects, one wishes that those responsible were made to pay from their personal coffers for the follies attempted with squandering public money. Imagination has to be used with innovation and each defence equipment must pay for itself by part of the production being bought back by the foreign collaborator for re-export, a proper utilisation of our great asset of manpower in keeping labour intensive industries churning out required defence material. Countertrade (and particularly OFFSET mechanism) needs to be included in the syllabi of the courses at the National Defence College (NDC) and the National Institute of Public Administration (NIPA) so that our erstwhile planners can understand the advantages and pitfalls of such a system if adopted universally.

The leadership of a nation must learn to make sacrifices across broad range of non-developmental expenditure before asking the masses to walk the plank. A moral duty enjoins on them a dire necessity to block the motivation of vested interests to continue with the importation of badly needed manufactured products and to shun showpiece nonsense designed to look good on Republic Day Parades with the sole aim of promoting the sponsor’s careers. Whether in agriculture or defence, our two great economy sustaining fields, we must strive to turn an inherent adversity into multiple advantages which can be achieved by using imagination and with single minded devotion to rapid indigenisation. Industrial growth without any sort of bureaucratic check is the need of the hour and the only restraint must be an effective OFFSET MECHANISM wherever re-export is a possibility. Countertrade may not be the only recipe for industrial progress but it certainly makes the industries pay for themselves.

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