Pak-BD economic equation
History’s finest experiment in the concept of nationhood split in twain in December 1971, a victim of a series of man-made blunders that overcame the religious affinity and kindred spirit that had held two countries together in one nation despite the geographical cleavage of over a thousand miles of hostile enemy territory. Doing a post-mortem two decades later of an episode that should best be dead and forgotten would be counter-productive, if only for the sake of the future and a more pragmatic genuine association thereof. One should look forward to new vistas of cooperation that will ensure that the complementary issues of geo-politics and economics have a mutual flow of natural acceptance, each country jealously safeguarding its own independence and sovereignty.
Khaleda Zia’s visit to Pakistan as the Prime Minister of Bangladesh thus assumes great importance. Stepping out of the shadows of her late husband, the former President of Bangladesh, Begum Zia’s rule till date has been a most pleasant and welcome surprise for the impoverished nation of Bangladesh in particular and the world in general. Racked both by natural and man-made disasters, Bangladesh barely skirts around Kissinger’s “international basket case” epithet. The Bangladesh electorate were sophisticated enough to discern qualities in the lady that escaped more experienced analysts, today we are wiser that it is not the legacy alone of her late husband, one of the most honest leaders of any nation that ever walked the face of this earth, but her own personality and leadership acumen that has elevated her to being in her own right, the political head of one of the largest Muslim nations in the world.
Talks between the two PMs would probably focus around issues of mutual interest but Begum Zia will have to raise, if only for the benefit of satisfying political opponents back home, the unpalatable question of division of assets pre-1971. Pakistan’s reply will be obvious, that it is a closed chapter and one hopes there will be no bitterness in quickly putting this question into limbo and getting on with more substantive issues that will be of mutual benefit to both the nations.
The most lasting relationship between any two entities is always economic, that is the thread of a binding fabric. We must therefore look to positive features in our trade that adds the accruing benefits of cooperation, searching for innovative ways and means to force-multiply them. At the same time, both the economies, considered complementary till 1971, are going through similar changes of liberalisation. Pakistan has been playing catch-up for the past few years with Bangladesh which had started the process of shedding off the yoke of nationalisation almost a decade earlier. The two countries are at an interesting economic crossroads, they can opt for a mutually pragmatic discourse or pass each other like ships in the night relying on rhetoric rather than reality to keep the trade flow going.
Among the things that Bangladesh can purchase and Pakistan can export freely are raw cotton, cotton yarn, finished and unfinished textiles. From time to time, Bangladesh also needs rice and urea fertilizer (when it is not exporting the same). Bangladesh remains in short supply for cement, sometimes surplus in Pakistan, and can take in more cement plants, sugar plants, textile machinery, etc. In short, Pakistan can easily export to Bangladesh between US $ 150 – 200 million worth of goods and commodities.
Among the things, Bangladesh can sell to Pakistan are raw jute, jute goods and tea. There are sixteen jute mills in Pakistan, the third largest jute industry in the world, all relying on imported raw jute from Bangladesh worth approximately US $ 15 million. Cumulatively they produce enough jute goods, Std B Twill gunny bags and Hessian bags, to almost meet all the jute goods demands of the country. By giving protection to the domestic jute industry, Government of Pakistan (GoP) manages the unique feat of defrauding itself in the process by contributing to the “golden fleece” of the exchequer, losing almost Rs 1-2 billion annually. On the first count it loses on the customs and excise duties that it would have imposed and on the second count, the local mills sell at the much higher “market” price thus artificially created. This is one of the greatest scams on this earth but since everyone seems to be in on the loot of public funds, politicians, bureaucrats and businessmen alike, it is conveniently ignored. While not disturbing the on-going scam from happening, one could conceivably allow a leeway for expansion of trade. The re-export requirements of the Rice Export Corporation of Pakistan, which makes up only 12-15% of Pakistan’s total demand of jute goods, making an import bill of about US $ 15-18 million annually, would suffice. This does not really create a dent in the supply of local jute mills but sets up a gross difference in prices that the perpetrators of the scam would like to avoid. The third and last item is tea, consumed in large quantities in Pakistan. Pre-1971, the former East Pakistan had almost a 100% monopoly over the tea imports by the former West Pakistan. Pakistanis preferred the thick, low-grown Bangladeshi tea, cooked along with sugar and milk it was a poor man’s food supplement. Today, the monopoly of Lever Brothers (through its two companies Brooke Bonds and Liptons) have ensured that the cheap Bangladeshi tea, which, complemented by the flavours provided by Sri Lankan tea in much smaller percentage, was used as the major stock, has been replaced by expensive Kenyan tea from gardens in Kenya owned by Lever Brothers and their commercial associates. In a gradual process, the complete taste of the Pakistani palate has been changed and it will be difficult to wean away the population which is a hostage of a drug-like addiction for the superior and expensive Kenyan tea. What Kenya buys in return from Pakistan for sales of US $ 100-150 million or so we should not lose any sleep over, it is next to nothing, even less than US $ 1 million. In free market conditions, Bangladesh exports tea to Pakistan worth only about US $ 10-12 million annually.
So we have a situation where Pakistan can export about US $ 200 million worth of goods and commodities to Bangladesh but Bangladesh can only export at best US $ 50 million to Pakistan, this is a tremendous imbalance. Rather than putting the ball only in Bangladesh’s court to increase exports to Pakistan, we must look to steps that both Pakistan and Bangladesh can take to ensure that (1) Pakistan sells goods and commodities worth at least US $ 100 million to Bangladesh (2) picks up at least US $ 50 million from Bangladesh and (3) finds third countries or Multi-nationals (MNCs) to pick up the balance trade obligations of US $ 50 million from Bangladesh.
The main importer of raw cotton in Bangladesh is the Bangladesh Textile Mills Corporation (BTMC) under the Ministry of Textiles. The Bangladeshi Ministries of Textile and Commerce should allocate at least US $ 70 million worth of raw cotton from Pakistan. Similarly the Bangladeshi Ministry of Food could possibly import 100000-150000 tons of Irri-6 or Sindhi Joshi parboiled rice from RECP. The Bangladesh Ministry of Industries could earmark sugar plants for import from Pakistan. Since raw material for cement like limestone and gypsum is not available in Bangladesh, a factory producing cement clinkers could be put up in proximity of any of the ports in Pakistan, the clinkers transported to Bangladesh in bulk, being crushed and bagged in poly-lined jute bags there. The private sector is already exporting large quantities of cotton yarn and textiles in large quantities to Bangladesh which are converted into finished goods and then re-exported. This could be streamlined but a firm mandate must be given that should be result-oriented and closely monitored.
Like cotton yarn and textiles, raw jute finds its way naturally from Bangladesh to the local Pakistani jute mills and needs no force-feeding. To an extent BD tea has also a market, the problem is that in the face of the superior quality (and expensive) Kenyan tea, its natural marketability has declined considerably. In the late 70s, early 80s, the Pakistan Ministry of Commerce had a compulsory portion of the import licences for imports from Bangladesh (at that time importers were expected to import 15% of their total imports). Our Ministry of Commerce, headed by the can-do Malik Naeem Khan, in concert with the Utility Stores Corporation of Pakistan (of the Shaikh Rasheed-run Ministry of Industries) could encourage the setting up of a new tea company in joint venture with BD and Sri Lanka (along with private entrepreneurs) to compete with the Lever Brothers monopoly. For starters they could have the Armed Forces contract for 2000 MT tea annually, soldiers prefer low grown tea. Pakistan’s large border trade with Afghanistan, will extend to the States of Central Asia, they will need jute goods and tea. As explained before, RECP could take a fair amount of jute goods from Bangladesh. As a form of protection to the local jute industry, sales of jute goods to the various Provincial Ministries of Food and PASSCO should be banned, this will keep both sides happy. Like in Bangladesh, the Pakistani-entities should be mandated to comply with the trade protocol.
While Bangladesh certainly has more raw jute, jute goods and tea, Pakistan’s upper limit for demand of Bangladeshi goods and commodities cannot be more than US $ 50 million. To have an equitable trade agreement for exchange of goods and commodities either way, a WHITE KNIGHT in the form of a trading company or a Multi-National (MNC) will have to be found to take the balance of US $ 50 million from Bangladesh. To enable this, the Government of Pakistan (GoP) will have to pay a fee ranging from 6-8% of FOB value of the Countertrade (CT) obligations. Pakistan benefits because it gets to export an additional US $ 50 million or so to Bangladesh, Bangladesh also benefits by the additional offtrade of US $ 50 million as well as the steadying of the original US $ 50 million exports to Pakistan, presently going down every year.
The two political governments must put their authority behind jump-starting the trade between the two countries and force-multiplying it thereof. A heavy responsibility therefore rests on both the PMs, whether they can shrug off the political irritants as well as the excess baggage of history and shoulder that responsibility will be seen in their pragmatic approach to revitalizing trade and commerce between the two countries.
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