All the king’s mangoes
(This is the FIFTH of a series of weekly articles which will attempt to explore the advantages/disadvantages of Barter/ Countertrade as opposed to the liberal trade policy in vogue in Pakistan).
We have discussed the need for a national policy towards Barter and/or Countertrade but this should not be limited to theoretical generalities and must contain the ground rules for implementation on a day-to-day basis.
Before we can discuss the composition and objectives of a National Countertrade Authority (NCA) or Board, we must discuss Pakistan’s trading requirements, import and export, in the light of its agricultural and industrial base available, that is expected to be in the near future and what should be the priorities in the context of our present economy.
Import needs of Pakistan can be described under two heads, commodities and manufactured goods. Under commodities the prime requirements are for crude oil and edible oils, followed by fertilisers, occasionally sugar, raw jute, tea, various chemicals, pesticides, with powder, newsprint and paper, iron ore, coal etc. Despite the fact that we have a strong engineering base and could conceivably fabricate most products, we are condemned, because of official policy to obtain capital goods from abroad. Since this country has the capacity of making sugar mills, cement plants, textile machinery, etc, there is no justification whatsoever in getting manufactured machinery from outside except those of the inventory which cannot be manufactured here.
Pakistan skilled craftsmen can fabricate almost anything but if we persist in importing from abroad, we are not only spending our crucial foreign exchange but putting ourselves in double jeopardy by denying our skilled craftsmen work locally and addicting our industries to a constant source of spare parts from abroad, in each case, for many years. It may not be diplomatic to use this language, but this is a stupid policy, annunciated by people who either have no knowledge of the true conditions or are acting out of purely motivated interests.
Even then, we are ready to accept that some items, have to be manufactured abroad because we do not have the sophisticated technology to produce them locally. Again, the Planning Division within the National Countertrade Authority can advise the Ministry of Commerce which of the manufactured items should be on a banned list. This list should be circulated to all banks and it must be made mandatory that if any letter of credit is opened for such banned items, the banks and their staff doing so should be prosecuted as accessories to what amounts to the murder of the domestic industry. This should extend to the Customs if goods are brought under false declaration, as is the case usually.
Once a list is so readied of our import needs and annual volumes thereof, our aim should be, to tie this to the exports. Here again, a crucial difference can be made among critical and non-critical needs, eg. crude oil and edible oil are critical needs, tea is not a critical need and so on.
In our estimation, the crucial list among the commodities are crude oil, edible oils, iron ore, coal, newsprint, milk powder, pesticides, fertilisers, sugar when necessary, and unspecified raw material for the defence industry. Similarly, the crucial list for the machinery items must comprise of defence equipment, equipment for WAPDA, Pakistan Railways, SUPARCO, Pakistan Atomic Energy Commission, transportation equipment, capital machinery for ports, airports and the PIA. However, this is at most an inexact list which can be firmed up by those who have the full knowledge and data pertaining to the country’s periodical necessities.
Once the critical/non-critical lists are prepared, we should then have a priority grading within the list also. This grading is necessary for applying a strict formula, for all non-critical needs, to be on 100% Barter and/or Countertrade, whereas for critical needs it could be 35%, 50%, 65%, 80% Barter and/or Countertrade, rest on hard cash, depending upon the priority allotted i.e. Grades A, B, C or D respectively.
To give an example, crude oil and edible oil can be easily placed in Grade B, which means when we purchase crude oil, we should induce the seller to purchase something in return. Since most of the Countertrade companies in the world which are doing business with OPEC countries have large amounts of crude oil in counter-purchase units obligations, they would be more than delighted to exchange counter-purchase units with some other entity which wants to supply crude oil to Pakistan and take back commodities and manufacture items in return.
The only item on the critical list which we should sometimes agree to put on Grade A ie. 35% on Countertrade obligations, are certain needs of the defence sector and even in this we must ensure that most items should be manufactured locally on a extremely strict deletion programme. In fact, in Malaysia, even items of the defence sector are put on 100% Countertrade obligation. In order for the supplier not to be saddled with Countertrade obligations, the Malaysians have an approved list of 16 agents, who for a fee of 3.5%, take on Countertrade export obligations for the supplier, thereby freeing the supplier of risking export responsibility. These agents are local representatives of Countertrade companies/Barter countries and they not only get Palm Oil, for 3.5% discount, but sell it to Pakistan through the Bulgarian or Sukab barter for 15-17% mark-up. Because we are either gullible or motivated, we end up financing everyone else’s trade commitments.
The National Countertrade Authority (NCA) must have the following among its members:
Minister of State for Commerce (an elected representative ie. MNA or Senator) as a full-time Chairman, Federal Secretary Ministry of Finance as Vice-Chairman, President Federation of Pakistan Chambers of Commerce & Industry and one member from the private sector from each Province (to be nominated by the Chambers of Commerce & Industry of Provinces), Federal Secretaries of Defence Production, Power, Communication, Defence Production and Commerce, Deputy Governor State Bank of Pakistan, Director General Defence Procurement, Chairmen WAPDA, Railways, SUPARCO and PAEC, Managing Director NCA (who should be of Secretary Grade 22 status or equivalent) and the Deputy Managing Director (who should preferably be on deputation from the Defence Services).
The working Board and Management should comprise of Managing Director, Deputy Managing Director, Members of Imports, Exports, Industries and Production, Commerce, Finance, Coordination and Publicity, and the Secretary.
The recruitment of the Management and subordinate staff should be from among the best and the brightest in the country both from the public and private sector. Invariably since Defence forms a crucial need, the Deputy Managing Director could act as Member for Defence Purchase.
An organisation can be easily destroyed by choosing the wrong people. We must select from all over Pakistan, and give preference to those who will not turn this into another bureaucratic organisation. On the contrary, excellent salaries and prerequisites should be given to the NCA management, at par or more than PIA, CAA, the nationalised banks, etc so that there is strong competition to serve this organisation.
In this respect, the Export Promotion Bureau and Trading Corporation of Pakistan, both of which are superfluous organisations in the present context, should be amalgamated into the NCA. The staff should be distributed among CECP, RECP and Ministry of Commerce, only the selected among them remaining in the NCA. The TCP and EPB information data and files should be given to the Member NCA (Coordination and Publicity).
Special care must be taken to weed out corrupt elements of the TCP and EPB, and send them home as they have made enough money for themselves and in the process done substantial damage to Pakistan’s economy to last us uptil the next generation. This is not to say that both TCP and EPB do not have excellent middle-level management and junior staff. Some of these people, poor beyond belief, are an example to everyone.
The tragedy is that such people not only manage to destroy the economy of Pakistan and are allowed to do so in the name of humanity, but they hit at the very roots of existence of the poor, hardworking, honest and dedicated low middle level management and low level staff in government organisations, who in previous years, under an honest and able person, may have performed ably, exporting quite a few items from Pakistan, including mangoes, at a profit. Their only fault is that they belong to a system that has no accountability of any kind, therefore they are rendered dumb and helpless.
Pakistan must have its National Countertrade Authority, with broad sweeping powers, and the management must be made accountable for it. If we were to do US$ 3.0 billion worth of export from Pakistan under the form of Barter and/or Countertrade and allocate only 30% as traditional items, it means only US$900 million of the amount would be in the form of traditional item as a sweetener. Of this amount, we may perhaps allocate only US$200 million each for rice and cotton, our main cash earners, the rest being urea fertiliser, naphtha, molasses and cotton yarn. This is a small price to pay for the larger benefits which will accrue by tying our imports to exports.
Unfortunately for us we cannot enter into a long debate on the issues, because Pakistan is confronted today with economic problems which simply have to be solved. A stage has come where either we act today or else all the King’s mangoes will not put Pakistan’s economy together again.
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