Pakistan and Bangladesh – An Economic Crossroads
Mr. Ghani Jafar, who is a Research Analyst at the Institute of Regional Studies, Islamabad, has given an excellent analysis of “BANGLADESH IN TRANSITION” in the NATION over the past week. After cutting out the normal rhetoric of political schisms, some salient points emerge:-
a. Universal goodwill towards Pakistan in Bangladesh which provides for a strong basis for structure of tremendous cooperation between the two countries.
b. Pakistan must extend moral and material assistance to Bangladesh to tide over its present economic difficulties, without strings attached.
c. Bangladeshis are a sensitive people, so the “strongly entrenched lobby in Pakistan, which is thriving on propagation of such distortions” as a “desire for a re-union” must be kept in check, because “our slightest irresponsibility can rock the boat of a durable relationship” (italics are direct quote from Mr. Ghani Jafar).
Over-burdened by foreign debt, Pakistan is in no position to be unilaterally forthcoming in material aid. In fact both the economies of Pakistan and Bangladesh need all the help that they can get. What better solution to this impasse can be found by devising means to help each other, albeit with some minimal sacrifice on each other’s part? The increasing of bilateral trade will not totally erase the debts accrued by each other nor exorcise each other’s problems, but in a horizon of dwindling exports and growing protectionism for each of the two countries, it will act as a conduit for easing economic pressures.
To better understand the present economic realities, a step by step analysis will form a sound basis.
What can Pakistan EXPORT to Bangladesh/Bangladesh IMPORT from Pakistan?
Pakistan’s prime export to Bangladesh is raw cotton, handled exclusively by the Cotton Export Corporation of Pakistan (CEC), a public sector entity. Bangladesh imports upwards of US$ 250 million worth raw cotton of the type exported from Pakistan, about 70% by the Bangladesh Textile Mills Corporation (BTMC), a public sector enterprise having all the nationalised textile mills under its aegis. Conceivably CEC could, without encroaching upon the normal purchasing patterns in Bangladesh, expect to sell conveniently, approximately US$ 100 million worth raw cotton, mainly to the BTMC.
Grey Cloth and Finished Textiles constitute a key element of likely exports from Pakistan. In this respect, the likely figure is around US$ 25 million annually. Again a mix of public/private sector buyers exist in Bangladesh.
Pig Iron and Hard coke manufactured by Pakistan Steel is going to Bangladesh in large quantities already, through our obligations in Barter trade with third countries, like Sweden. Direct trade in these items could be done to the tune of US$ 10 million worth.
Bangladesh Shipping Corporation (BSC) needs 18 Ocean going vessels in the next 6 years. Karachi Shipyard Engineering Works Ltd (KSEW), has not built any large ocean-going vessel (over 10000 DWT) in years. Possibly six vessels over a period of 6 years at approximately US$ 12.5 million for each vessel is a modest export target.
With great emphasis being placed in Bangladesh on rural development and enhancement of the quality of rural life generally, light engineering goods like irrigation pumps, road rollers, power looms, etc. are likely exportable goods from Pakistan, most of the purchases being in the public sector or financed by the public sector. Possible export target is in the region of US$ 25 million annually. Pakistan has the capacity for making heavy engineering goods like sugar plants, cement plants, etc. Pakistan’s first ever sugar plant was sold to Bangladesh, the Natore Sugar Plant. If Heavy Mechanical Complex (HMC) had been more commercial at that stage, the sale of a second plant was an immediate likelihood. Luckily however for Pakistan, a wide spectrum of production base other than HMC is available in the country, whose commercial approach would be less bureaucratized and suspect. Sales could be in the region of US$ 10-15 million annually, including Balancing and Modernisation of Sugar Plants, etc in Bangladesh’s public sector.
Pakistan could conceivably also export, with regular shipping and lower freight rates, slag, cement clinkers, dolomite, gypsum, rock salt and lubricating oil, again in the region of US$ 15-20 million annually, almost all to Bangladesh’s public sector. Bangladesh is always a market for Sindh Joshi Parboiled and Irri 6 rice in the region of US$ 20-30 million annually. With other miscellaneous articles, a gross annual export target is likely in the region of US$ 200 million, if not more, given a willingness on the part of the Bangladesh public sector enterprise to absorb the Pakistani goods and commodities.
What can Pakistan import from Bangladesh/Bangladesh export to Pakistan?
Prime among Bangladeshi exports to Pakistan is approximately US$ 25-30 million worth of raw jute, all purchased in the private sector by the local jute mills. Possibly this can be increased to US$ 35-40 million at the cost of purchases of Thai Kenaf from Thailand or raw jute from China (and some from Vietnam).
Pakistan imports US$ 275-300 million worth of tea but only 10% from Bangladesh, all purchased by private sector, mainly tea dealers of Jodia Bazar (40%) or the monopoly of the two entities of UNILEVER in Pakistan, Brooke Bond and Lipton, which control 98% of the packet tea market in Pakistan and accounts for 60% of the total imports, mostly from Kenya (US$ 100 million). Possibly Pakistan could import US$ 100 million worth of tea from Bangladesh (or 33% of our total tea imports), where the quality has considerably improved since pre-1971, when 100% of the tea used in the then West Pakistan (now Pakistan) used to come from the then East Pakistan (now Bangladesh).
Pakistan has developed the fourth largest jute industry in the world, after India, Bangladesh and UK. Whereas the jute industry in UK, founded without any raw material, is understandable as pre-1947 South Asia was a slave economy, Pakistan’s development of a large jute industry puzzles economic analysts. The cost of a local jute bag in Pakistan is double to that of a similar jute bag if imported from Bangladesh (as a protection to the local industry a cumulative customs duty, etc of more than 100% is levied). However, a fact of life is a fact of life and so Pakistan has now no need of imports of jute goods, except for the Rice Export Corporation of Pakistan (RECP), which can pay much less for its total jute goods requirements (approximately US$ 18 million annually) if it imports temporarily and re-exports (an annual saving of over Pak Rs: 170 million).
Pre-1971, all the newsprint came from Khulna Newsprint Mills (KNM), the only newsprint mill in the Islamic world. At that time the quality (52 gms) was not of international standard but we lived with it. Over the past 3 years, due to Balancing and Modernisation, the quality has now become 48.8 grams and the colour has whitened considerably. However, in the last year, out of the 30000MT for export, 24000MT went to India and only 1000MT to Pakistan. Pakistan, which imports over 50000MT newsprint annually in the private sector, could purchase upto 10000MT newsprint per annum (about US$ 5 million worth). Miscellaneous items includes paper, hardboard, bamboo pulp, telephone cables, etc which can account for another US$ 5 million worth.
A cumulative total of US$ 150 million could be imported by Pakistan. This leaves a margin of over US$ 50 million deficit even at Bangladesh’s OPTIMUM trade potential to Pakistan, with sacrifices on the part of Pakistan.
What is the solution?
A quick glance shows that the problem lies in Pakistan because most of the incoming goods/commodities are destined for the private sector who are not amenable to any form of state control, which is a worthwhile privilege to guard.
At the same time, the key lies in the hands of the Government in Pakistan if we are to reinforce the sum total of Mr. Ghani Jafar’s extremely lucid analysis, that strong fraternal bonds on an equitable relationship, giving due deference to misplaced sensitivity on both the sides.
Pakistan has to devise some means to coerce the tea merchants to purchase tea from Bangladesh and the jute mills to stop screaming about RECP’s purchases which amount to a scant 10% of their total sales. The TCP/TCB Special Trading Agreement (STA) can be utilised, maybe increasing the limit of US$ 40 million to US$ 75 million or 50% of the potential trade, keeping US$ 75 million in the free trade area, with a few worthwhile nudges from the Government of Pakistan to help the process along.
No worthwhile progress has been made in the TCP/TCB STA. It is useless to blame either TCP or TCB. If Pakistan Steel, CEC, RECP, HMC, etc. will not cooperate with TCP in the exports to Bangladesh and a mechanism for channellising imports from Bangladesh vis-a-vis raw jute, tea and jute goods is not found, why blame poor TCP? Innovation and enterprise are the bane of bureaucracy and TCP can ordinarily handle only routine commercial deals, like import of government sanctioned urea fertiliser or sugar.
The solution lies in a coordinated approach led by our Ministry of Commerce, which has TCP, RECP, CEC and the Controller of Imports and Exports (CCI&E) under its wings, duly supported by the Ministries of Production and Communications. Similarly, on the Bangladesh side, the Ministry of Commerce, which has TCB and Bangladesh Tea Board under its wings, has to coordinate with the Ministries of Textiles (BTMC), Industries (Bangladesh Chemical Industries Corporation) and Jute (Bangladesh Jute Mills Corporation).
A lasting relationship that once existed between the two complementary economies of Pakistan and Bangladesh and then was destroyed is now not a vision or a pipe dream anymore, it has again become a hard reality, re-built and fostered out of the deep love and affection between the peoples of the two countries.
The fabric that binds this relationship deeper must be economic. The political will of the two countries is to further strengthen this economic fabric and the crossroads have been reached from where the relationship will prosper — or simply whither away.
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