Domestic Commerce in Pakistan


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Domestic Commerce in Pakistan

  1. 1. Domestic Commerce in Pakistan
  2. 2. What is Domestic Commerce?-Domestic Commerce covers all aspects ofpricing, packaging, marketing, SPS/TBT compliance of WTOagreement, improving competitiveness, sophistication, productdiversification, improving doing business environment etc.(PIDE Working Papers 2006:11)-A vibrant domestic commerce sector is the core of the economyfacilitating intermediation between supply anddemand, entrepreneurship development, risk-takinginnovation, and competitive markets. Such an economy movesbeyond commodity exports to brand name, process, and capitalexports, all of which command a higher rate of return.“Policy in Pakistan has been fairly path-dependant, placing ahigher weight on export promotion and domestic industrializationsdevelopment than ondomestic commerce”.
  3. 3. What is Domestic Commerce?• With technological advancement and globalization under WTO, domestic and international markets are more dependant on competition than ever before.• Competitiveness is the biggest challenge that our firms facing today. To achieve competitiveness, there is a need for producing goods as per laid down technical regulations and standards under WTO regime.• Achieving competitiveness requires an overall policy shift to produce highly sophisticated and value added products both for the domestic and foreign markets.• Pakistan has a reasonably large domestic market size which can attract local and foreign investors. To exploit the potential of domestic market, promotion of Domestic Commerce needs a diversification from export promotion to promoting Domestic markets which in turn should prepare domestic industry to produce qualitative and competitive goods.
  4. 4. What is Domestic Commerce?• Pakistan’s economy in recent past has been hit with a series of economic shocks.• Pakistan has been fighting as a frontline state on War on Terror and now the devastating floods have again adversely affected the lives and livelihood of about 17 million people.• To face the current economic challenges, there is a need to mobilize domestic resources in investments, enhance rural financing facilities especially in housing and construction sector, livestock, health care etc.
  5. 5. Importance of Domestic CommerceAn efficient domestic commerce is important, interalia, for following reasons:o Generate exportso Employmento Market integrationo Quality and standardizationo Competitiveness, value addition and sophisticationo Promotion of modern business practiceso Improving market access, etc (from farm to market)o Improving regulations, cost of doing businesso Improving contract reinforcement
  6. 6. Importance of Domestic Commerce• Our domestic consumer lives with substandard consumer goods• We export basic commodities and simple manufacturing goods such as basic textile and clothing items• An emphasis on export promotion and import substitution industry is supposed to help our foreign exchange earnings.• Export promotion and import substitution can be followed at the cost of domestic markets and consumers• For example, exports are subsidized to provide the foreign consumer a Pakistani subsidy while imports are heavily taxed for impost substitution to make Pakistani consumer goods very expensive.• It is in domestic markets that all manner of innovation and entrepreneurship can take place which later will move out and lead to higher exports and foreign exchange earnings.
  7. 7. Importance of Domestic Commerce Brand names are developed in competitive domestic markets and then exports. Even today, Sony releases many new products in Japan first before exporting them. We have many examples in front of us: Coke, Pepsi, McDonalds, and Marks & Spencer etc.
  8. 8. Can you name any Pakistani brands recognized internationally ??
  9. 9. Importance of Domestic Commerce• Domestic commerce in Pakistan is an important sector• Labour force survey says that services which reside in this sector employs about 34 % of the labour force• It contributes to more than half of our GDP.
  10. 10. Linkages with export
  11. 11. Three concept papers by the Wing Following three concept papers were presented by the Wing to the Secretary Commerce: 1) Review of Market Access and Tariff Bindings / Position of Domestically Produced Products 2) Concept Paper on the Formulation and Announcement of a Long Term Tariff Policy 3) Increasing the Competitiveness of the Domestic Industry (papers were converted into working papers and were submitted to FODP as per direction of the Secretary Commerce for “Aid for Trade” worth US$ 100 million)
  12. 12. Focus areas in 3 concept papers, inter alia, included:• Considering the current international market conditions, foreseeing the future market trends and the global economy, market access for Pakistani products abroad and grant of foreign products to Pakistani markets both at multilateral and bilateral basis should be negotiated considering the strengths and weaknesses of Pakistan’s industry.• A full-fledged market access plan needs to be drawn based on product and target market criteria, keeping in mind the GATT provisions of “reciprocity” and “mutually advantageous basis.”
  13. 13. (i) Product Criteriaa) Capacity of the industry to produce highly competitive goods for the international markets;b) The ability to supply goods that conform to the provisions of WTO Agreement on SPS (Sanitary and Phyto-sanitary Measures) and TBT (Technical Barriers to Trade);C) Indigenous availability of the raw material as per the necessary standard and specifications required to produce the product;d) Dependence of the production on foreign raw materials;e) Measuring the electricity input cost in the manufacturing process so that preference could be given to seeking market access for products with less electricity input;f) The ability to produce more value added and sophisticated productsg) Availability of requisite skills to produce the product;h) The ability of the industry to sell the product in the international market without governmental assistance,i) Ranking in world exports.
  14. 14. ii) Target Market Criteriaa. Identification and level of impact of global economic crises on the major economic indicators of the markets to which Pakistan intends to seek market access both on multilateral or bilateral trade basis.b. Some of the indicators in this regard on the basis of which required market access could be based are:- - The size of the economy (GDP); - The Purchasing Power Parity (PPP); - The per capita income; - World ranking in imports of the products in question; - Country / regions major manufacturing industry in case of export of raw materials; - Market size of the product; - Income spending on the products in question in the target country or market;
  15. 15. Target Market Criteria ….. Continued Trade remedy laws, regulatory burden, tariff protection levels and non tariff barriers in the importing country; Logistic ease and geographical location from Pakistan and from other countries in close competition. Identification of the affects of FTA with other countries of the target market on Pakistani products. The wing proposed that the Ministry of Commerce (The Domestic Commerce Wing) and the NTC should prepare short term and long term tariff policies.
  16. 16. Future Work to be undertaken in Domestic Commerce
  17. 17. Future work, inter alia, includes:• Detailed analysis of the regulatory framework• Identify linkages between Domestic Commerce and services sector, with special focus on retail and wholesale sectors• Review firm level competitiveness issues• Undertake following two pilot projects/studies: i) Quality of the goods supplied to the domestic markets: a) Study on “State of the supply of branded/non-branded goods to the consumers in domestic markets, ensure quality related issues etc.” b) Study on “State of transport/handling/storage infrastructure and regulatory framework in the country to improve quality of goods and create efficiencies” ii) Improving real estate (RE) sector: a) Survey of the determinants of growth and impediments in RE sector – buyers’ perspective b) Survey of the determinants of growth and impediments in RE sector–developers / builders (suppliers) perspective
  18. 18. Way Forward It is always a vibrant domestic market that drives economic growth and exports, so both internal and external trade should get equal treatment as they represent two sides of the same coin:• Streamlining regulatory issues, such as: – State of market regulations and laws – Do they lower or raise the cost of doing business – How well do they perform their function – How regulator enforce consumer protection – How competent and independent are they• Promoting Branding & Labeling• Establishing strong backward and forward linkages• Changes in the zoning law• Urban zoning and availability of land and space• Improved infrastructure, etc• Improve diversification, value addition and sophistication levels• Standardization in domestic market• Product development, Innovation• Establishing economies of scale• The state of consumer protection. – Product quality – Warranties and returns – After-sales service
  19. 19. Doing Business 2010Doing Business in Pakistan 2010 provides a quantitative measure ofthe national, and local regulations for: – Starting a business – Dealing with construction permits – Registering property – Enforcing contracts – Trading across borders – Paying taxesTwo types of data – Pursuing laws and regulations – Time and motion
  20. 20. Pakistan’s unresolved problems• The labor supply of Pakistan is growing fast and is unskilled• Rural population is still rising very fast• High levels of poverty
  21. 21. Policy Implications• Pakistan needs to reduce poverty and provide employment to its growing labor force• It needs to create employment outside farming• If this is not done, Pakistan will fail to achieve inclusive growth and to develop. Serious implications…
  22. 22. Facts about development• Economic development requires diversification, not specialization• Rapidly growing countries are those with large manufacturing sectors• Growth accelerations are associated with structural change in the direction of manufacturing• Specialization patterns are not pinned down by factor endowments• Countries that export more “sophisticated” goods, given their level of income, grow faster
  23. 23. Growth and Change: The two sides of a coin Structural change is (a constant process) of: (i) Transferring resources to higher productivity activities (ii) Diversifying production while upgrading it (iii) Producing and exporting a more sophisticated range of products
  24. 24. Export Sophistication at the country level200001750015000125001000075005000 Pakistan 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 PRC India Indonesia Malaysia Pakistan Philippines Sri Lanka Thailand
  25. 25. Study on RE Sector• Real estate market is crucial for promoting commerce & industry, generating employment, and poverty alleviation.• The mortgage of real estate sector (land, houses, commercial etc.) is also very important for financial market.• Moreover, the real estate sector consists of a conglomerate of industrial and service sector including, inter alia, construction services, construction of housing and commercial areas, industrial and large infrastructural projects such as roads, bridges, dams, etc. Property consultants, dealers, mortgage banking departments/divisions in banks, real estate investment trusts; architects, urban planners etc. are also important components of the RE sector.• One of the estimates of 2006 on the housing sector reported that present stock of houses in Pakistan is 21.7 million units with a backlog of 7.90 million units and with a recurring annual backlog of 320,000 units.• There is a wide gap in demand and supply of housing sector. Focusing housing sector will improve many economic indicators and will contribute to GDP of the country, growth of ancillary industries and generating employment etc.
  26. 26. Study on RE Sector• The laws and regulations governing development and investment in real estate sector are outdated.• Impediments to efficient RE sector growth (specially houses, commercial offices, shops, stores etc.) and urban land utilization, inter alia, include excessive public land ownership, inadequate infrastructure services, weak property rights, poor urban planning policies and regulations, poor zoning laws, problems in construction laws and regulations, limited financing facilities for property development and acquisition, ineffective Alternative Dispute Resolution (ADR) mechanism, high land prices, high interest rates and price of construction material.• To improve the real estate sector in Pakistan a study/pilot project has been initiated in the Domestic Commerce Wing of Ministry of Commerce, Islamabad.• The aim of the study/pilot project was to address above mentioned issues, define determinants of growth and impediments, improve overall regulatory framework, find out problems being faced by the builders/developers and buyers and give policy input.
  27. 27. Study on RE Sector• Laws and regulations related to: – Building and Zoning laws/codes, – Urban planning, – Compliance to environmental issues, – Registration of builders/developers etc., – Laws to protect buyers of land/housing/commercial units, – Development of housing/commercial units/societies by the private sector, – Role of agents in RE sector, their registration etc.• List of private builders/developers of housing societies/plazas/commercial centers etc.,• List of Standards for building materials (input), design,• List of material testing labs,• Duties/fee, taxes and
  28. 28. Some Questions• How can we launch domestic brands internationally ?• What needs to be done to produce and export value added and sophisticated products in the country?• How can we make firms competitive globally ?• In your opinion, which factors need to be focused to improve doing business environment in Pakistan ?• What are the linkages between storage, warehousing and transport sector? And why this linkage is important ?• How can real estate sector contribute in improving economy?• How global financial crises, WoT, floods etc have affected domestic commerce and exports?
  29. 29. Thank You
  30. 30. Doing Business in Pakistan 2010 as a benchmarking exercise
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