Dr Zafar Khan Safdar
Pakistan has spent decades trying to increase its exports, yet it has never fully resolved a more fundamental question. Why does an economy with an industrious workforce, an established manufacturing base and access to major regional markets struggle to compete consistently in the global marketplace? The answer cannot be found in the exchange rate alone, nor in another package of tax concessions or subsidies. Pakistan’s export crisis reflects a deeper failure in the way its economy rewards business activity. Too often, protection has proved more profitable than productivity, and access to government more valuable than the ability to compete.
This was the central argument of VC PIDE Nadeem Javaid’s presidential address at the 39th Pakistan Society of Development Economists Conference this week. His observation that Pakistan does not have merely an export-policy problem but an incentive-architecture problem captures a weakness that successive governments have struggled to confront. The country has introduced policies, announced targets and offered incentives, yet its export performance has failed to match its economic potential.
The long-term trend is revealing. Pakistan’s exports declined from around 16% of GDP in the 1990s to approximately 10% in 2024. Across Asia, meanwhile, economies used international trade to expand manufacturing, improve technology and create productive employment. Pakistan’s relative retreat from global markets suggests that the problem extends beyond temporary economic shocks. It concerns the incentives that determine what businesses produce, where they invest and how they earn profits.
When a business can secure greater returns through protection, subsidies or preferential treatment than through investment in technology and efficiency, the consequences extend far beyond that individual firm. Innovation becomes less attractive, competition weakens and consumers pay for inefficiency through higher prices. Governments may believe they are supporting domestic industry, but protection without performance requirements can leave businesses dependent on the very privileges that prevent them from becoming internationally competitive.
Currency depreciation has repeatedly been presented as a solution to Pakistan’s export difficulties. A cheaper rupee can improve the price competitiveness of domestic products, but only to the extent that businesses can respond to new demand. Expensive electricity, unpredictable taxation, costly financing, unreliable infrastructure and limited access to modern machinery cannot be corrected through exchange-rate adjustments. The conference address cited an estimated 0.45% increase in export demand following a 1% real depreciation. The modest response underlines an important point. Price changes cannot compensate for weaknesses in productive capacity.
Pakistan’s import policy presents another contradiction. Imports are often treated primarily as a threat to foreign exchange reserves, although imported machinery, components and intermediate goods are essential to modern manufacturing. What matters is whether these imports help domestic businesses produce competitive goods for international markets. According to figures cited in the address, the share of imported intermediate inputs embodied in exports fell from 13.7% in 2008 to 9.8% in 2020. The comparable OECD average was 44.5%.
The implication is serious. Pakistan has struggled to connect its domestic production with international supply chains. Import restrictions may offer temporary relief during a balance-of-payments crisis, but indiscriminate restrictions can also deprive exporters of essential inputs. An economy cannot build sophisticated manufacturing by making it difficult for productive businesses to obtain the technology and materials they need.
Foreign direct investment must be judged by the same standard. The arrival of foreign capital is not, by itself, evidence of industrial transformation. Its wider benefits depend on whether local businesses become suppliers, workers acquire new skills, technology is transferred and domestic firms gain access to international markets. Without these connections, investment may add capital without significantly strengthening the productive foundations of the economy.
Successful exporting economies have followed different development paths, but their experiences offer a common lesson. Government support must encourage competition, technological learning and measurable improvements in performance. Assistance should help firms overcome genuine obstacles, not shield them indefinitely from competition. Where public support produces no improvement in productivity or export capability, its continuation deserves scrutiny.
For Pakistan, this requires moving beyond the familiar cycle of announcing incentives and setting ambitious targets. Policymakers must work with businesses to identify the barriers that prevent competitive production, whether they involve energy costs, logistics, customs procedures, product certification, technical skills or access to finance. Government does not need to decide in advance which businesses will succeed. It must ensure that promising enterprises can grow without being held back by administrative delays, inconsistent rules and avoidable costs.
This transition will inevitably create pressures. Some businesses may contract, and workers may lose their jobs as industries adjust to greater competition. The answer is not permanent protection for every existing enterprise. It is better support for people through retraining, skills development and opportunities to move into productive employment. Protecting livelihoods is a legitimate public responsibility. Protecting inefficiency indefinitely is not.
The proposed $100 billion export ambition can provide a useful national benchmark, but the figure alone cannot measure economic transformation. Exports must become more diversified, technologically sophisticated and deeply connected with domestic suppliers. Their growth should generate better employment, stronger industrial capabilities and greater resilience against external shocks. Otherwise, a higher export figure may offer temporary satisfaction without changing the structure of the economy.
Pakistan does not need another declaration of export ambition as much as it needs a change in economic priorities. The decisive test of policy is whether it rewards firms for producing better goods, adopting new technologies, training workers and competing internationally. Until productivity becomes more profitable than privilege, export targets will remain aspirations rather than achievements. Pakistan must do more than sell its products abroad. It must build an economy in which competing successfully with the world becomes one of the most rewarding things a business can do.