Dividends of import curbs

KARACHI: The axle of my beat-up Mehran howls with a screeching kut, kut, kut, kut sound every time it takes a sharp turn. I set aside the money to replace the broken part more than six months ago. But the authorised dealer of Suzuki auto parts turns me away every time I show up at his shop. He ran out of stock a long time back and doesn’t expect a fresh delivery anytime soon.

Thanks to Miftah Ismail’s pro bono attempts at reimagining Pakistan, every other person now seems fully aware of the ills of running a trade deficit. The outflow of dollars shouldn’t be higher than their inflow, he says. Therefore, imports must be curbed immediately because exports can’t increase overnight.

I’ve seen students at top universities burst into applause at seeing Mr Ismail soft-flex his Wharton credentials while making a case for import curbs. “You don’t need a PhD in economics to know that your shop will run aground if your monthly purchases are Rs80 and sales are only Rs30. You just have to be a Memon to know this,” he says in order to contextualise the annual gap between the country’s imports and exports in billion-dollar units.

I get that referencing his Memon pedigree makes him look folksy. What surprises me is the superficiality of the analogy. How is a private business posting a loss similar to a country running a trade deficit? Imports should be in proportion to exports, no doubt. But many ideas become invalid when taken to the extreme.

A blanket ban on imports of items that bureaucrats and central bankers consider unnecessary has backfired in ways previously unimaginable. Forget inflation that hit a five-decade high last month. The neat, linear and textbook ‘solution’ to the trade imbalance problem is rapidly morphing into a bigger crisis: rising unemployment.

Official data on unemployment is sketchy at best. But if we take the listed companies as a proxy for what’s happening in the rest of the economy, the trend becomes crystal clear. An increasing number of businesses are either scaling back operations or shutting down production mainly for one reason: the unavailability of imported raw materials. Dozens of companies have issued notices of production halts in recent months. Curbing imports of raw materials to improve the trade balance is tantamount to cutting one’s nose to spite one’s face.

All production units of Dawlance, a private company with Turkish sponsors, have stayed shut since the start of 2023. The company started facing import-related problems back in May 2022. The central bank allowed it to make do with a quota of 38pc of its preceding year’s imports in August last year. But the situation became even worse as bureaucrats and bankers began playing a “pick-and-choose” game with import orders, the company CEO told me in an interview.

Fridges and refrigerators have hundreds of components. No product can be shipped if it’s missing even the smallest of parts, he said. As a result, the entire production line came to a quick standstill.

Letting the salary-drawing bureaucrats pick winners and losers among businesses even caused a shortage of X-ray films in the country. Similarly, a soap maker told me at a Karachi Chamber of Commerce and Industry (KCCI) town-hall meeting that his factory had been closed for months. Banks weren’t clearing his letter of credit for oil that was used as a natural perfume in very small quantities, he said. It was the same KCCI event that left the central bank governor red-faced with embarrassment after businessmen hurled all kinds of abuses at him for imposing arbitrary import restrictions.

According to noted economist Hafiz A. Pasha, the number of unemployed people will increase by over two million to 8m by the end of 2022-23. Given that the labour force consists of 75.3m people, he said the unemployment rate will approach 10pc “probably for the first time”.

The upcoming torrent of unemployment is the direct outcome of a self-inflicted, conscious decision. It’s thrown the baby out with the bathwater. Exports also dropped 23pc in February on a year-on-year basis.

Those who took this decision knew they lived far removed from the immediate realities of ordinary life. Structural flaws built over decades can’t be fixed in a jiffy.

The state is unloading its heaviest burden onto its weakest people. It’s time for policymakers to push the reset button on import restrictions.

Published in Dawn, March 19th, 2023