A nationwide campaign of Bahria University to promote country’s blue economy
The performance of logistics sector provide a distinct contrast to the financial downturn Pakistan has been buried in. As of December 2018, the logistics sector is valued at $34.2 billion, registering an annual growth rate of 18% between 2017 and 2018 (source: Ministries of Communications and Postal Service), specialists rush to call attention to that the figures present just piece of the image in light of the fact that a huge portion of the segment works in the grey economy with no verifiable records or information. Pakistan is one of just a bunch of nations that doesn’t have a committed Ministry of Transport further adds to the multifaceted nature of estimating the division’s presentation and recognizing the cost, time and quality inefficiencies in freight management, transportation, warehousing, materials handling, protective packaging, inventory control, order processing, market forecasting and customer service.
It should therefore, not a surprise that on the World Bank’s Logistics Performance Index (LPI) 2018, Pakistan has a ranking of 122 (out of 160 countries), primarily due to poor scores in customs clearance, tracking and tracing and timeliness while other developing economies facing similar industrial, financial and political challenges as Pakistan ranked better on the LPI. Bangladesh (100), India (44) and Nepal (114). The country’s lackluster performance on the global index has continued despite receiving a 25 to 30% share of the annual Public Sector Development Programme funding.
World Bank estimated that the logistics sector in Pakistan could capitalize on untapped potential worth approximately $30.77 billion in 2015. This value would be realized by developing integrated road/rail networks (including air, sea and dry ports i-e Blue Economy), thereby improving connectivity between the rural areas and urban markets as well as among regional trading partners. There is no doubt in the fact that Pakistan’s exports will be competitive only when supply chain inefficiencies in bringing products, raw materials and finished goods to market are eliminated by improving the quality and linkages of transportation infrastructure. However, if Pakistan realize its logistics potential and turn into a regional trading hub than we need to work on long-standing issues of transportation sector on the top priority. Railway is the one of the cheapest mode of transportation but still more than 90% of inland freight in Pakistan takes place across approximately 264,000 kilometers of road networks so there is strong need to develop not only road infrastructure but also the truck system but sub-quality fleets and the absence of a comprehensive regulatory framework for the trucking industry are the reasons due to which Pakistan’s exports are not competitive and have contributed to our poor ranking on the LPI.
In addition the trucking fleets in Pakistan do not comply with international standards so they are automatically disqualifying local logistics companies from participating in and benefitting from regional road freight trade, greatly limiting their profitability but still we have the CPEC opportunity, Since it is signed in 2015, all stakeholders have looked upon CPEC (China-Pakistan Economic Corridor) as the springboard that will propel Pakistan towards sustained economic growth and finally enable the country to take advantage of its strategic regional location and emerge as a trading hub. The importance of an integrated and efficient logistics and transportation sector for CPEC to reach its potential can be gauged by the fact that $6.1 billion will be invested towards transforming the existing road infrastructure, while $3.69 billion will go to railways. In line with the high investment priority given to land routes, plans are underway to construct new (and upgrade existing) roads in compliance with international standards to improve freight capacity. This is important because trading experts believe that as CPEC projects mature, at least 100,000 additional trucks will be needed to transport construction material as well as increased volumes of export-import trade goods. During the last five years, Pakistan-China trade has maintained an annual growth rate of 18.8% and this figure is expected to increase. These improvements are expected to reduce travel time by 50% and transportation costs by 10%, which in turn will make Pakistan’s logistics sector more efficient and exports more competitive while driving the profitability and growth of the sector to new heights.
In addition to road infrastructure, an integral part of CPEC is the development of the new port at Gwadar. At present, the bulk (approximately 90%) of Pakistan’s international trade is routed through the Karachi Port Trust (KPT) and Port Qasim. With the development of Gwadar, there is an opportunity to increase the volume of marine cargo while reducing delays due to congestion at the two overburdened ports in Karachi. Furthermore, the government and the business community expect demand for warehousing to increase manifold because several Special Economic Zones (SEZs) will be established along the corridor. Currently, the contribution of warehousing to the logistics sector is minimal, largely because this crucial sub-sector has been ignored by policy makers and logistics companies. Most players in logistics shy away from investing in developing warehousing capabilities due to the massive upfront cost entails and the maintenance expenses involved in the long term as well as the limited profitability of the sector.
The immense opportunity that CPEC presents, not only for the logistics sector but for the economy overall, is undeniable but it is important that Is Pakistan is prepared to capitalize on this untapped potential? At the moment, the logistics sector is overseen by seven to eight separate federal ministries making it next to impossible to have comprehensive regulations for the development and integration of the sector. Foreign and transit trade issues are the purview of the Ministry of Commerce, shipping services are under the Ministry of Ports and Shipping, airports and aviation are supervised by the Ministry of Defense, rail and road infrastructure and freight are overseen by the Ministries of Communications and Railways and customs and cargo clearance matters are controlled by the Ministries of Finance and Interior that’s why a generalized national transport and Logistic Policy is required which should be controlled under one ministry. If CPEC is to catalyze Pakistan’s economy, there are many areas in need of improvement. Upgrading trade terminals, simplifying customs procedures, reducing processing times and modernizing the trucking sector to make it compatible with international standards.
It is recommended that Pakistan’s sustained economic recovery and growth hinges on a robust, integrated, efficient and competitive logistics sector so, government should focus logistics as a cross-cutting policy concern, crossing the administrative boundaries of transportation, commerce, infrastructure, industry, finance and the environment. The creation of a Ministry of Transport is an important first step in this as it will help to gradually bring the undocumented part of the sector into the formal economy by offering incentives such as affordable financing options to upgrade fleets, build warehouses and train resources and if the government succeeds in documenting the grey economy, than it will definitely provide an immediate boost to industry profitability and tax revenues for the government. Furthermore, the process of implementing the long overdue National Transport Policy, which focuses on streamlining and modernizing each sub-sector of logistics enables Pakistan to reap the benefits of CPEC as well as increased volumes of regional trade with Central Asian countries.
[box type=”note” align=”” class=”” width=””]The contributor is in Faculty Dept. of H&SS; Bahria University, Karachi[/box]