Daily Times

Prior to embarking upon an analysis of repeated failures to enhance Pakistan’s exports certain statistics need to be reviewed. The US and China are two symmetrically opposed models of export growth yet underlying their relative success is their emphasis on research and development (R & D) and quality of research. In 2015 Huawei, a Chinese company achieved the distinction of becoming the leading issuer of fresh international patents.

As revealed in a report of the World Intellectual Property Organization domestic patent applications in China were 928,000 in 2014 surpassing that of the US at 579,000. Currently China is spending almost USD 20 billion on intellectual property rights yet intriguingly its enterprises manage a meagre profit of USD 1 billion annually from similar payments by foreign companies leading to a significant intellectual property deficit of around USD 18 billion.

China is pursuing an innovation led strategy and its outlay on R&D is now 1.7 percent of GDP emerging as a leading exporter of diverse products such as solar cells to high-end telecommunications equipment and lending an impetuous to fast speed train technology. The premier Chinese planning organ ie National Development Reform Commission has proposed to raise the expenditure on R&D to 2.5 percent of GDP by 2020. Comparatively speaking China invests 82 percent of its R&D expenditure towards development of products and manufacturing process, 4.7 percent to basic research and 12 percent towards applied research while on the other hand the US devotes 17 percent of its R&D expenditure towards basic research, 22 percent to applied research and 60 percent to R&D development.

The technological superiority of USA is thus established. It is discussed in a World Bank report that China’s R&D is disconnected with the economic ground realities and state enterprises prioritize R&D as they deem proper. Hence the commercial relevance of patents and published papers is questionable and the average citation rate for Chinese papers in the Essential Science Indicators database remains well below international benchmarks. Germany, despite being a high wage nation, is the world’s leading exporter of research oriented products and roughly twice that of the US. Germany also ranks No 4 in the world in grant of patents. Amongst the OECD countries Canada stands at sixth place in cited scientific publications per capita.

The impact of lowered oil prices worldwide is being taken advantage of by our competitors. In the development paradigm business has to obtain loans at high markup placing us again at a disadvantage with competing economies in the region

China’s companies have taken giant leaps in R&D and boast more then 350,000 PhD’s. Pioneered by ZTE, a USD 10 billion company, ploughing 10 percent of sales into R&D resulting in enhancement of overseas revenues to USD 10 billion from USD three billion since 2006. In China a PhD is awarded within three years whereas in the US and Western Europe the minimum time is four to six years. China retains an edge in capital costs over Western economies as its exporter manufacturers borrow at a concessional rate of 3.5 percent from state banks. However, China’s huge trade surplus with the US is overstated as conventional trade statistics fail to factor in the cost of imported materials producing exports nor low value addition involved and the major portion of China’s exports to the US consist of products assembled from imported components with the active involvement of foreign joint ventures. Even IPhone designed in the US contributes almost USD two billion to the US trade deficit with China.

Chinese research endeavours suit the US in a symbiotic relationship in the areas of cancer treatment forecast to rise by 35 percent by 2021 entailing annual expenditure in the US on cancer treatment to USD one trillion. China remains a trailblaser in genomics research and possesses a vast digital research base and western trained health researchers. China in order to enhance its export quality is constrained to comply with intellectual property rights as it has been demonstrated that the intrinsic theme of the US information processing (IP) industry is the legal framework as endorsed by the Global Intellectual Property Center encouraging technological innovation as US IP intensive industries engage 55 million Americans also worth USD 5.8 trillion exceeding the nominal GDPs of France and Britain. The underlying strength of US exports is IP centric and constitutes 71 percent of all US exports.

One reason for Pakistan not producing companies of the magnitude of Google is that these were essentially startups based on the principle of disruptive innovation. Pakistan is not in a position to increase its exports substantially in the traditional areas by any significant margin in the near future.

The impact of lowered oil prices worldwide is being taken advantage of by our competitors. In the development paradigm business has to obtain loans at high markup placing us again at a disadvantage with competing economies in the region. Till the International Monetary Fund endorses Pakistan’s entry into the mainstream financial system after scrutiny of our external loan portfolio the pressure on the balance of payment will not ease thereby adding to cost of business.

In the private sector Pakistan is producing and exporting medicines and small weapons, with various shades of subsidy provided by the government, of a few million dollars. Yet these projects can be signature projects paving the route to mega export research intensive industries. Pakistan will also have to dedicate a significant portion of its budgetary expenditure towards R&D to break out of the morass of stagnant growth. Wishful thinking will not do the trick.

The writer has done Bachelor’s from London School of Economics and Political Science

Published in Daily Times, November 30^th 2018.