Can Pakistan Follow Vietnam's Example to Become the Next Asian Tiger?
By Riaz Haq
CA
Vietnam has attracted major manufacturing and export-oriented industries that have relocated from China as the US-China trade war heated up. This process further accelerated during the COVID19 pandemic in the year 2020. As a result, Vietnam is now labeled by many analysts as "The Newest Asian Tiger". Bangladesh, too, has attracted export-oriented garment manufacturing industries. Can Pakistan follow the example of Vietnam and Bangladesh.
With rising manufacturing costs in China and the US-China trade war, many major manufacturers are relocating to other countries in Asia. This situation has helped Vietnam emerge as a hub of foreign direct investment (FDI). FDI flow into the country has averaged more than 6% of GDP, the highest of any emerging economy. The country’s recent economic data shows a rise of 18% in exports, with a 26% jump in computers/components exports and a 63% jump in machinery/accessories exports. These figures have earned Vietnam the moniker of the newest "Asian Tiger".
Bangladesh's Exports
Bangladesh's garment exports have helped its economy outshine that of India and Pakistan in the last decade. Impressed by Bangladesh's progress, the United Nations’ Committee for Development Policy has recommended that the country be upgraded from the least developed category that it has held the last 50 years.
The next challenge for Bangladesh is to move toward higher-value added manufacturing and exports, as Vietnam has done. Its export industry is still overwhelmingly focused on garment manufacturing. The country’s economic complexity, ranked by Harvard University’s Growth Lab, is 108 out of the 133 countries measured. That is actually lower than it was in 1995, according to the Wall Street Journal.
Pakistan's Potential
Pakistan was the original "Asian Tiger" back in the 1960s when other developing Asian economies sought to emulate its development model. It became an export powerhouse in the 1960s when the country's manufactured exports exceeded those of Thailand, Malaysia and Indonesia combined. The creation of major industrial estates in Karachi under President Ayub Khan's industrial policy incentivized industrial production and exports of value-added manufactured products such as textiles. Now the country's industrial output lags behind its neighbors'.
With Chinese looking to relocate some of its industrial production to low-cost countries, Pakistan has a golden opportunity to grow its industrial output and exports again. Here's Karen Chen explaining why:
“Vietnam is too crowded already and moved into automobiles and electronics. There is no space for investment in Vietnam. Myanmar doesn’t have infrastructure. India is terrible. In Bangladesh you don’t have the right conditions for setting up fabric units. So Pakistan is the ideal location for such garment manufacturing because of the abundance of cheaper labour. The investment and tax policies for SEZs and new projects are also good. We’ve confidence to be at here.”
Seizing the opportunity to attract export-oriented investors will help Pakistan become the next Asian Tiger economy. It will help the country avoid recurring balance-of-payments crises that have forced the nation to seek IMF bailouts with all their tough conditions. Focusing on "Plug and Play" Special Economic Zones (SEZs) is going to be essential to achieve this objective.
(Riaz Haq is a Silicon Valley-based Pakistani-American analyst and writer. He blogs at www.riazhaq.com)
