Export earnings up on lower unit prices
02 June, 2008
In spite of soaring global commodity prices and currency advantage over the regional economies like India and China, Pakistan is set to miss its export target of $19.20 billion for the current fiscal.
The official trade numbers for the first 10 months to April indicate that the country might reach just close to the export target in dollar terms but its share in the global trade would be substantially cut from what was last year in terms of quantity of the manufactured goods and commodities sold in foreign markets.
“The government conveniently conceals this reality when it cloaks its failure to achieve export growth in dollar value,” former Aptma chairman Shafqat Elahi told Dawn. “We may reach close to the target in dollar terms but the fact remains that exports are declining in terms of quantity. We are making more money by selling fewer trousers, shirts, bedsheets, footballs and surgical instruments, and sending out fewer kilograms of rice and other commodities. Whatever growth we are going to obtain this year would be because of the spiking international commodity prices and not our ability to increase our share in the global market,” he said.
“We have failed to exploit currency advantage over our regional competitors and rising global commodity prices to our benefit. Our exports could have surpassed the dollar target had the government moved well in time to remove the bottlenecks hampering industrial production,” said garments exporter from Sialkot Ijaz Khokhar, who holds that the increase in the unit price of textile items also reflected, though partly, value addition that was made possible after the industry began to receive the R&D support.
“We would miss the target. But we would reach somewhere close to $18.50 to $19 billion, which is not that bad in the given circumstances characterised by political uncertainty, poor country perception, deteriorating law and order situation, etc,” Trade Development Authority of Pakistan (TDAP) chairman Tariq Ikram said. The more troubling is the decline in the textile and clothing exports, which form almost 60 per cent of total export revenue.
He defended the export performance and pointed out numerous factors - political uncertainty, poor law and order conditions, doubts about timely shipments etc – responsible for the poorer than expected growth in exports.
He argued that all the exports – barring textile and clothing sector – had by and large done well. But he did not mention the decline in the exported quantities of rice or textile and clothing items, leather, surgical instruments, chemicals, footballs, etc.
“The textiles and clothing exports declined five per cent in the first half of the year to December from a year previously. But non-textile core exports like rice, surgical instruments, sports, carpets, etc grew by 40 per cent during the same period. The non-traditional – or development sector that includes IT, fruit and vegetables, gems, pharmaceuticals, cement, etc — also grew by over 10 per cent. In the third quarter to March, the decline in the textile exports was also arrested and brought down to just 1.5 per cent from last year. Both non-textile core and nontraditional exports grew by above 40 per cent in the third quarter. Non-traditional items - whose exports have gone up to $2.6 billion from mere $900 million in 1999, have been our saving grace. But non-textile exports cannot be expected to cover the huge loss due to the fall in the textile exports,” Mr Ikram said.
The current year’s export target is 11 per cent higher than last year’s export proceeds of $17.3 billion and 3.2 per cent larger than the last year’s original, unmet target of $18.6 billion. The trade figures for the first 10 months of the current year to April indicate that the exports have gone up by 10.17 per cent to $15.255 billion from $13.847 billion a year previously.
Mr Ikram said lack of competitiveness and low productivity were major issues with the textile industry. But exporters insist that their exports have declined mainly because of the poor country perception, energy shortages hampering production and delaying shipments, political uncertainty, and rising costs of doing business due to spiking utility, credit and raw material prices.
Mr Elahi said the weakening of the rupee had been offset by the rising cost of raw materials. “We need to reduce cost of doing business and consolidate the industry to create volumes to stay in global markets. The government also has to ensure supply of energy to the industry and removal of cross subsidies charged to the textile industry. A big part of value added industry has been closed down owing to rising costs and energy shortages,” he said.
Former commerce minister Humanyun Akhtar Khan said one of the major reasons for the slowdown in exports pertained to the central bank’s failure to incorporate high price inflation in our exchange rate. “The price inflation, fuelled by a loose monetary policy and low interest rates, started to spike in 2004, but it was not reflected in the exchange rate. Instead the rupee appreciated six percent during 2004-06 against the dollar. That made exports more expensive. On the other hand imports became cheaper and created a huge trade deficit of above $13 billion in 2007 when export growth slowed down to just four per cent from 22 per cent a few years back. Now that the rupee has weakened recently, exports in April have grown by 23 percent,” he said.
Further, the former minister said, the previous government ignored both manufacturing and agriculture – the two sectors that create exportable surplus – as it focused on the services sector to obtain quicker growth. He acknowledged that he also could not do much to diversify exports due to the focus of the economic policies on the services sectors and revenue generation.
Mr Ikram said the textile industry would have to pump in money and invest heavily to bring about a turnaround in the short term. “Also, it will have to undercut prices (offered by the regional competitors) and give discounts, up to 10 per cent, to buyers,” he said. He did not agree that Indians and Chinese companies were better placed to undercut their prices due to subsidies given to them.
“China is fast becoming a net importer of Pakistan’s yarn and cloth and did not remain as competitive as in the previous years due to revaluation of yuan and removal of subsidies on its textile exports. In case of India we still face an uneven competition due its government’s sharing of capital cost with the companies and refunds allowed on textile exports,” he maintained.
In the longer term, he suggested, “the textile industry needs to become competitive, efficient and productive as well as undertake its restructuring and consolidation to stay in the global market. In addition, we need to improve cotton production, upgrade ginning facilities and grow contamination free cotton.”
Mr Ikram said the TDAP had devised a comprehensive marketing plan to arrest the decline in exports. He claimed that the TDAP marketing plan, already underway, was also responsible for arresting decline in textile exports after December. Yet, he maintained, Pakistan needed to diversify its textile products if it wanted a bigger share in the global textile trade. “Currently the value of global textile trade is estimated at $480 billion and is billed to soar to $800 billion by 2013. Unfortunately, Pakistan is making limited textile products whose share in the global trade is only $135 billion. We are nowhere in the trade of the rest of the items and products. And if we wish to also take some share in those segments of the international trade, the industry would have to increase the current mix of cotton to manmade fibre from the current 20:80 the international ratio of 60:40. I have written several letters to the textile ministry to focus on this issue but these have proved in vain,” he said as he pointed out that 12 out of 14 filament manufacturers had shut the shop because of the lack of demand for their product.
Mr Humayun Akhtar Khan felt that the export oriented growth has to be textiles-driven. “For that we would have to allow the rupee to reflect inflation in its exchange value, bring down interest rates, expand the scope of the long- term finance scheme for industrial expansion in sectors like leather, surgical instruments, agro- based industry and minerals, reduce utility costs, and bridge the gap between our producers and foreign buyers.
If we manage to put our international trade right, we shall largely resolve our balance of payment problem and other economic issues for good. That would also take care of unemployment and rampant poverty as well as lead to equitable and even regional growth and development,” he argued.