ANALYSIS: Eying big exports —Muhammad Aftab - Monday, April 11, 2011

Some other products which fetched larger earnings, even though the volume was down, include sports gear, pharmaceuticals, fertilisers, leather products, footwear, furniture, electric fans and cement

Pakistan is eyeing a big export boost on the back of high prices in the international market. But its new and emerging competitors are watching just around the corner to grab at least part of its business.

Total exports in first eight months, July-February of the current FY 2011, rose to $ 15.3 billion according to the State Bank of Pakistan (SBP). But the good news is that the fiscal year is projected to close on June 30, 2011 with exports rising further in the range of $ 23-24 billion, against the official target of $20 billion. Exports in the first eight months of FY 2011 are up 24.6 percent compared to $ 12.3 billion in the like period of FY 2010. The import target for FY 2011 is $ 39 billion.

Bigger export earnings will further strengthen the forex reserves, which, the SBP reported, rose this week to an all-time high of $ 17.95 billion. But a part of the increased export earnings are likely to be consumed by imports of a range of commodities, especially food and oil, which are also witnessing an upswing.

Rising unit prices in the global market place are a double-edged weapon, which cuts both ways — in terms of larger export earnings and more costly imports.

But the external balances appear healthy as of now on the back of rising export earnings. Importantly, there is, simultaneously, a spurt in the home remittances sent by overseas Pakistanis, particularly those working in the Gulf Cooperation Council region (comprising the United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait), the US and UK. Remittances in FY 2010 were $ 8.9 billion, which are projected to rise to $ 11 billion in FY 2011. The Africa-Middle East turmoil has not hit the inflow of remittances, at least for the time being, but one has to watch the situation. The current account balance, as of March-April, appears good, but the widening budgetary deficit, and a slowdown in bilateral and multilateral aid inflows can hurt the external balance. In fact, the net foreign aid inflows were minus $ 455 million in 2009. It further deteriorated in 2010 to minus $ 954 million, as large amounts of the previously obtained foreign aid and credits were repaid.

In financial terms, exports are up, but the sad fact remains that since the mid-1980s, Pakistani exports’ share in global trade has been on the downswing. This decline in share is particularly noticeable in the case of textiles and its products.

Let us go back to the 1980s. Since the start of trade globalisation, exports from key western developed countries have seen a downswing, while those from developing nations have received a major spurt. But rather than taking advantage of this situation, the Pakistani share in global trade is going down. During this period, Islamabad has been losing in terms of export of manufactured products, with its share declining from 1.4 in 1980 to just 0.4 percent in 2008. Analysts attribute this decline to the fact that Pakistan has been heavily dependent on textiles, which are a slow-moving product group. Pakistan also did not cash in on expanding global demand for ready-to-wear and fashion garments. Competition from newcomers such as Bangladesh and Vietnam has also hit it.

Our export of automotive spare parts, sports gear, surgical appliances and jewellery has been poor, although such products, among others, have a vast appetite in the developed western world and other regions. A worrying thought in the foreign trade field is that out of a total of 46 key export products, 24 have recorded a quantitative decline.

Importantly, the decline was recorded by textiles, which contribute approximately 65 percent to overall exports. Its 12 product lines declined in terms of quantity during July-February FY 2011, compared to the like period of FY 2010. Textile group export, according to the SBP, was $ 8.54 billion during these eight months, which was however, up 28.8 percent from the $ 6.7 billion in the like period of FY 2010.

Items which contributed higher earnings on the back of increased unit prices, but lower actual quantitative export, include raw cotton, cotton yarn, towels, bed wear, tents and tarpaulins, and carded or combed cotton. However, a stronger quantitative performance was put up by cotton cloth, ready-to-wear garments, synthetic products, silk, hosiery and knitwear. Carpet exports were somewhat higher in quantity, but the earnings rose just five percent.

The food group’s 12 products saw a quantitative decline. This group fetched $ 2.46 billion. The products include rice, the biggest food export, and the amount it fetched was $ 1.36 billion.

Some other products which fetched larger earnings, even though the volume was down, include sports gear, pharmaceuticals, fertilisers, leather products, footwear, furniture, electric fans and cement. Cement exports both in terms of quantity and earnings are likely to go up in case the present negotiations for its export to India materialise quickly, and construction work in the war-torn Afghanistan gathers more pace.

Our exports may continue to enjoy some advantage out of the present high unit prices, but at the end of the day, business and industry have to reduce their cost of production, cost of doing business, get the high bank interest rates slashed, and ensure electricity and natural gas supply to industry on a regular, full-time basis.

Beware! The emerging new regional competitors are watching just over our shoulder.

The writer is an Islamabad-based journalist and former Director General of APP

Source :\04\11\story_11-4-2011_pg3_6

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