STANDING at $15.3 billion during July-February, exports are poised to touch a record $24 billion by end of this fiscal year mainly because of higher unit value.
Supported by higher exports and robust remittances from abroad, the current account enjoys comfortable position at least for now, although higher fiscal deficit may have a lagging impact on the overall macroeconomics as oil prices maintain a rising trend.
A detailed analysis, however, depicts alarming trends that call for a soul searching at the time of export growth/strength before increasing structural weaknesses expose the country to more severe challenges. On the top of weak fundamentals is the continuous declining share of Pakistani products in the international trade for more than two decades and in the short-term, quantitative reduction in exports of majority of textile products and other commodities over the last year.
Despite a 24.6 per cent increase in total exports during July-February from $12.3 billion of the first eight months of last fiscal year, 24 major export items out of total 46 have dropped in terms of quantities. Textile industry which accounts for more than half of total export earnings, seven items out of 12 have shown significant slowdown in volumes when compared with the last year.
The total exports in first eight months year stood at $8.64 billion against $6.7 billion, up by 28.8 per cent over same period last year. The quantity of raw cotton export dropped by more than 37 per cent, although its earnings increased by 13 per cent to $214.5 million.
Likewise, cotton yarn export earnings increased by a substantial 45 per cent to more than $1.4 billion but it was lower by about 20 per cent in quantity. Cotton carded or combed export earnings also went up by 19 per cent to $1.5 billion but its volume dropped by about five per cent.
Similarly, yarn (excluding cotton yarn) exports also rose in value by 15 per cent but its exports in quantity dropped by 5.3 per cent. Exports of tents, canvas and tarpaulin were lower in volumes by over 46 per cent, while bed wear and towel exports declined by more than three per cent each.
The textile products that posted increase both in terms of quantity and value included cotton cloth, knitwear, readymade garments, silk and synthetic textiles.
Likewise, exports of seven products out of 12 food groups items declined in terms of quantity with rice– the biggest exportable commodity— by more than 12 per cent. Its earnings also registered a drop of a nominal 0.07 per cent when compared with the same period last year. Rice earnings in first eight months stood at $1.36 billion in total food exports of $2.46 billion.
Carpet exports were slightly higher in quantity, but earnings were up by five per cent. In sports goods, export value increased by almost eight per cent. Exports of other products which declined this year over last year in quantity included leather, canvas and other footwear, fertilisers, pharmaceuticals, electric fans, gems, furniture, molasses and cement.
According to Dr Parvez Hasan, a former chief economist at the World Bank and a member of the private sector task force appointed by President Asif Ali Zardari, the post-globalisation period since 1960 resulted in phenomenal reduction in exports of developed countries and increased exports from major developing countries but Pakistan’s share in international trade has been shrinking.
“Over time Pakistan has steadily lost ground in manufactured exports – the engine of growth in international trade– to exporters of major developing countries; its share in this group has fallen from 1.4 per cent in 1980 to 0.4 per cent by 2008,” he said. Even excluding China, Pakistan’s share has dropped more than 50 per cent to 0.7 per cent over 1980-2008.
He attributes this relative decline to three factors and missed opportunities. First, Pakistan remains heavily dependent on relatively slow growing textile exports. It has also made less headway in faster expanding garment exports. Secondly, since 2005 it has lost market share in both textiles and clothing not only to China but also to emerging important exporters, Bangladesh, India, Turkey, and Vietnam. Third, its record in other fast expanding manufactured exports whether sports goods, surgical equipment, automotive parts, or jewelry has been dismal and its presence in international markets negligible.
In Mr Hasan’s view Pakistan missed out on purely non-cotton textiles in the 1960s due to its restrictions and high import duties on inputs for mixed or synthetic textiles. It missed on electronics in the 1960s and 1970s and information technology in the 1990s. Lack of structural changes has been responsible for slow growth in exports as well as low value added.
He said the country needs to move towards an export driven development strategy that would allow it to better participate and compete in world markets. A multi pronged strategy focused on competitiveness of textile exports, overcoming constraints on garment exports, and major diversification of exports not only in manufacturing but also in information technology and high value agricultural exports. The goal should be at least 10-12 per cent annual real growth in overall exports over the next five years.
Mr Hasan argues that a realistic exchange rate was absolutely necessary to maintain export competitiveness.
He also recommends joint public and private sector efforts to attract foreign investment in textiles, clothing and other promising export sectors from countries like Korea, Hong Kong, Malaysia, Taiwan, which are losing ground in labour intensive industries due to high and rising wage costs, with a focus on upgrading skills and technology and to make use of established export channels.
He said an important recommendation in the Strategic TradePolicy Framework 2009-12 to reduce anti export bias ( by withdrawal of protection from inefficient industries, minimisation of taxation at investment stage, and elimination or zero rating of customs duty on important inputs to textiles and clothing exports), should be pursued vigorously.
The well-known economist also called for a special focus on expanding exports to regional partners especially China and India, the two fastest growing economies in the world. The large negative trade balance with these countries can provide some leverage.
Also, he proposes a special and speedy implementation review of the free trade agreement and establishment of freed trade zone with China and assessment of their likely impact on exports in the near term.
Likwise, a similar review of key constraints and principal opportunities for expanding trade with India should also be conducted while focusing on the development of export supply chains using the work being done in the context of the National Trade Corridor Improvement Project, he concluded.
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