Incentives given by the EU are expected to give a quantum jump to exports from Pakistan

Mar 18 -  24, 2002

European Union (EU), is the second largest market for Pakistan products after the United States. Exports from Pakistan to EU estimated at $2.5 billion, which constitute about 30 per cent of Pakistan's total exports.

After September 11, the EU has increased quota for Pakistan products besides lifting all sorts of taxes and allowing enhanced market accessibility to Pakistani products.

These incentives given by the EU are expected to give a quantum jump to exports from Pakistan provided the market players used their best intellect, maintain timely delivery and above all ensured quality products.

Tariq Ikram, Minister of State and the Chairman of Export Promotion Bureau told PAGE that Pakistan's trade with EU has already started showing positive results and so far an increase of 20 million dollar has already been noticed.

Tariq Ikram feels that an increase of about $400-500 million is expected in exports to EU which means Pakistan's total exports to EU countries will reach the mark of $3 billion. In order to make the process of transactions of this respectable size of exports; Pakistan will have to allocate its foreign exchange reserves in the matching size of the trade with EU.

Pakistan exporting to the Euro-zone countries is increasingly under pressure from their buyers to denominate transactions in the single currency Euro.

Dr. Ishrat Hussain, Governor of State Bank of Pakistan when asked about Central Bank's programme in shifting some of its reserves into Euro, the governor said that the State Bank of Pakistan has constituted a reserves management committee with the task to make recommendations that how much of our reserves should be converted into Euro. He said that the State Bank would take the decision after the report submitted by the committee.

Regarding impact of the single currency on Pakistan's exports, the government said EU certainly is a major trading partner of Pakistan after the United States. He said that after September 11 events and the economic policies and their effective follow up, the economy in Pakistan is improving and Pakistan's reserves have crossed the mark of $5 billion.

As the Central Bank chief he avoided to make any prediction about Euro or Dollar, however he was of the view, currently the Dollar enjoying the leading position will retain its position in future also. However, after doing away with the Deutsche Mark and other currencies of the 11 European countries, a considerable size of reserves of the central banks of these countries naturally replace the Dollar. He said that China has reserves of $215 billion and Hongkong and Thailand etc have the reserves of over $100 billion. In order to get some of these handsome reserves converted into Euro, leaders from EU have visited China twice. Naturally these countries will have to convert their reserves proportionately for trade transactions with the EU countries. This indicates that the Euro is heading towards carving at least second place in the financial world around the globe.

However the two markets have quite a different nature as far as the market demand was concerned. He said that as against the homogenous nature of the US market, the nature of market demand differs on country to country basis in the EU. Out of the 11 EU member countries many of them can be described as the middle class markets which ideally suit to our manufacturing sector. He was of the view that now the ball is in the private sector of Pakistan to take maximum size of the market in EU. They should frequently visit these markets to exploit the situation, as Pakistan exports have not even the scratch of the total size of the imports taking place in the EU countries.

The fact that 11 European economies have bound themselves to a single currency and with the possibility of more countries joining in, the Euro will have multifaceted implications for macro-economic environment, financial markets and exchange rate and reserve management.

It is therefore logical that the Euro's rise will be fiercely contested.

In order to evaluate the potential benefits of Euro on Pakistan and its exports there is the need to know the expected long and short term benefits; Euro brings for Europeans themselves. Some of the short term benefits like development of European capital markets, private and government bonds and equities.

In the long term Europeans are looking forward to more robust growth of the member economies, more choices for their consumers, more efficient enterprises that can compete and sustain themselves in a globalize world.

Pakistan's biggest export to Europe is textile and made-ups. These are usually through buying houses and large store chains in Europe. Even though the item maybe made in Pakistan, the buyers are unaware of the fact as no efforts had ever been made to increase the exposure of Pakistani goods with Pakistani label. The new border-less Europe, with single currency and unfettered access to markets presents a tremendous challenge and an opportunity to commence work on this aspect of our trade.