CHALLENGES AND OPPORTUNITIES
Trade opportunities in Afghanistan and also in Iraq
By AMANULLAH BASHAR
May 19 - 25, 2003
The current financial year 2002-03 has proved as one of the most positive years, in terms of foreign trade as the exports sector is poised not only to hit the target set for the year but may go even beyond the projected figure of $10.4 billion for the first times in the history of Pakistan.
Besides the export target which seems to be well within reach at the end of the financial year, other significant developments include outstandingly increase in Pakistan's balance of payments surplus which rose 96 per cent to $4.4 billion in the first nine months of this fiscal. However, the main contributing factor in the balance of payments surplus was unprecedented increase in home remittances by non-resident Pakistanis. The surplus rose to $4.4 billion from $2.2 billion in the same period last year. The rising remittances and foreign investment that is more than $600 million also helped improving foreign exchange reserves which are in the regime of over $10.5 billion.
The controlling of the kerb premium and strengthening of the Rupee against Dollar bringing stability to exchange rate proved a major factor for bringing financial stability to the economy.
The new financial year 2003-2004 in fact is the preamble of the globalization of free trade in 2005 hence this is the year when the trade experts have to tighten their belts to face the challenges which are in store. The year 2005 is approaching fast and with its arrival, WTO regulations will be fully implemented and textile quota will be phased out. In order to prepare for the current and future circumstances, government should take prudent and cautious steps and such policies be adopted so that our economy may face inevitable challenges.
While eyeing on the coming events with the implementation of World Trade Organization (WTO) with effect from January 1, 2005, another major event in the context of foreign trade of Pakistan is the reopening of trade relations with India.
While the opening of trade opportunities in Afghanistan and also in Iraq where our agriculture products especially wheat and rice have already made their way into Iraq may bring positive growth in our exports. By virtue of close vicinity to Afghanistan, the exporters in the private sector already captured a good market share in Afghanistan generally by exporting building materials and especially the cement which has proved a pushing factor for the idle cement industry in Pakistan. While export of food items including wheat, rice and edible oil and ghee are also contributing to the export regime in Pakistan.
Trading circles though have reservations on opening of trade with India, yet they are of the view that opening of trade with India though poses some threat to our industry yet it offers a great market which can be earned only through quality products. They believe that the only area where we can beat Indian products is having an edge over in terms of quality of the products. Otherwise, as far as the pricing factor was concern, they have the advantage of lesser cost of production which helps them to be competitive in the market.
The President of Karachi Chamber of Commerce and Industry (KCCI) while commenting on the future challenges for external trade said that hands of the exporters are needed to face the coming threats by giving them certain concessions in their export earnings.
He said that it is the long standing demand of the exporters that since they are earners of the foreign exchange for the country they should have some access to it. He suggested that 70 per cent of the export proceeds be given to the exporters at the official exchange rate, while on remaining 30 per cent foreign exchange the exporters should have the control, either to sell the same in the open market or to the bank at the open market rate, hence exporters can be benefit which ultimately result in increasing the exports. Regarding the rate of export financing which has come down to 4 per cent for commercial exporters, he appreciated the efforts of the State Bank, yet he said that the rate is reviewed on the basis of changes in the weighted average yield of 6-month treasury bills. Though such steps and cautious decisions are made to achieve the goals, it is not merely the rate of export financing that matters, rather the lending rates charged by commercial banks also play an important role in the business activity. Although some cut in lending rates has been made by some commercial banks, however, the weighted average lending rate is till above 10 per cent which is too high to support the exporters.
The industry is dependent on import of machinery for producing export surplus. Unfortunately, foreign supplies of its machinery take 3-4 months for delivery which creates problems for the exporters as they are not able to secure orders or alternately cannot deliver the products in time. The machinery supplier, in collaboration with their principals abroad would like to stock machines in Karachi Export Processing Zone. If it is allowed the suppliers can deliver the required machinery almost instantly by keeping them in stock at KEPZ, the KCCI chief suggested. The facility of allowing re-export of machinery from export processing to the tariff area in Pakistan will ease the problem of the textile value-added exporters.