EXPORT GROWTH: A CRITICAL LOOK
By SYED M. ASLAM
Oct 20 - 26, 2003
First the good news: Saudi Arabia and the United Arab Emirates have become the distribution points to help Pakistani exports, particularly cotton textiles and garments, penetrate markets in Arabian and African countries. The bad news, however, is that the exports to these two countries are heavily over-invoiced not only to mask an unreal increase last fiscal but is also expected to give a false boost to export performance this year.
During the fiscal 2002-2003 ended June this year, exports crossed the $ 11.16 billion mark for the first time ever depicting an increase of 22 per cent over the previous year. The achievement resulted in self-patting by economic managers and export-related organisations such as the Export Promotion Bureau which spent huge sums of money in advertisements in the media. What, however, has diminished the achievement is that it was made possible due to an unusual increase in exports to Saudi Arabia and the UAE each of which grew by 50 per cent. This also casts doubt that the overall value of exports last fiscal was not real.
For instance, exports to Saudi Arabia had increased from $ 651 million to $ 967 million while that to the UAE had risen to $ 450 million from $ 300 million. These two markets thus played a significant role to help push the exports to $ 11.16 billion level in 2002-03 collectively contributing $ 466 million which made up almost one-fourth of the total $ 2 billion surge.
High placed sources in the textile industry, who ask PAGE not to mention their names, said that the unusual increase in exports to Saudi Arabia and the UAE last fiscal was primarily driven by excessive over-invoicing. The over-invoicing, they claimed, was itself aimed to help compete with such traditional competitors like India, Bangladesh, etc., who enjoy many incentives from their respective governments to push their products into the Arabian and African markets.
The sources said that Iraq offers the potential of becoming the biggest market of Pakistani cotton-textile garments in the region as 90 per cent of the entire demand of cotton cloth used in the making of traditional Abaya, the loosely-fit flowing robe, is reaching Iraq mainly from the UAE.
The question is why the local exporters have resorted to over-invoicing to these particular shipments to Saudi Arabia and the UAE? The sources blamed the over-invoicing on the issues related to the export rebate. They claimed that the export rebate rate is not only negligible thus failing to offer any incentive to the exporters to exploit the Iraqi market where the demand for all kinds of products, including cotton cloth and garments, is constantly on a rise.
Saudi Arabia in general and the UAE in particular, thus, have become the hub of transit trade for the Pakistani exports to help the country penetrate an otherwise untouched markets in the Middle East as well as Africa. However, the indirect exports have created a new breed of entrepreneurs who are anxious to cut the corners by resorting to over-invoicing to remain competitive. For instance, the sources informed PAGE, many exporters engaged in this over-invoiced trades minimise the risks by submitting bills, required for export rebate and sales tax refund, from the market. The phenomenon, however, is resulting in unreal export figures and unsustainable markets which offers only short-lived benefits to exports and portrays an unreal picture about the exports, and the overall economy and industrial activities.
The sources said that the business community has appraised the finance and the trade ministers about the issue and has also suggested to them to eradicate it by providing adequate incentives such as increasing the rate of export rebate and also its timely payment. "The business community has also asked the government to conduct a study to better understand the reasons for the success of the pro-active measures taken by our competitors, particularly in cotton textile cloth and garments sector, and why it has not taken just such measures itself.
There is so much demand and potential to develop new markets in the Middle East and Africa but the lack of incentives is discouraging the big-scale exporters to serve these relatively new markets. This is due primarily to unmatched incentives provided by our competitors to their exporters which render our products highly incompetitive in these new markets."
The government has fixed the export target of $ 12.1 billion for the current fiscal. Official statistics show that during the first quarter of this fiscal ended September, exports registered an increase of almost 15 per cent to $ 2.967 billion. The failure to devise policies that address the reasons for over-invoiced exports to help replace it with scrupulous trade necessary to encourage long-term benefits is imperative to give a real boost to our exports. It would help us develop long-lasting markets for our exports on the one hand and being competitive with our major rivals on the other.