KCCI AND THE EXPORT INDUSTRY

SADAF AURANGZAIB
July 10 - July 16, 2006

Karachi Chamber of Commerce and Industry (KCCI) is the hub of activities concerning the commercial and industrial aspect of the city. Recently the KCCI has planned to hold exhibition "My Karachi, Oasis of Harmony" at the end of this month. We met President Haroon Farooki (HF) to know the role of KCCI in promoting the country's exports.

PAGE: First of all, tell us how KCCI is helping the country's exporters?

HF: KCCI assists the trade and industry specially the chamber's members. We have almost 15,000 members directly, besides the five town associations which are the industrial estates - SITE, Korangi, Landhi, North Karachi and F.B. Area; these associations are also related to KCCI and they have their own membership as well, so all and all the Karachi chambers have more than 50,000 members from the commercial, economic and industrial sectors. The export-oriented industries come under our umbrella of the industrial zone, KCCI represents those industries too and they do have their own trade bodies as well. In our export sector, we have a large textile industry, in that industry we have several other segments of that industry too that are working separately as industries and have their own representation as well like weaving sector, value-added product sector, bed wear association, yarn merchant association, towel manufacture association, leather garment association, so every sector that is somehow directly or indirectly into export, they have their own platforms but Karachi chambers represent the entire business community and different sectors so that anything that comes as an irritant and becomes a hindrance or problem for the growth of our exports, KCCI tries to help those sectors with our suggestion, with our proposals and with our interaction with the concerned bodies.

PAGE: Apart from textiles, what other industries are contributing towards our exports?

HF: Well, we have textile industry, leather industry, carpet industry, sport industry, surgical industry, pharmaceutical industry and several food processing units as well. There are lots of traditional items which are being exported at different points of time like sugar, rice, etc. Karachi chambers basically focus the exports and its trends - whether going negative or positive. We try to monitor the exports of all such sectors and when time comes and trade policy has to be announced or budget proposals are to be submitted, there we give our proposals using all the research. We have a whole research and development section here that keep on calculating the data on whatever information is available as a reference on all such sectors and then with the help of the people on our board of governors where we have people from almost every walk of life and from all these sectors who have expertise on these subjects we formulate proposals keeping in view all such irritants and there we give suggestions as to how can such an atmosphere be created where we can boost our exports. We also get the feedback from these trade bodies and then consolidate all such measures, proposals, suggestions and then forward them to the concerned sections and later we follow it up. Secondly by designation the President of KCCI and FPCCI are on the board of governors of almost every body that is related to such activities such as export development fund etc, with the help of this privilege we keep on interacting with the concerned staff and officials and the departments throughout the year and keep them informed of our side of story. We also try to contribute in those matters where we have to safeguard or protect the private sector so this is the kind of job that the institutions like us are doing.

PAGE: Well, how do you see the current export growth trend of Pakistan, whether it's positive or negative?

HF: As you know that few years back we were never able to cross over ten billion dollars exports but fortunately with some focus and good governance, and support we were able to enhance those exports from $ 8 billion to $ 10 billion some three years back. Last year we achieved the target of some $14 billion and this year we set a target of $ 18 billion which we have not hit as yet but have come very close to it, however, unfortunately during the last one-and-a-half years the cost of doing business is getting higher. Whether it's local or international market, the price and the quality are the two main things. When we talk of exports then we should keep in mind these two factors, one has to be competitive in the case of quality which one should be having in comparison to any other product in the international market, and one has to be equally good if not better. Secondly one has to be competitive as far as price is concerned.

In Pakistan unfortunately there is a tremendous increase in utility charges, particularly the gas charges. We should keep in mind that as far as these industries are concerned if cost of doing business will go on these trends then we will not be able to keep up our pace of growth of exports which we have witnessed during the last couple of years. Almost 40% of our actual cost comprises utility expenses which include electricity, gas and water. The scarcity of water and the high prices of other utilities are creating problems here and after globalization and free trade agreement when anyone from anywhere can export to any market, it has become more vital that the cost of doing business should come down. Pakistan being a signatory to WTO has to face certain conditionalities as the quota and subsidies that were once enjoyed by certain sectors are gone now so it is a matter of concern for the manufacturing sectors, especially the export-oriented industries, that how are they going to compete as far as price and cost of doing business is concerned specially in comparison to our neighboring countries and those countries which are also textile based economies and which are also exporting same kind of items which Pakistan is basing upon.

PAGE: How do you see the impact on our exports as our trade deficit is getting higher because of less exports and more imports. How do you think we can overcome this trade deficit?

HF: Present trade deficit which we are witnessing is because of the imports of certain capital items which include the plants and its equipment as after globalization it has become imperative to improve upon quality and we have to use the new technology to upgrade our in-house capacities for the balancing and modernization of industrial units and to increase production. One can bring this cost down by saving on energy losses and by improving the productivity with the same in-house facility that one has. You have to be more innovative now; you have to be more quality conscious now, you have to be more efficiency conscious and in order to do that you have to import certain machinery and plants to upgrade your production capacity. The basic reason for high trade deficit is the import of capital goods plus the import of the raw material for certain industries. The thing that one should keep in mind is that the up-gradation of machinery and high production capacity will enhance the need for more raw materials.

When you say that you have to keep pace with the growth that your country is having, like we have come from $8billion to $18billion worth of exports, then we have to have the export surplus. An export surplus can only be possible if we have more production and for more production you will need more raw materials. Currently I don't see any problem as far as balance of trade is concerned but if the cost of doing business remains high, if it is not viable and feasible for our manufacturing sector to be competitive then I am afraid that nobody is going to export his goods on losses. If the situation remains the same and we don't take certain measures to bring the cost of doing business down then this trade deficit will grow larger.

PAGE: To what extent the free trade agreement would help Pakistan raise its exports?

HF: Well, free trade agreement would certainly help because in that case we won't be having any tariff barriers. The free trade agreement and the preferential trade agreement or early harvest schemes do help and benefit the economy but we should keep in mind that these kinds of agreements and arrangements cannot be a one sided effort. Free trade can only be helpful to its utmost when we know which few items are facing competition and then we work towards its quality and price, as you can't have a wishful agreement so if you want to get something, you have to give to.

PAGE: What would you say about the rising interest rates? Do you think that the devaluation of rupee would help raise the exports?

HF: Devaluation has never been a solution but the ring mark-up rates certainly affect the cost because every business either big or small needs the assistance of a financial institution. When you talk about the industry and big units then they must need financial assistance for their survival, unfortunately the cost of doing business has increased in shape of electricity and gas prices; the mark up rates have also increased the cost of doing business. One and a half year back these mark-up rates went to single digit from double digit and it went to as low as 5% and the private sector availed that opportunity but suddenly they started going up which has curtailed the growth and put the private sector in a very difficult kind of situation as all their calculations went wrong and the current mark up rates have disturbed all their planning and projects which are in the pipeline. There are certain units which are suffering only because they have to be operative despite the fact that the cost is not favoring them, they are not in a position to market their products in profit but still they are doing and operating business just to ensure that they have to do the debt servicing which they have taken from certain banks in the form of financial assistance and they have to pay the debt back.

PAGE: But still the government is supporting the export industry by introducing measures like export refinance scheme.

HF: We have been requesting the government to bring down the rate of export refinance scheme. The government has promised and agreed but the State Bank governor is yet to agree to that because the monetary policy is governed and regulated by the State Bank. Government has in a way taken a supportive measure in the shape of 6% R&B as far as garments are concerned. These kinds of things have to be taken care of. The supportive measures are to be looked into otherwise I would see that might be the export figures have gone up but there is a negative trend as far as value added products are concerned. The volume of exports has declined in certain areas, overall figures are showing $17+ billion but the trend is negative if you minutely study the sector wise figures.

PAGE: What exports do you think would be the best for Pakistan?

HF: Pakistan is an agro-based country and has industries which have an edge as they have raw material in the form of cotton available in their own country. You just can't ignore the textiles because it is the backbone of our economy so you have to keep concentrating on the textile sector but we should delve into the value-added trade. We have to focus on other items such as fruits and vegetables, fisheries, dairy products and we have to get out of the traditional items that we have been focusing on for the past many years and work for a bigger market.

PAGE: What promotional activities could flourish our exports in the international market?

HF: We have to focus on the economic linkages apart from the political conflicts with our neighboring countries. Keeping away from the foreign policy we should work like European Union with no economic boundaries, free movement of people and free movement of goods, which should be the kind of strategy for us to follow. As we didn't get any result either from SAARC or from SAFTA and after being disappointed from these forums we have started the FTAs and PTAs on one to one basis relation. We have signed FTA with Sri Lanka and now we are having FTA with Bangladesh and they both are the members of SAARC. We have to have close linkages and bilateral trade within the region. By having good relationship with our neighboring countries we can use our strategic geographical position as Pakistan is a doorway and a corridor to Central Asia which is going to be a very bigger market. We should avail our location for commercial and business purposes.

PAGE: Last of all, give your final thoughts for the long-term strategy to raise exports?

HF: The government and the people involved in formulating policies should have an approach where they can provide the private sector, the export-oriented sector and the import substitution industries (people and industries who are engaged in producing items that are the substitutes for certain imports) with the favourable solutions. The government should adopt supportive and favorable approach and must try to find solution to provide essential utility services and raw material on a price where the cost of doing business can come down and where the government will help the industries become more competitive in the international market.

STATEMENT SHOWING EXPORTS OF SELECTED COMMODITIES DURING THE MONTH OF MAY, 2006

SL. NO.

COMMODITIES

UNIT

* JULY-MAY,2005-2006

QUANTITY

VALUE

RUPEES

DOLLARS

A

PRIMARY COMMODITIES

.

.

86,103

1,438,855

1

RICE

M.T

3,119,854

61,535

1,028,234

.

a) BASMATI

M.T

837,086

28,260

472,170

.

b) OTHERS

M.T

2,282,768

33,275

556,064

2

RAW COTTON

M.T

59,710

3,777

63,121

3

FISH & FISH PREPARATIONS

M.T

116,342

10,757

179,747

4

FRUITS

M.T

353,915

6,493

108,560

5

VEGETABLES

M.T

85,564

1,323

22,104

6

TOBACCO

M.T

4,435

339

5,654

7

WHEAT

M.T

0

0

0

8

SPICES

M.T

17,410

1,290

21,565

9

OIL SEEDS, NUTS AND KERNALS

M.T

14,833

589

9,870

B

TEXTILE MANUFACTURES

-

-

534,400

8,931,973

10

COTTON YARN

M.T

629,457

76,924

1,285,380

11

COTTON CLOTH

TH.SQM

2,409,171

116,296

1,943,693

12

KNITWEAR

TH.DOZ

69,861

93,600

1,564,672

13

BED WEAR

M.T

333,215

109,302

1,827,006

14

TOWELS

M.T

143,072

31,903

533,182

15

TENTS,CANVAS & TARPULIN

M.T

14,110

1,917

32,024

16

READYMADE GARMENTS

TH.DOZ

33,613

71,112

1,188,644

17

ART,SILK & SYNTHETIC TEXTILE

TH.SQM

255,620

10,749

179,658

18

MADEUP ARTICLES (INCLUD.OTHER TEX.)

-

-

22,597

377,714

C

OTHER MANUFACTURES

-

-

182,476

3,049,864

19

CARPETS,RUGS & MATS

TH.SQM

3,820

13,853

231,571

20

PETROLEUM CRUDE

M.T

0

0

0

21

PETROLEUM PRODUCTS

M.T

1,341,732

40,008

668,726

22

SPORTS GOODS

-

-

18,823

314,490

.

a) FOOTBALLS

-

-

12,752

213,012

.

b) GLOVES

-

-

1,063

17,772

.

c) OTHERS

-

-

5,008

83,706

23

LEATHER TANNED

TH.SQM

14,829

14,891

248,916

24

LEATHER MANUFACTURES

.

.

38,048

636,070

.

a) LEATHER GARMENTS

-

.

26,795

447,953

.

b) LEATHER GLOVES

TH.DOZ

3,875

7,822

130,759

.

c) OTHER LEATHER MANUFACTURES

-

.

3,431

57,358

25

FOOTWEAR

TH.Pairs

14,708

6,908

115,518

.

a) LEATHER FOOTWEAR

TH.Pairs

9,912

5,873

98,216

.

b) CANVAS FOOTWEAR

TH.Pairs

1,153

196

3,267

.

c) OTHER FOOTWEAR

TH.Pairs

3,643

839

14,035

26

SURGICAL GOODS & MEDICAL INSTRUMENTS

-

.

8,642

144,471

27

CUTLERY

-

.

1,772

29,629

28

ONYX MANUFACTURED

M.T

7,287

713

11,909

29

CHEMICALS AND PHARM.PRODUCTS

-

.

23,927

399,778

.

a) FERTILIZER MANUFACTURED

M.T

25,314

319

5,338

.

b) PLASTIC MATERIALS

M.T

116,963

8,409

140,510

.

c) PHARMACEUTICAL PRODUCTS

M.T

12,815

4,433

74,094

.

d) OTHER CHEMICALS

-

.

10,766

179,836

30

ENGINEERING GOODS

-

.

10,848

181,235

.

a) ELECTRIC FANS

-

.

852

14,215

.

b) TRANSPORT EQUIPMENT

-

.

871

14,548

..

c) OTHER ELECTRICAL MACHINERY

-

..

1,174

19,611

..

d) MACHINERY SPECIALIZED FOR

.

..

..

.

.

PARTICULAR INDUSTRIES

-

.

1,411

23,579

.

e) AUTO PARTS

-

.

911

15,226

.

f) OTHER MACHINERY

-

.

5,629

94,056

31

GEMS

-

.

225

3,773

32

JEWELLARY

-

.

731

12,238

33

FURNITURE

-

.

576

9,628

34

MOLASSES

M.T

627,868

2,511

41,912

D

OTHERS

-

..

92,257

1,541,141

 .

TOTAL

-

 .

895,236

14,961,833

.

(*) PROVISIONAL

.

.

.

.

.

RUPEES VALUE IS CONVERTED INTO US DOLLAR ON AVERAGE MONTHLY EXCHANGE RATE.