S.KAMAL HAYDER KAZMI,
Research Analyst, PAGE
Apr 30 - May 6, 2012
Exports are important to the economic well being of a nation including Pakistan. In recent times, the economy with a favorable exports growth rate records higher growth rates.
Pakistan's exports posted a nominal year on year (YoY) growth of 3.6 per cent during Jul-Dec FY12 compared to an impressive growth of 18.7 per cent in the same period last year (SPLY).
NON-TEXTILE EXPORTS DURING H1-FY12 (MILLION US$)
ITEMS QUANTUM IMPACT PRICE IMPACT Rice -333.4 224.3 Petroleum products -172.6 74.3 Leather garments -29.9 6.8 Cement -46.8 34.4 Pharmaceutical products -68.8 63.1 Gloves -12.4 8.4 Fruits -32.2 44.0 Leather gloves 33.3 -7.9 Plastic material -1.8 45.2 Solid fuel -25.6 83.6
As such, it is expected that the exports to contract by around three per cent during the current fiscal year. The decline in export growth is largely attributed to fall in textile exports.
Textiles that contributed more than 73 per cent to last year's export growth had a negative contribution this year, though this was largely offset by positive contributions made by overall food and other manufactures groups.
Textile exports were contracted by 4.8 per cent during H1-FY12 against an increase of 25.2 per cent last year. This contraction was mainly due to decline in the quantum of exports during Q2-FY12. Textiles in Q1-FY12 had registered a YoY growth of 9.9 per cent.
Both demand and supply side factors were at play in the decline of textile exports with later being more significant. On the supply side, worsening energy situation (mainly gas) remained a major drain on production activities of textile sector.
The situation was particularly bad for the textile industry in Faisalabad, which contributes substantially to textiles related exports. In addition to electricity load shedding, the city faced increased shortages of natural gas.
With Euro Zone economies struggling and recovery in the US likely to be slow, the IFIs have revised downward their forecast for world growth. The decline in demand in these two important economies would have adverse consequences for small emerging economies like Pakistan.
Already decline in demand is clearly discernable from the fall in textile imports in both the EU and the US. This was more apparent in the Q2- FY12 as along with quantum, price impact also became negative.
Presently, Pakistan is allowing duty-free exports of its textiles and apparel items to India. India has already taken steps to improve commerce with Pakistan and it should now match these measures to improve trade ties.
Furthermore, Pakistan's exports the textile related commodities during March, 2012 were cotton cloth (Rs19,006 million), cotton yarn (Rs15,840 million), knitwear (Rs12,388 million), readymade garments (Rs11,369 million) and bed wear (Rs11,213 million).
Exports during March 2012 amounted to Rs181,507 million, February 2012 Rs184,343 million (provisional) and March 2011 Rs210,208 million showing a decrease of 1.54 per cent over February 2012 and 13.65 per cent over March 2011.
In terms of US$, the exports in March 2012 was $2,001 million as compared to $ 2,034 million (provisional) in February 2012 showing a decrease of 1.62 per cent and by 18.76 per cent as compared to $2,463 million in March, 2011.
EXPORTS PERFORMANCE (JUL-DEC)
ITEMS VALUE IN BILLION US$ GROWTH (%) FY11 FY12 FY11 FY12 Food 1.6 1.9 9.0 66.2 Textile 6.3 6.0 73.4 -68.7 Petroleum 0.6 0.6 11.3 -9.4 Other manufactures 1.9 2.1 4.4 58.9 Others 0.5 0.7 1.8 53.0 Total exports 10.8 11.2 100 100
Non-textile exports of Pakistan recorded a YoY rise of 15.2 per cent during Jul-Dec FY12 over the SPLY. Food exports recorded a growth of 17.6 per cent, and the other manufactures 13.4 per cent. This was largely attributed to higher prices as the quantum for most of the non-textile items declined during the period under review. Within the non-textile, one of the otherwise strong performers, rice exports declined by 10.7 per cent during H1-FY12 compared to the SPLY due to the decline in quantum. The decline in rice exports is attributable to a number of factors including fall in the demand in Europe, India's decision to allow export of non-basmati rice after four years that has augmented the world supply.
India is offering non-basmati rice at much lower price due to both large carryover stocks and recent depreciation of the Indian currency; a part of this slowdown may be attributed to problems faced by rice mills due to frequent power shortages.
It is also estimated that the country may not be able to meet its full year rice export target of US$2.5 billion due to shortfall in exports up to H1-FY12. The exports of petroleum products also declined despite higher prices; circular debt problem appears to have constrained refineries capacity to import.
Exports of non textile commodities during March 2012 included rice others (Rs11,493 million), jewellery (Rs6,593 million), raw cotton (Rs6,202 million), rice basmati (Rs5,478 million) and petroleum top naphta (Rs5,199 million).
To counter the impact of decline in the exports targets, it is high time that the government should solve long-term structural issues of exports so that the country can earn maximum foreign exchange.