ENABLING EXPORTERS REGAIN COMPARATIVE ADVANTAGE

REMOVING INEFFICIENCIES AND IMPROVING SUPPLY CHAIN MANAGEMENT CAN HELP IN MAKING EXPORTERS COMPETITIVE IN THE INTERNATIONAL MARKETS.

SHABBIR H. KAZMI
(feedback@pgeconomist.com)

June 25 - July 1, 20
12

In the past, Pakistan enjoyed comparative advantage in textiles and clothing business. After the phasing out of textile quota regime, focus was shifted away from attaining higher market share in the global markets, evident from exports proving too paltry to finance imports.

Since imports cannot be curtailed mainly because of comprising of oil and food imports, the logical option is to enhance exports. Though it may be said there has been an increase in Pakistan's annual exports, the growth has been mainly in value terms not in volumetric terms. Since bulk of the export proceeds still come from textiles, the movement in international prices of cotton plays a key role. It is a common complaint that cost of doing business in Pakistan has gone up significantly in the recent past. This is mainly because of following tighter monetary policy, persistent hike in electricity, and gas tariff but mainly because of load shedding of electricity and gas. It is important to highlight that over the last five years manufacturers have not undertaken routine balancing, modernization, and rehabilitation (BMR) and/or created new capacities because of under utilization of existing facilities. Many of the experts do not subscribe to this, as they believe that on one hand business community has been pilfering electricity and gas and on the other hand not paying the bills. As a result, circular debt is on the rise despite persistent increase in electricity and gas tariffs and load-shedding spells are getting longer.

There are two opinions about the prevailing interest rates. The general perception is it is too high and hurts economic viability of projects as well as cost of production. The other point is that those having access to power corridor borrow with a clear intention of not repaying the borrowed amount. This opinion seems valid if one looks at the delinquent companies and the loans being written off. Some of the companies belonging to textile and cement sectors are notorious. Financial cost of many of the units eats up the entire profit.

Some of the management gurus say that to begin with the units were not economically viable when created. Those spinning units having installed spindles of 14,400 just cannot survive. On top of being smaller in size, many of these are inefficient. Many of these units managed to survive when they were getting electricity from state owned distribution companies. As the outages have got longer, such units have to rely on in-house standby generation facilities but running these on fossil oil proves too expensive.

It may not be wrong that Pakistan's textiles and clothing industry has not gone for upward integration and mostly remains fragmented. There are standalone spinning, weaving, and processing units. Since they have not undertaken BMR, most of these are inefficient. There are only a few 'composite units' capable of turning cotton into made-ups. Some of these have become known international for the brands they produce, one such name in 'ChenOne'. Its journey spread over decades was not a cakewalk, but firm commitment to make a Pakistani brand known in the international markets made the difference. Therefore, it may be said that those units, which have exposure in the international markets, develop a different mindset and try to achieve synergy, which helps it become competitive in the global markets.

Experts also say that at times delay in decision-making kills the opportunity. During FY12, sugar mills had produced nearly one million tons exportable sugar. However, delay in granting permission to export sugar led to smuggling of nearly half a million tons sugar to the neighboring countries. They also say around half a million tons wheat is also being smuggled to neighboring countries. Pakistan has highly porous borders, which make smuggling of many commodities i.e. wheat, sugar, edible oil, dry dates, rock salt and petroleum products lucrative business.

Added to this is the mindset prevailing in Islamabad, which discourages value addition. It is on record that nearly one-third of agriculture produce is wasted because of poor roads and logistic system and highly inadequate storage facilities.

Some of the exporters try to find shortcuts rather than complying with the rules of importing countries. Pakistan produces huge quantities of fruits but these cannot be exported because of absence of processing facilities i.e. waxing and polishing or packaging according to the requirements of importing countries. They mostly dump their product in those markets where rules are lenient.

Pakistan among the top five milk producing countries but less than five per cent of the total milk produced in the country is packed in tetra packs that enhance its shelf life. Due to war on terror being fought in the northern parts of Pakistan, fruits produced in war torn areas could not be brought down to major markets. This year Pakistan would not be able to export its mangoes to Iran because of the geopolitics.

Trade with Iran under the prevailing circumstances offers enormous opportunities. Iran has shown keen interest in buying wheat and halal meat from Pakistan in exchange for oil, gas, and electricity. However, policymakers sitting in Islamabad fear that if they go ahead Pakistan may face sanction. This perception is very incorrect. Lately, the United States has allowed seven countries to continue oil purchase from Iran with the understanding to reduce buying with the passage of time. The barter trade can help both the countries overcome foreign exchange crisis. As such, supplying wheat against oil has remained a practice in the past.

Since export of manufactured goods from Pakistan face a bleak outlook due to looming energy crisis, one of the possible options is that efforts should be made to export horticultural products i.e. fruits, vegetables and cut flowers. All these products have enormous market and Pakistan's share is still too small. These products are available and developing an efficient supply chain can help earn millions of dollars. The added advantage will be higher income for the rural population. Still the better option will be to go for higher value addition producing fruit pulp and juices, hams and jellies.