Exports — betting on quantity

Exports at $17 billion in 9MFY19 – are virtually at the same level where they were in 9MFY18. For a few, it may be worrisome. Critics have already been voicing concerns on why and how the exports have failed to lift despite significant currency devaluation.

The criticism seems misplaced. Not only does it take time to get the ball rolling in cases such as textile exports, where bulk orders are booked 4-5 months in advance. It also takes time to get the capacity in place. Moreover, the demand situation in the major exporting destinations also needs to be taken into account. The apparel and textile demand from both the US and EU, Pakistan’s major exporting markets, has been rather dull, and is not expected to be growing at a brisk face in the near future.

Could Pakistan’s exports do better? Yes. Could it be immediate? Probably not. Although, the outgoing Finance Minister, Asad Umar had recently suggested that textile related exports should start showing signs of improvement from April 2019 – it seems highly unlikely that April onwards, Pakistan would be recording double-digit growth.

Granted that the export oriented sector, today is at a much advantageous position than it was last year. The energy pricing and supply have both been ensured at competitive terms. The refunds have been promise dot be cleared, although, the process has not yet stated. But the ball is surely in the industries’ court, as far as making the next move is concerned. And some big players are already in the process of expansion.

But exports would not suddenly improve because the currency has massively depreciated. In a competitive market, buyers are smart enough to adjust the prices accordingly. As evident from the graph, barring towels and other rice category, that comprises 10 percent of total exports, unit prices in all major categories have dwindled in 9MFY19 over the previous year.

In other major categories such as readymade garments, knitwear, bed wear, cotton cloth, fruits and Basmati rice, constituting 52 percent of export value – the unit price in dollar terms has come down – in some cases falling in double digits. There are heartening signs in a few high margin export categories such as readymade garments – where the quantity has gone up by a massive 28 percent year-on-year, but a 20 percent in unit prices, has arrested the overall growth.

Similarly, knitwear, bed wear, cotton clothes have all grown in double digits in terms of export quantity, showing initial signs of resurgence, and expected to hit all-time highs in terms of quaintly exported. Unit pricing would remain depressed, given the quantum of currency depreciation that has taken place. Export prices have historically shown positive correlation with crude oil prices. Should crude and dollar both stay stable; the impact of quantum increase in exports will start showing more in dollar value as well.