Exporting essentials at a cost

Zainab market in Karachi is a fairly big and renowned market for reasonably priced apparel. Previously stocked with export rejects, it now stocks goods imported from Bangladesh. On the other end of the spectrum, Mother Care shop that stocks baby rompers for Rs3000 also have made in Bangladesh tags on them!

Bangladesh is not a cotton producing country yet it has become a world leader in textile exports. Its $5.4 billion imports of cotton in 2016 served as raw material for its $33 billion apparel exports – It is a country that just a decade and a half ago was exporting $5 billion worth of textiles as compared to Pakistan’s $6 billion exports. There are a myriad of reasons why Pakistan’s textile industry is lagging, one of which is the export of cotton at the detriment of the local industries. Pakistan imports on average about 2.5 million bales of cotton for $850 million per annum as raw material due to cotton shortfall in the country.

But this phenomenon is not limited to the textile sector alone. The recent SBP report highlighted the issues faced by the leather sector. Increasingly, the industry is facing pressure from the supply, which has resulted in declining exports. Though the supply of hides and skins is reduced not because of exports through formal channels but because of the high rate of smuggling of live animals to Afghanistan, the affect is the same: Pakistan’s raw material are exiting the country at a cost to the value added industry.

A report on marble & granite by TDAP states that Pakistan has sizeable reserves of high quality marble and granite. Though reserves are not specifically measured, it is estimated that Pakistan has more than 300 billion tonnes of marble and onyx, and more than 1000 billion tonnes of granite. Under the Pak China FTA, raw marble and semi-processed marble is zero rated, which is one of the reason why bulk of Pakistan’s exports find a market in China. However, unavailability of raw materials adversely impacts the local market, preventing it from developing a value-adding capacity. Both the TDAP report, and a SBP research report on ‘Marble and Marble Product’s Segment,’ state that exporting to China is hurting Pakistan’s marble industry to a significant extent.

Among other sectors that suffer from export of raw material is the gelatine industry. Leiner Pak Gelatine Limited’s annual report laments the difficulties faced by their business due to a limited supply of animal bones, which is the key raw material in gelatine production. The export of animal bones to Iran, China, and other neighbouring countries is identified as one of the major impediments to growth to the gelatin industry.

While Pakistan needs to promote its exports, it should analyze the cost of it too. Many of the country’s sectors suffer from the dearth of raw materials as they are being sold abroad. After exporting the raw material, the value added products are imported, resulting in the ever increasing deficit. It’s a vicious cycle where paucity of raw materials result in imports and imports further suffocate value addition. It is a cycle that has no end in sight.