As imports soar and exports dip, one cannot help the unsettling feeling that the trade balance will be thrown out of whack again. Besides imports spiraling, shrinking exports mean shrinking textile exports that continue to make up over 60 percent of the total exports. The bust in the textile sector has been highlighted in this space earlier (Read: Textile boom – is the bust nearing?) and its glimpse can be seen in the latest detailed trade data by Pakistan Bureau of Statistics (PBS).
Though textile exports in value term during 8MFY21 increased by 6.7 percent year on year against a growth of 4.4 growth percent in total exports during the period, textile exports in February 2021 alone have seen a dent. Total textile export in February declined by 3.1 percent year-on-year, and by 6.7 percent month-on-month.
So, while much of the growth in textile exports in 8MFY21 is attributable to the growth witnessed in value-added segment particularly bedwear and home textile, and knitwear (all recording double digit growth YoY) – February 2021 textile exports offset the gains with its decline.
The devil is in the details: Monthly exports have continued to see growth in value added segment for the past months, while the basic textile exports such as cotton cloth and cotton yarn have been seeing a continuous decline both in volume and dollar terms; this coincides with yarn shortage in the country and the textile companies crying for duty free import of yarn. However, exports in February not only saw a decline in value added textile segment both year-on-year and month-on-month (except knitwear YoY), but also saw a spike in cotton yarn exports in volume and value terms. This comes at a time when cotton cloth and hence the other value-added textile products exports decline is largely being blamed to shortage of cotton yarn at home. Cotton yar exports in February 2021 were up by 23 and 40 percent year-on-year and month-on-month, respectively. Volumes exported were also significantly up by 10 and 38 percent year-on-year, and month-on-month, respectively.
One possible explanation for the discrepancy between exports and availability of cotton yarn for value-added exporters is that better price being fetched by yarn exports directly. Talking to BR Research, Ahmed Lakhani of JS Global also highlighted other possible reasons such as the strong bargaining power of the spinners, or demand from some key and significant buyer. Whatever the reason is, the local textile layers have been facing yarn shortage and demanding the opening up of yarn imports to remove a key raw material bottleneck that has restricted the exports of value-added textile.
In general, strengthening and reopening of global markets from lockdown and ensuing vaccination drives in countries including Bangladesh and India will be key factors that could restrict export growth particularly in textile segment going forward. Efforts on part of the exporter as well governemnt (if any) during the last 6-7 months to preserve the benefits accrued will now come under scrutiny.
At the cost of being repetitive, quick money could lie in the readymade garments segment, which posted a 2.6 percent growth in 8MFY21 despite 37 percent year-on-year decline in quantity signifying the benefit of higher prices and value additions.
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