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The export figures for the eleven months of fiscal year 2022-23 are very disappointing. We had got used to export growth of over 20% in USD terms over the previous two years and now there is a drop of about 17% in USD value, from a figure of 17.58 billion dollars down to 15 billion in the 10 months of the last fiscal year.

To understand why this has happened one must first understand the factors which gave us the spurt in 20/21 and 21/22 before we comprehend the factors which have given us the drop in exports over the last one year. First of all let us see why our exports boomed over 20/22.

The Imran Khan government followed the advice of the IMF (International Monetary Fund), and common sense. It did not try to hold the rupee at an unrealistically high level and allowed it to float. This gave a fillip to our exports, and once the sales tax refunds were sorted out, exports boomed.

Then came the Covid years when the Indians, and to some extent the Bangladeshis, shut down their factories for fear of pandemic in their urban centers. We handled the situation very well. We not only did not shut down our factories, we gave them soft loans so that they do not lay off their workers. This worked wonders and we regained a lot of the business lost to India due to the policies of export suppression followed by the previous government.

Our exports boomed and brought in much-needed foreign exchange and employment.

What went wrong?

The world has been heading for a downturn over the last one year as Central Banks are tightening monetary policies over the last twelve months. So, overall demand for consumer products has fallen.

The effects of Covid are dissipating and lockdowns have been lifted. Demand for travel, holidays and entertainment has boomed while demand for textiles and consumer goods has dropped; demand for our textile products has also fallen.

There has been a complete failure of our cotton crop. We are now firmly a cotton- importing country and not a surplus country. It is seldom realised how big a setback this is to our textile industry, which is entirely based on the premise of cheap cotton.

What most of us do not realise is that our exports of textiles are closely linked to cotton, its availability and price. The world price of cotton fell from over USD1.3/ pound last year to 86 cents per pound now. A 40 cent/pound drop means a drop of about one dollar per kg once the waste factor in spinning is worked into the cost. Most of our exports are in the USD 5 to USD6 per kg region. A drop of one dollar in the raw material cost means a drop of about a dollar in the price of our products, meaning 16% of the price. This one factor alone explains most of the drop in the value of our textile exports.

We are in a highly competitive world and the market for textiles is fiercely fought over. If we do not drop our prices as cotton costs go down, the other countries will do so and take away our customers. So even if the volumes remain the same but prices drop by a dollar a kilo, then our overall textile exports drop by 15% approximately. In our current case the volumes for many products have dropped as well.

Therefore, the current drop in exports is quite understandable and we should not panic. Nor should we start blaming the exporters for being “unpatriotic.” After all as the economy recedes and the car manufacturers or cement plants curtail their output, they are not called unpatriotic!

A detailed analysis is required by experts and policy measures adopted for further export growth. With the current exchange rate we have a huge cost advantage over our competitors and we should try to exploit it to its full potential. However, price is not the only determinant of a product’s sale appeal.

It’s also the quality, design, and appearance. We are very poor in all those departments, and now have to learn to improve our quality and image. Our image is very poor, and given a choice, most of the world would rather not travel or trade with Pakistan. It’s unpalatable, but true.

If we look at the sectoral performance within the textile exports it tells you quite another story.

I am familiar with the field or terry towels and their exports and an examination of the last 11 months figures reveals a few factors not commonly understood, least of all by our policymakers.

In 20/21 terry towel exports crossed a billion dollars mark. In the world of terry towels Pakistan became the largest exporter by volume, taking about 25% of the world’s exports, yet only 17% of the value. This is quite a feat, as in the field of garments we are still an infant industry on the world stage. If we add “other textiles,” which are mostly allied to towels but do not fall under the category 363, like dusters, bar mops, floor cleaners and hospital aprons, these also went up to 780 million dollars.

If you examine the drop in exports this year it is only about 10% in USD terms, yet the quantity dropped by 15%. The value per kg did not drop by a dollar per kg as did the price of cotton; it went up by 2.5% from USD4.99/kg last year to USD5.13/kg this year. In effect, the towel industry has managed to upgrade and improve its product range from the cheapest to better-priced products.

Similarly, in the category of “bed wear” exports dropped in overall volume yet the value per unit did not go down. It went up from USD6.31/kg to USD6.64/kg! Much the same has happened to cotton cloth. These three industries, along with spinning units, are the established industries. Garments, knits and apparel are new developments from Pakistan.

The better established Knitwear Industry is transforming rapidly to changed conditions. The value per dozen of knitwear has dropped from 31 to 25 dollars. Their volume has increased from 148,307 thousand dozens to over 162,000 dozens. Similarly, the quantity exported of readymade garments has gone up by 50% from about 50,000 dozens to almost 73,000 dozens.

It is quite clear that the huge disruption caused by the failure of the cotton crop is forcing the Pakistani textile industry to transform itself. It is endeavoring to do so. What should be the policy imperatives? I will try to make some suggestions in a sequel to this article.

Copyright Business Recorder, 2023

Comments

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test Jul 05, 2023 09:24am
What do we export ? Nothing. Foreign assmbling plants earn their profits in rupees and then remit those rupees in dollars out of the country which further weakens balance of payment resulting in more loans to pump up the imports because these aseembling plants import everything from abroad. And the most ridiculous thing is that this is 21st century. There is a common pattern from Liaquat to Ayub to Bhutto to Zia to Benazir to Musharraf to Zardari to Nawaz to Imran which is they are all western puppets. Elite class choose a member from them and then those chosen member is tasked with begging western ocuntries for dollars so that the elite class can live up with their lavish lifestyle. The elite class consists of politicians, generals, judges, policy makers, businessmen and media houses. They have totally different personal financial and power interests and they don't give a damn shit to middle class or poor man. All the dollars they beg are used to keep their lavish lifestyle to import.
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Tariq Qurashi Jul 05, 2023 11:45am
Whether we like it or not, textiles are one of the few sectors that has a comparative advantage in the world market and has the potential to increase our exports manifold. Quite a few decision makers are a bit allergic to the textile industry because they see them as having benefitted from undeserved subsidies. Industry in general should have been given priority to import raw materials, spare parts and machinery in this economic crisis, because they are the "goose that lays the golden eggs". Unfortunately this was not done; Factories that close rarely reopen. Emphasis must now be on value added clothing to increase the value of our textile exports. A shirt will always make many times more than simple cloth. Our labor rates are now competitive with Bangladesh, China and India. The government needs to encourage the setting up of stitching units for export, rather than exporting our unstitched cloth to Bangladesh or somewhere else.
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Ali Abbas Jul 05, 2023 08:16pm
I have some questions to ask this writer, where is his email given??
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