The continued LSM contraction has invited all sorts of criticism, as the slowdown still seems to be finding the bottom, in contrast to the hopes of recovery. The heaviest-weighted textile production growth stayed by and large stagnant, drawing concerns from some corners over the export performance. Some experts even went on to argue that zero growth in export-oriented textile LSM numbers mean that export volumes have either declined or stayed the same.
Only that, this is not how it works. While the quantity of cloth produced may have stayed the same - the textile export performance has banked heavily on value addition deeper in the chain. Going back to “how to read LSM numbers” would not hurt for some around. The SBP too, has noticed that the mismatch between production and export volume data has widened further.
It must be remembered that domestic textile output data is skewed towards primary products. The transition from low value-added products such as yarn and cotton cloth, to high value-added products such as apparel, is as clear as daylight.Onto the export performance. A 3 percent year-on-year increase in dollar value is not necessarily chest thumping stuff. A 10 percent year-on-year increase in food exports, which accounts for almost one-fifth of total exports, is not too shabby either. Rice accounts for half the food exports, and the resounding basmati comeback should instill hopes. Better still, massive rice export is all volume driven, despite significant dip in unit price.
While Pakistan had its more than fair share of vegetable shortages, fruits and vegetable exports was not a disappointment. While fruit exports increased in quantity, vegetable exports raked in higher unit prices. Combined, horticulture exports have a bigger share than the oft-discussed leather, sports, or surgical exports. Surely, such impressive numbers warrant more attention from those who matter, in the bid to diversify the textile centric exports.And then the textile story. Looking from outside – a near 4 percent year-on-year growth in dollar terms is barely passable. Bringing in the volume story, which has now been going on for a few months, the picture looks brighter and better. There is more reason to rejoice that the high value-added exports such as apparel are the ones growing strongest. Even the unit prices, in some cases have shown resurgence.
Textile performance should also be viewed with the perspective of global economic slowdown. The shift from high-priced apparel demand to mid-range apparel, in the developed countries, has worked in Pakistan’s favor. Pakistan had the timing right in terms of textile production cost, as energy prices for textile industry were in line with regional prices for most of 2019. Energy input prices have reportedly been increased for export players. With ongoing expansion, the move to counter a subsidy of Rs10-15 billion at best, could backfire big time. The government would do well not to tinker with energy prices for the export sector.