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Textile exports left to wither – Editorials


EDITORIAL: It increasingly appears as if nothing is going right in Pakistan. At the time when every dollar inflow matters, textile exports that comprise nearly 60 percent of Pakistan’s exports of goods are falling. They are down by 5 percent to $7.35 billion in Jul-Nov and the fall is steeper in the last two months — down by 15 percent and 25 percent in October and November, respectively.

It’s an alarming trend and in case this trend persists it would exacerbate our problems on the external account. Some of the reasons cited for the decline are global, such as the recession in the West –- mainly in the US — that is curbing demand. There are inventories building up at the buyers’ end and, consequently, new orders are dwindling. While this may well be true but it does not necessarily mean there are no more opportunities.

One low obvious option is to nibble the Chinese share of the US market in textiles and other products.

With the ongoing US-China economic tensions, there is an increasing shift in US imports towards emerging markets — away from China. Pakistan definitely has the potential to expand its share in global textile market. The trend is there for a couple of years and that is one reason Pakistan’s textile players expanded in the last 2-3 years with State Bank of Pakistan (SBP) allocating majority of TERF (temporary economic refinance facility) and LTTF (long term financing facility) concessionary long-term loans to textile sector. Unfortunately, however, exports are still falling.

On the other hand, however, apparel exports from Bangladesh are still on the rise. Reportedly, Bangladesh textile exports were up by 36 percent in last month. The country’s apparel exports to the EU soared 45 percent in Jan-Aug. This is mainly due to the shift of businesses away from China. Lately, the zero-Covid policy in China is giving more room for other economies to grab its export share.

Bangladesh has grabbed this opportunity with both hands. In Pakistan, however, the domestic economic issues are coming into play and not allowing companies to exploit this opportunity to their advantage. The energy supply is not smooth at all. There is a case of moving from captive to grid; but the grid supply is not consistent. And if it is, the rates are higher than what Bangladesh’s exporters pay. Then, due to falling margins, the Bangladesh’s government, unlike Pakistan’s, has increased the rebate on exports.

Another issue is of the turnaround time of exports. Raw material is being imported, processed and re-exported. The turnaround time in Pakistan is 5 to 6 months while in Bangladesh it is 1 to 2 months. That saves cost and time both. Another impediment to exports is the raw material supply that is restricted in Pakistan.

In the aftermath of the floods, cotton supply is short as a good chunk of cotton crop has been destroyed. And, imports too, have nosedived. The supply of other raw materials is short due to SBP’s self-imposed restrictions, according to market players. This import disruption is also having a deleterious effect on the performance and maintenance of factories. In the absence of spare parts, some mills are partially closed.

Working capital for which bank finance is lifeblood is expensive in view of the high policy rates as limits on export refinance schemes remain unenhanced to cater to the increasing costs of textile firms. The export refinance scheme limits are requiring significant enhancement in PKR due to currency depreciation. That even banks are reluctant to increase the exposure at market rates is a disheartening experience. That too is hurting export growth’s prospects. Finally, it is the rupee-dollar parity. Interestingly, the interbank rate is at a discount (not always) against the open market rate.

There is no rebate for the textile players, and their competitiveness suffers due to administrative impediments to payment systems in foreign currency at certain levels. All these factors are strongly contributing to the decline (or lack of growth) in textile exports. SBP or government or both should look into these matters without any further loss of time with a view to reviving export growth. Last but not least, it is also SBP’s mandate or duty to worm out and expose to brutal light of the sun everything that is bogus, boastful, ungenuine and untrue.

Copyright Business Recorder, 2022


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