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Downside of trade

Exports are falling and reasons are not as complex as perceived to be, claim exporters

Downside of trade

The recently released State of Economy (SoE) report by the State Bank at Pakistan has put a major emphasis on the need to increase exports from Pakistan. It talks about the falling export figures and terms the situation alarming for the country’s economy. The report has also advised different players to find new products and markets to export these from here and pointed out that despite the incentives offered by the government, the exporters could not tap the potential to the maximum.

On the other hand, the exporters of both the industrial and agricultural products have their own narrative to share. Their major concern is that their increasing cost of doing business, lack of raw materials in certain cases, structural faults, unbridled imports causing closure of local industries, non-fulfillment of the commitments made by the government etc have a lot to do with the situation in which they are today.

As per figures of the Pakistan Bureau of Statistics (SBP), trade deficit of the country has increased to $32.6 billion with imports standing at $53 billion and exports hovering around $20.04 billion in 2016-17.

Anis ul Haq, Secretary All Pakistan Textile Mills Association (APTMA), represents the textile sector that has 60 per cent share in Pakistan’s exports, 38 per cent share in manufacturing sector employment and 8.5 per cent of the country’s Gross Domestic Product (GDP). He says they have some demands, the most pressing of which is the availability of electricity and gas at regionally competitive prices. “At the moment these prices are high as compared to their regional competitors.” Haq says electricity is available to the industry at a rate of Rs11.5 per unit. “Though the government claims it to be lower, after considering the peak hour rates this figure is quoted at.”

High electricity tariff, frequent power outages, absence of linkages with fashion industry and non-provision of rebate to leather exporters despite promises by the government are other reasons for this downslide.

The APTMA secretary is of the opinion that though oil prices have come down from $105 per barrel in 2013 to around $50 per barrel today, the benefit has not been passed to the industry. He explains, “A country’s exports are based on the comparative advantage it has in a particular sector. This was the case with textile sector which flourished due to the high-quality cotton produced in huge quantities. But over the years, Pakistan seems to be losing this comparative advantage as its cotton production has fallen drastically. Besides, the government has imposed 4 per cent customs duty on the import of raw cotton which is a direct burden on this export-oriented industry. So, on one hand local cotton is short in supply and on the other hand the imported cotton is taxed.”

The exporters were quite upbeat when the government announced Rs180 billion support package to them around the start of the year. Meant for five sectors including textiles, clothing, sports, surgical, leather and carpemaking, it was promised that exporters will be offered rebates and drawback of local taxes and levies on realisation of export orders. This was in fact a realisation that the cost of doing business was high here and the exporters could be compensated in case they exported their products at low rates.

Though this amount was supposed to be disbursed over a period of 18 months, the discouraging fact is that only Rs3 billion have been disbursed during the past six months and only Rs4 billion have been earmarked for this purpose in the budget for the current fiscal year.

Qasim Dar, who has been in lubricants’ import business, says smuggling and dumping of goods by countries like China have led to increase in cheap imports and closure of local industries. “Many of the factories that would deliver export orders as well could not sustain when their viability in the local market was challenged. Secondly, as running a manufacturing concern against all odds is too big a deal people are opting for imports and flooding the local markets with cheaper goods,” he adds.

Similarly, the leather sector — once a top exporting sector — is facing challenges due to different reasons. For example, it is still into finished leather thing and not much into value-added products. The finished leather goes to the developed countries like Italy where it is treated and converted into high priced finished products. Till this is done here, exports in terms of value are not likely to increase considerably.

A spokesman for leather goods exporters in the country shares the livestock population in the country is going down though the government departments wrongly claim it is increasing. “A lot of damage was caused due to export of live animals instead of their processed meat.” He says their labour cost is also high as compared to the neighbouring countries despite the fact that the labour is not that efficient. High electricity tariff, frequent power outages, absence of linkages with fashion industry and non-provision of rebate to leather exporters despite promises by the government are other reasons for this downslide.

Anis ul Haq from APTMA complains about what he calls the over-ambitious revenue drive of the government. He says exports are suffering badly as only the organised and compliant sectors of the economy are facing the brunt. They, he says, are slapped with surcharges and cesses like the Gas Infrastructure Development Cess (GIDC) to cover the cost of develop work it carries out from time to time. On the other hand, he says, those out of the tax net have a good time and do not have to bother about imposition of taxes and levies.

Citing an example, he says the Rs100 billion gas pipeline project has been capitalised (offered shares in the stock market) by the government but it has still imposed GIDC on the local industry.

Last but not the least, the lack of agricultural and scientific research has also taken its toll on the exports of food items and agri-based industry’s products. The lack of bt cotton seed according to the local environment and low per acre yield of crops like rice have deprived Pakistan of cost benefit. Without increasing the volumes with little more investment, Pakistani rice cannot be sold in global markets in huge quantities. The volumes are necessary as unit prices of rice are low in the international market.

Shahzada Irfan Ahmed

shahzada irfan
The author is a staff reporter and can be reached at [email protected]

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