Pakistan’s foreign trade is growing, barring minor, Iraq-related hiccups. However, there still are looming fears of the fall-out of the Iraq war that may impact the economy over the next few weeks.
So far, both imports and exports are going apace, official statistics, just unveiled, for the first nine months of fiscal 2003 indicate. In fact, March saw a record $938 million exports and $1.27 billion imports. This was the best foreign trade performance not only for fiscal 2003, but for many recent years.
“A negative impact of the Iraq may be reflected over foreign trade in April,” cautions Tariq Ikram, Chairman of the Export Promotion Bureau (EBP).
Realistically, a negative impact is feared not only from high cost of freight but also because of a considerable increase in war risk insurance, that Western shipping companies have the habit of not lifting even years after peace returns to the supposedly affected region. Then that is the fate of the Third World.
Looking on trade itself, an estimated $10 million annual, normal exports to Iraq are in jeopardy. There also is a question mark over the projected $45 million exports to Iraq under the United Nations “Oil For Food” Phase-13 programme. Contracts covering these exports were in the process of being verified, but now their prospects are uncertain. Rice and wheat were the key export items to Iraq.
The state-owned Trading Corporation of Pakistan (TCP), alone, had exported 100,000 tons of rice to Iraq last year. But, as of now,” all business with Iraq has come to a standstill,” says a major Pakistani commodity exporter to Iraq.
It hasn’t happened yet, but home remittances normally sent by overseas Pakistanis working in the Gulf, Saudi Arabia, and Middle East can shrink.
It is significant that among Pakistan’s top six importers, United Arab Emirates is the second and Saudi Arabia the sixth, and exports to these countries have been significantly rising. Exports to Dubai during fiscal 2002 were $720 million, Saudi Arabia $345 million, Kuwait $ 58 million, Oman $47 million, Bahrain $43 million, and Yemen $35 million.
Out of the total exports, Pakistani exports to Europe range between 30 to 35 percent, and 20 to 25 percent to the Gulf. “However, Riaz Ahmad Tata, President of the Federation of Pakistan Chambers of Commerce and Industry, warns “many export orders have already been suspended and we don’t hope to get fresh orders from the European market.”
No firm estimates of losses on these counts have yet been unveiled, but these can go as high as $ 2.0 billion. This will be particularly hurtful because, Pakistan, after years had succeeded in narrowing down its balance of trade and balance of payments deficits.
The nine-month exports, that ended March 31, rose 20.2 per cent to $7.859 billion, compared to $6.538 billion in the like period of fiscal 2002. At this level, exports were 4.3 per cent higher than the nine-month officially-set target. The target for whole of 2003 is $10.4 billion.
Imports in these nine months rose 16.5 per cent to $9.031 billion, or $1.68 billion more than the like nine months of fiscal 2002, when these were $7.954 billion.
Larger imports follow on the back of rising exports as most of these exports used imported industrial raw materials. At the same time, the slowly improving economy is also encouraging larger imports of machinery and capital goods. It is an encouraging sign for Pakistan’s business partners abroad, as the projected growth of exports and forex earnings will enable Pakistan to finance larger imports from its own sources.
As a result, the trade gap widened to $1.172 billion. that is 22.8 per cent more than the first nine months of 2002.
Overseas Pakistanis’ home remittances have been rising fast over the last two years for mainly two reasons: the US-led monitoring of international financial flows in the wake of 9/11, and an 11 per cent appreciation of the Rupee against the US dollar over the last two years. Pakistan already has received $2.9 billion remittances in the first eight months of the year.
The SBP projects that the current year will close with remittances totalling $4.3 billion, doubling last years amount. Foreign trade saw the cost of import and export cargoes go up from the first signal of the US invasion over Iraq. The shipping companies handling cargoes out of Pakistan’s main Karachi Port and the Port Qasim (PQ) imposed an additional war risk premium (AWRP) on all import-export cargoes of $75 for 20 feet containers and $150 on 40 feet containers. AWRP is in addition to $ 30 per TEU, levied as bunker adjustment factor (BAF), effective Feb. 27.
Regrettably, WRP levied by these companies during the US invasion of Afghanistan in 2001 is still being charged. Will someone protest about it, and get it revoked, even if the government does not find itself to be strong enough to get it done?
However, one company— Mega and In — has announced a $ 25 for 20 feet and $50 for 40 feet container concessional AWRP on import cargoes from Kuwaiti ports of Shuaiba and Shuwaikh. But, the export cargo will pay $75 for 20 feet and $150 for 40 feet containers.
The Conference Lines covering shipping between the American Continent and Indian Ocean, including the Arabian Sea, have also increased BAF. It will be $175 on 20 DV, $230 on 40 DV, and $260 on 40 HC High Containers. The shipping Lines have also reportedly announced increasing the freight rates on containerized cargoes destined to the US, Canada, and Mexico, effective May 1. The increase will be: for all-water shipments to US coast to coast $525 for 20 feet, $700 for 40 feet, $790 for 40’ high cube and $ 890 for 45 feet containers.
Aside from the higher freight costs, some of the Pakistani exports have already been badly hit by the invasion on Iraq. Seafood exports to the United Arab Emirates, Saudi Arabia, Kuwait, and Middle East have “totally halted,” exporters say.
“The orders received from these regions before the invasion have almost been cancelled as the airlines scheduled to take these seafood cargo consignments have stopped flying to and from the region,” a spokesman for Pakistan Seafood Industries Association (PSA) said. The seafood export target for 2003 is $140-160 million which is unlikely to be fulfilled. Actual exports over pre-invasion eight months July, 02 to February, 03 totalled 56,000 metric tonnes priced at $87 million, down 1.7 per cent compared to the like period of 02. But, “the adverse impact will start showing from March this year, “ PSA said.
The export target for leather and leather garments’ has, reportedly, been scaled down from $672 million actual exports in 2002 to $ 590 million in 2003, according to Pakistan Leather Garment Manufacturers & Exporters Association (PLGMEA). The normal annual target is $635 to $650 million.
There are, however, some positive news on the foreign trade front, too. Exports to China, for instance, are moving up. Exports to China rose to $402 million in fiscal 2002. Monthly export performance for fiscal 2003 are moving up “on a healthy scale,” officials say. Chinese exports to Pakistan rose from $796 million in 2001 to $1.2 billion in 2002. It includes import of capital goods and machinery for Pakistan’s Gulf-coast port of Gwadar, besides larger import of textiles machinery.
The just-announced central bank permission for export of jewellry on a self-consignment basis, is expected to help boost sales abroad, particularly in the Gulf, Saudi Arabia, Middle east and North America where a large number of overseas Pakistanis are working.
In order to facilitate exports, the SBP has announced, commercial banks may provide credit under Part-1 of the Export Finance Scheme to the exporters of gold jewellry, embedded with or without precious and semi-precious stones on self-consignment basis, on the production of firm export order, letter of credit and may claim refinance from the SBP against submission of the prescribed documents.”
This new facility will help regular exporters, not directly manufacturing jewellry, but who have good business contacts with major departmental stores aboard. They can promote Pakistani jewellry sales in super stores and chains across the globe.
At the same time, the SBP in its ongoing move to reduce the cost of export finance, has reduced to 2.5 per cent its lending rate from its Export Refinance Facility (ERF), down one percent from March. The banks can charge a maximum of 1.5 per cent as their spread. It means the credit will now be available at 4.0 per cent.
Foreign companies exporting to Pakistan will also be benefited by another SPB permission to commercial banks to “remit upto 50 per cent of the C&F value of the imports in advance on the request of Pakistani importers,” without seeking the SBP permission as was the case so for. In the past this limit was 33.3 per cent. It will help those exporters to Pakistan who ask for a part of the price before actually shipping their goods to this country.
This is how the foreign trade situation now reads. But, one still has to keep one’s fingers crossed as to whether Pakistan will be able to attain its $10.4 billion export target for 2003. The EPB insists that it can.
Pakistan’s foreign trade is growing, barring minor, Iraq-related hiccups. However, there still are looming fears of the fall-out of the Iraq war that may impact the economy over the next few weeks.
