PAKISTAN’S exports are falling, and the drop is setting off alarm bells at the highest levels. In the past few days, the finance minister has held a full court meeting with a large delegation from the textile industry, led by representatives from the spinning sector. A photograph from the meeting was also released to the media which shows the government is concerned about not only consulting with industry leaders on the matter, but also to be seen as consulting.

So what is the problem that has everybody so concerned? First quarter exports have dropped by about 10pc from the corresponding period last year. Exports in September, when compared with the same month last year, show an even steeper drop of 17pc. These may not sound like big numbers, but if the trend keeps up it could spell some amount of trouble for the government, especially considering that the trade deficit is continuing to widen.

The government just held a round of meetings with textile industry leaders, who are giving reasons like an overvalued currency, energy availability and high interest rates. Additionally, they also mention stuck-up sales tax refunds which they argue deprive them of the liquidity they need to smoothly operate their companies.

While the government must reach out to exporters it would do well to evaluate what they say about their declining business against a host of objective factors.

Since I’ve spent a fair amount of time speaking with industry leaders about all sorts of issues over the past decade as part of my job, here is some free advice to the government regarding these consultations: take everything you’re told with a pinch of salt.

This doesn’t mean that the voice of the primary stakeholder in our exports ought to be ignored. When your exports are down, it’s the right thing to do for a government to reach out to exporters and ask them what’s going on. But what they will tell you in return needs to be weighed against a host of other, more objective factors.

For instance, if energy is a primary issue for them, how is it that other large-scale manufacturing has registered a growth rate of 5.72pc in the same period? Why are energy shortages hurting textiles more than they are hurting paper and board for instance?

Also, be very wary of the interest rate argument. How come other large manufacturing concerns don’t complain as much about interest rates as the textile industry does? Perhaps because the concerns with interest rates grow out of stakes acquired by many of these players in speculative trades, like real estate and stocks?

Delay in issuing sales tax refunds is certainly a broad-based problem. Many industries complain regularly about this, and rightfully so. But it’s hard to see how this would result in any decline in output. At best, it would necessitate resort to borrowing, but I have a hard time believing that any company in the formal sector will reduce its output because it has money stuck up in refunds.

Some of these reps argue that they are losing market share in key destinations like Europe to regional rivals in India and Bangladesh. But take a look at Bangladeshi newspapers, and you’ll find their textile exports are also down in the same period, and industry leaders there are quoted in the press as saying that this is because they are losing market share to their rivals in Pakistan on account of the GSP Plus scheme.

Bangladesh’s total export earnings in the same period rose by a paltry 0.88pc, causing much concern over there. Almost all of their export earnings are from knitted and woven garments, which saw declines of 3.5pc and 2.7pc respectively. Last year, they had seen export earnings rise by almost 12pc.

Here’s what the president of the Bangladesh Textile Mills Association told one of their financial dailies, when discussing these numbers: “Pakistan is a cotton-growing country while now enjoying the Generalised System of Preferences on the EU market”, causing Bangladesh to lose market share in the EU to Pakistan.

In other places too, one finds regular mention of Pakistan’s relative advantage due to being a cotton producer and enjoying GSP Plus with the EU as the main reason why Bangladeshi exports are suffering.

Here in Pakistan, the largest monthly declines between last year and this year have come in cotton yarn, cotton cloth and bedwear, with knitwear (the main competitor to Bangladesh) seeing a significant increase. This is puzzling because one would think knitwear would suffer from the same ailments that the industry reps have pointed out as the main cause behind their difficulties.

What’s more likely is that the declines owe themselves to factors like slackening demand and falling cotton prices, which would depress the dollar value of the exports. In sheer quantity of exports, cotton yarn does not show a decrease in quantity corresponding to the decline in dollar value between September this year and last, while cotton cloth does show a steep decline in quantity that outstrips the declines in dollar value. Bedwear shows a decline in quantity that is smaller than the decline in dollar value.

The mismatch between dollar value and the quantity of exports in the main declining categories suggests that the declines might be driven at least partially by factors other than those that directly inhibit production.

There are steep declines in some categories other than textiles too. For instance, petroleum products as well as “other manufactures”. But some manufactures, like surgical goods and leather, show an increase. How do we explain this uneven nature of the declines? Why would the energy crisis and high interest rates impact output in some industries more than others?

I’m sure there are good answers to these questions, but I’m also fairly sure that the declines in exports are the result of factors that go far beyond what the industry reps are willing to share. This merits a more detailed look before laying blame in any particular area.

The writer is a member of staff.

khurram.husain@gmail.com

Twitter: @khurramhusain

Published in Dawn, October 23rd, 2014