THE Imran Khan government expects the reduction in energy prices for textile companies and the currency devaluation to help boost the country’s stagnant exports, control the current account deficit and ease pressure on the rupee. But will this do the trick?

“Reduced gas prices and currency depreciation will have a positive impact on textile and clothing exports; it should stop further rot. But there is only so much it can do,” argues M.I. Khurram, one of the top knitwear exporters from Lahore.

Indeed, he says, these measures will improve exporters’ competitiveness — particularly the ones from Punjab — who have lost out to regional rivals like Bangladesh, Vietnam and India in recent years because of high energy prices, power and gas cuts, and an expensive exchange rate.

‘Current measures will improve exporters’ competitiveness… But the industry needs more support to push value addition and investment’

“But the industry needs more support to push value addition and investment in new technology and capacity, if it wants to boost textile exports. Unless we increase our exports we cannot control our current account gap or stabilise currency,” Mr Khurram adds.

Pakistan has lost substantial market share to countries like Bangladesh and Vietnam during the last decade or so, and its terms of trade have deteriorated.

World Bank data shows Pakistan’s overseas textile shipments grew by 27 per cent during 2005 to 2016. On the other hand Bangladesh increased its sales by 276pc and Vietnam by 445pc in the same period. Both the countries do not produce cotton.

“Textile exports are likely to post only single-digit growth in the medium-term,” a stock market analyst from Karachi said. “Global slowdown in demand and pricing pressures will also keep textile exports subdued because we typically sell yarn, fabric and low-end garments to the world.”

The country’s textile and clothing exports remained flat at $5.5 billion during the first five months of the present financial year to November, according to the Pakistan Bureau of Statistics (PBS).

Apart from knitwear exports that rose by around 11pc, no other segment performed with low value-added products registering a decline and value-added posting marginal growth. Only knitwear exports picked up by a respectable 11pc.

Pakistan Textile Exporters Association (PTEA) leader Ahmed Kamal says the change in gas price for the textile industry and currency devaluation have improved competitiveness of textile and clothing exports from 3pc to 8pc depending on the quantity of value addition, but the impact on the country’s overseas shipments will start appearing in six months.

“The textile business is seasonal and limited to a small number of customers. It is not that the foreign customers will immediately come running to you, placing future orders. It will take at least six months before we see any substantial increase in our shipments,” he said.

The government — which has sought financial assistance from countries like Saudi Arabia, China and UAE, and is negotiating a new bailout loan package with the International Monetary Fund (IMF) — has repeatedly pledged to boost the country’s exports as a way of permanently addressing the periodic recurrence of the balance of payments crisis.

In spite of reduction in RLNG price from around $12.5-13mmbtu to $6.5mmbtu for the five zero-rated industries in Punjab, factory owners say the rupee devaluation will keep their prices higher than the average regional energy cost.

“The decision to link our energy bill with the dollar rate will keep our costs higher than our regional competitors, the subsidy on imported gas notwithstanding. A dollar-based gas tariff for the industry from Punjab means we still cannot compete with our counterparts from Karachi let alone our competitors from the region,” argues a textile exporter from Lahore who refused to give his name.

The government has also proposed to cut electricity tariff for the export industry to 0.075 a unit.

Moreover, the industry wants the government to release their tax and export subsidy refunds of over Rs113bn to ease pressure on exporters’ liquidity, withdraw upfront incidentals on imported cotton and polyester fibre to meet raw material requirements in view of falling cotton output and yield, stop smuggling and informal import of textile into the country, and extend subsidised loans to indirect exporters for new investment in the supply chain.

“Bangladesh and Vietnam have made progress because their governments support and subsidise their textile exports. We also need similar support from the government,” insisted Mr Kamal.

“In 2005-2007 Pakistan was one of the leaders in textile trade. But then energy shortages took over and many large exporters were bankrupted (because the government preferred other sectors over the export industry when it came to sharing gas and power),” he stated.

He agreed that the reduced prices of imported gas has improved the playing field for the industry but said a lot more needs to be done.

“First you give a level playing field and then you address other issues like policy consistency and marketing. Buyers don’t come to a country where policies can change overnight. We need to assure them that whatever policies we are implementing will be for the long-term so that they can plan their future orders from Pakistan.

“The government also needs to invite 20-30 top American and European brands to market our products and convince them to open buying houses in Pakistan. There are 200 buying houses in Bangladesh. We have none.”

Published in Dawn, The Business and Finance Weekly, December 24th, 2018