The political pendulum has swung wildly in the last few weeks, as it often does in the country, but exports and trade prospects appear largely unaltered regardless of the shenanigans or the hike in the interest rate. At the time of writing, the results of the no-confidence votes were not announced but stakeholders appeared to consider the outcome a foregone conclusion and responded accordingly.

“With more stability, there will be more certainty and it is likely that the new government will push for regional trade to source raw materials such as cotton. If sanctions are lifted on Iran, Pakistan could import cheaper energy which would help across the board,” says Dr Manzoor Ahmed, a former ambassador to the World Trade Organisation.

Dismissing any threat of punitive actions by the United States, Dr Manzoor said that with the regime change, the risk has been averted.

“As far as the US, UK and Europe is concerned, consumers purchase goods where they see value. If Pakistani products are competitive, they will be purchased regardless of political developments. The buyers are independent of the government and make decision based on commercial interests,” said Ehsan Malik, CEO of the Pakistan Business Council.

“Contrary to some people, the tariffs imposed on Pakistan’s textile products is the same as those imposed on competing countries. Since the buyers in the US are trying to diversify in anticipation of possible moves by various big players, Pakistan is a beneficiary of that as well. However, the major beneficiaries of US importer efforts of diversification are countries like Laos and Cambodia.

“Obviously, when the government intervenes such as in the case of GSP Plus then the framework has to be complied with. For example, Cambodia failed to comply and was expelled from the programme a year ago.

“What really needs to happen for managing imports is to withdraw the subsidy that was given on fuel and a physical rationing it because if the things continue as they are, we may end up alarming like Sri Lanka is today,” cautioned Mr Malik.

“The increase in interest rate is cushioned by the exchange rate adjustment,” says Khurrum Mukhtar, Patron in Chief of the Pakistan Textile Exporters. “Though rupee’s devaluation will make imported raw material more expensive, the human resource costs have gone down in dollar terms. Other than the overall slowing down of the global economy, there is no major impact on textiles exports of the economic and political turmoil in the country.”

Pakistan Bureau of Statistics data shows textile exports increased by 35.72 per cent in dollar terms and 50.51pc in rupee terms in February 2022 over the same month last year, indicating that the devaluation has been in favour of the country’s main exports. As dollars fetch in more rupees, labour costs are mitigated even when accounting for increases in salary linked to inflation.

The orders that were diverted to Pakistan from Bangladesh, India and Vietnam during the lockdown are still continuing, asserts Mr Mukhtar. “The order book is full as far as apparel is concerned though home textiles is suffering but as we go into peak period of May-September in the run up to the autumn-winter season and Christmas, things will improve.”

Furthermore, Walt Disney has accepted Pakistan as one of the permitted sourcing countries after the ban in 2013 through the Better Work Programme that focuses on improving textile sector’s labour conditions and competitiveness. This is a big development for licensed home textiles and apparel with business prospects of $500-800 million, he added.

Pakistan’s share in apparel business is 1.5pc globally whereas share for home textiles in 17pc, he said while expecting some stability after the no-confidence vote.

While the story seems positive for textiles, the conditions for leather are not so sanguine. “At the moment, prospects for leather are not optimistic because post-Covid people have stop indulging in leather garments which are viewed as a luxury items. Leather garments are usually bought in person — as an expensive product people prefer to physically go to the shop to try it out and assess the cut and fitting. Thus, the boom of online shopping versus physical shopping has adversely affected leather sales. This has led to a decline in Pakistan’s leather exports of more than 26pc over the last year,” says Syed Shujaat Ali, former chairman of Pakistan Leather Garment Manufacturers and Exporters Association.

“The Asian Pacific Leather Fair is the world’s biggest leather show and has been around for over two decades, taking place in Hong Kong usually. It had not taken place for the last two years because of the pandemic lockdown. This year it was held in Dubai from March 30th to April 1st. It was a flop.

“Vendors from China did not participate, resultantly buyers from Europe and the US did not attend the fair either. I forsee a tough couple of years for Pakistan’s leather exports, especially since the measures taken for the promotion of textiles did not extend to the leather industry. The fault also lies with the industry for not taking proactive measures to market their products. In the face of falling exports, banks were hesitant to finance leather exporters as well,” he said.

While the Ukraine fallout remains insignificant for rice exporters for whom Europe is a key market, shipping remains the biggest challenge especially on the European and African routes, said former chairman of Rice Exporters Association of Pakistan Safdar Hussain Mehkri. Devaluation is a boon as it makes Pakistani rice cheaper than its competitors such as India and always helps in the short run.

“However, in the longer run, devaluation brings a higher cost of doing business,” he says. Other than the usual woes, crop availability and pricing is good he asserts confidently.

Published in Dawn, The Business and Finance Weekly, April 11th, 2022

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