KARACHI, Feb 8: The euro — the single currency of 12 European nations — has gained 4.6 per cent against the rupee in the first seven months of this fiscal year. The single currency shot up to Rs 62.84 at end-January 2003 from Rs 60.10 at end-June 2002. This has raised the exporters confidence into the new currency and many of them who deal with European buyers are trying to price their goods in euro rather than in dollars. But their buyers are not much willing to accept it.
“We are trying to price our goods in euro but the problem is that many buyers are not willing to accept it,” says head of a large textile group Mian Abdul Shakoor. “So in most cases we have to bill our exports in the US dollar.” But other leading exporters say in many cases they have replaced dollar-denominated export bills with euro-denominated bills quite successfully. “We want to go for euro-based letters of credit but our buyers generally do not agree on it,” said another textile exporter Majyd Aziz. “If the euro is rising of course the eurozone buyers would not like to import in euros...it will be costly for them...they will insist on importing in dollars,” he explained referring to the fall of the dollar against the euro. The dollar fell 18 per cent against the euro in 2002.
Mian Abdul Shakoor said in some cases the eurozone buyers do agree to import goods from Pakistan in euro but then they ask for adjustment in prices.
Sixty-five per cent of Pakistan’s export earning is in dollar and the remaining thirty-five per cent in euro and other leading currencies. Exporters say the composition may change in favour of non-dollar currencies but it will take some time. “There is what we call a dollar mindset,” says Majyd Aziz. “People are used to dealing in dollars and not all exporters are even keen on quoting prices in euros.” Senior bankers confirm this trend. “Exporters are so used to dollar that they are not even taking advantage of the third currency exposure cover allowed the State Bank,” he said.
Recently the central bank allowed dollar vs non-dollar third currencies hedging to mitigate the exchange rate risks but top bankers say not many exporters have been seen doing this. “This again needs sort of agreement between the exporters and their buyers...if the buyers are not willing to enter into it what the exporters can do about it,” commented a local exporters. But he admitted that the exporters themselves were not very well versed with the technicalities of the exchange rate hedging business.
Exporters say one of the reasons why many of them find it too difficult to sell their goods in euros rather than in the dollars is the growing competition in the world market. “Whether you bill in euros or in dollars...the buyers are going to pay you exactly what the market forces determine,” said a senior Export Promotion Bureau official. “One cannot get the advantage of rising euro automatically.
He will have to be more efficient both in terms of quality of exports and marketing skills to get it. Otherwise everything will be the same regardless of the exchange rate fluctuations.” He cited many examples quoting leading exporters how their buyers had shifted gears to take maximum advantage of exchange rate fluctuations.