Exports declining as govt ignoring apparel sector
Lahore-Pakistan Hosiery Manufacturers and Exporters Association (PHMA) has expressed deep concern over declining trend in textile exports, which have dropped by 37 per cent to $751 million in May 2020 during a turbulent period of post-corona slowdown for textile manufacturers, who await the promised incentives by the government, including disbursement of sales tax refunds. PHMA vice chairman Shafiq Butt pointed out that this is the second successive month of massive reduction in textile exports amid the global pandemic. In fact, all categories of textile exports witnessed double-digit declines. Exports of cotton yarn saw the steepest decline, from $107 million in May last year to $52 million in May this year, or a 51 per cent decline.
Highest value areas like garments (which stood at $252 million last May) and knitwear (which stood at $274 million last May), declined by 46 per cent to $136 million, and 34 per cent to $181 million this May respectively. The category of bed wear experienced the least amount of shock, but even that segment declined by 22 per cent year-on-year from $188 million to $146 million.
Shafiq Bttt said Pakistan’s export has been declining massively due to the outbreak of coronavirus throughout the world. In view of declining exports, the government must have announced some relief to support the export sector, he said and added that PHMA had suggested the authorities to revive zero-rated status to the export-oriented industry to resolve the liquidity crunch due to stuck up refunds.
The textile industry was also demanding a reduction in the turnover tax, enabling the industry to compete with regional competitors. He said that PHMA had also demanded of the continuation of energy package for export industry to ensure the provision of electricity at 7.5 cents per kWh and gas at $6.5 per MMBTU in next budgetary year but no recommendation of exporting sector was entertained by the government. He said that the withdrawal of zero-rated facility dismayed the exporters, while the cost of production is continued to rise. Data on container traffic at Pakistan’s two major ports shows that a sharp decline in export cargo handling since mid-March.
This is consistent with the cancellation of export orders or requests to delay the shipments when the lockdown started in Europe. In fact, the only silver lining the textile industry has is that at least the month of May was not as bad as April.
That particular month, which saw exports decline by 65 per cent year-on-year to $404 million, represented a historic, multi-decade low. Most of that was aggravated by an extremely strict lockdown in Pakistan, but also global lockdowns around the world, which had begun to kick in March and April. There was also a delay in shipments to major markets, such as the US and Europe, which were severely affected due to COVID-19.
It is important to note that the actual share of the composition of segments has remained unchanged. So in May, knitwear remained at 24 per cent, bed wear at 19 per cent, ready-made garments at 18 per cent, cotton cloth at 13 per cent and others at 25 per cent, respectively. On a monthly basis, the share of textiles in total exports in Pakistan declined to 42 per cent in April, and 53.8 per cent in May.
However, if one looks at the period of the first eleven months of the fiscal year 2020, the share of textiles in total exports of Pakistan remained unchanged at around 59.5 per cent, compared to 59 per cent for the same period last year.
However, during that same eleven month period, textile exports were down by 6 per cent year-on-year to $11.6 billion, with double digit declines in yarn and cotton cloth (13 per cent and 12 per cent respectively), while categories like knitwear and garments also stayed firmly negative. He appreciated the federal government to allow the export of textile masks, though it would not apply to surgical and N95 masks.
While the textile industry has somewhat reoriented itself towards exporting masks and creating PPEs, with varying levels of success, the orders are simply not enough to make up for the loss in other segments. The PHMA leader was of the view that fall in oil prices and weaker import demand provide some support to the current account but the COVID-19 shock will have a severe impact on the balance of payments.
It will result in new external financing needs of about $2 billion, which can only be met through a jump in exports. He said that the govt should take responsibility of the constant decline in textile exports because of its delay in refunds to exporters, demanding the government to immediately release all pending refunds to provide relief to the textile exporters so that they could focus on increasing their exports.