Coronavirus cases continue to climb as the world watches. Today, China's economic relevancy in international economic footprint is much larger than before. According to UN Conference on Trade and Development by 2018, China is the exporter of 19% of total manufacturing goods traded globally, while in 2002-03, its share was 8%. The world growth has become increasingly dependent on China's performance in the last two decades, on the contrast, China has become more independent of the world economy. There are limited supply chains that may stand across the globe without any dependence on China for sourcing.
Consequently, disruption in businesses due to the outbreak of Coronavirus is beginning to be felt globally. China, which is the hub of manufacturing and the epicenter of global production, has put a hold on its production activities. It is estimated that China's GDP growth will slow down to 5% this year. Dun & Bradstreet, a leading global provider of business decisioning data and analytics, says that at least 51,000 (163 Fortune 1000) companies around the world have one or more direct or Tier 1 suppliers in the impacted region Wuhan, Hubei province, and at least five million companies (938 Fortune 1000) around the world have one or more Tier 2 suppliers in the impacted region.
Supply shortage of inputs that go into the manufacturing of a wide range of products will likely be the first indicator of the disruption. This would also translate into shortages of finished products, a steep fall in production but also contraction in product demand resulting in falling future product prices, hence, a global economic crunch. In the last two weeks, international prices of major commodities have evidently declined except for gold which proves to be a safe investment tool in the time of uncertainty. Nevertheless, this is the time to capture market share because the trade value will endure once the falling international markets pick up again.
A huge vacuum has been created in global trade due to limited supply of manufactured goods, raw materials and intermediate goods from China which is also expected to create colossal domino effects. However, looking at the other side, this crisis-like situation has created business opportunities for developing countries like Pakistan, India, Bangladesh and Vietnam especially in the textile trade.
The viral outbreak comes at a difficult time for Pakistan and could make the economic slowdown even worse for the struggling economy. McKinsey & Company report "Coronavirus COVID-19 Crisis Response" analyzes the potential evolution of the macroeconomic situation if virus outbreak triggers for global economic recession. It says that this may lead to companies making irreversible decisions such as wholesale shifts in supply chain, distribution channels - supply chain broken, especially in certain sectors.
Impediments to the Pakistani manufacturing environment and capacity limitations make it difficult for Pakistan to quickly take advantage of the space in global trade, although Pakistani exports have increased recently in contrast to the downward trend in the several regional countries. Our 4.5 percent growth in exports during the first half of current fiscal year is an indicator of rising economic output, at a time when India's exports declined by 2.3 percent, Thailand's 2.5 percent, Sri Lanka's 3.6 percent, Indonesia's 5 percent, Malaysia's 6 percent and Bangladesh's 7 percent.
This calamity has also revealed cracks in the Asian economies. Chinese neighbors are inclined too heavily on China-centric supply chains even for their own domestic growth and production. Vietnam's textile sector is assessed to be adversely impacted the most due to its high dependence on Chinese supply chains for production, but its high growth rate of 7 percent provides an economic buffer. Similarly, Bangladeshi textile sector is heavily dependent on China for textile inputs like cotton and Man-Made Fibers (MMF). A deeper analysis suggests that it will come down to India and Pakistan competing for shifting business from China, as both countries have entire textile supply chains operating in the county.
India is calling meetings on the highest level to draft a strategy to gear up their whole supply chain to take full advantage of this situation. Even though India's textile and apparel exports fell by 8 percent in the first eight months (April-November) of the current fiscal year, they are designing a revival policy.
Pakistan on similar footings must devise a plan to grab this opportunity and find alternate sources for raw-materials imported from China. Pakistani textile sector has both the potential and capability to enhance their exports and attract business orders diverting from China. This will require immediate government's support to enhance production capacity. Pakistani textile export books are already full to their capacity, easy financing facilities, competitive energy tariffs and urgent refunds of stuck exporter's credit with FBR and State Bank can expedite investment in capacity enhancement.
In the world textile trade China has 32% share amounting to USD 266 billion. China exports approximately US $ 145 billion of articles of apparel and clothing accessories to the world. While, Pakistan's share in world textile trade has declined to 1.6 percent from 3 percent.
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China's & Pakistan's Share in World Textile Trade
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Textile Global Exports USD 837 Billion
China Textile Exports USD 266 billion
China Share in Global Exports 32%
Pakistan Textile Exports USD 13.33 Billion
Pakistan's Share in Global Exports 1.6%
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Source: ITC
An analysis of China's international textile exports and Pakistan's imports from China of textile products and products related to textiles like of dyeing and chemicals, miscellaneous articles used in garmenting illustrates that Pakistan has an immense opportunity in attracting textile orders of China. Prospects of enhancing Pakistan's apparel and clothing exports and developing the lagging sectors of production are immense, especially of buttons, zippers, elastic and other miscellaneous products used in garmenting that were worth USD 39 billion imported from China in last fiscal year. Domestic manufacturers have an edge even to engulf the space created by reduced imports from China and capture the domestic market.
The outbreak of coronavirus has fashion companies scrambling in China. The world's largest garment producers, and fashion entities around the world rely on it to make a substantial share of their clothes. The store closures and travel restrictions are already putting a strain on sales inside and outside China, just as disruptive the impact the virus is having behind in global supply chains. A USD 20 billion gap has been created for which Pakistani government's support to garmenting and textile sector is required to acquire at least USD 4-5 billion of business in textile trade.
Nevertheless, limited supply of Chinese products also mean constrained supply of raw-material that are imported from China. The data shows that Pakistan imports $805.14 million of man-made fibers products both for consumption as an input in the textile value chain but also materials for garmenting. A short supply will increase prices of this raw material, to ensure affordability so duties on man-made fibers imports under Chapter 55 should be rationalized as they are around 20% at the moment.
It is not easy to shift the sourcing destination within a week, but Western buyers are currently looking for alternative sources and Pakistani exporters are already receiving requests from Western buyers to create some space for additional orders. Even though no other Southeast Asian country has the same level of skill and tech as China, but there is an opportunity created which should be grabbed by Pakistan with both hands.
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