Textile Textile exports fell by 1.0 percent during Jul-Mar FY17, after declining by 8.2 percent in the same period last year. The drop is mainly explained by lower quantum exports of low value-added products like cotton and fabric, as global cotton prices rebounded in the period under review. Exports of some high value-added items, like bedwear and readymade garments, increased during Jul-Mar FY17; encouragingly, their better performance was largely a result of higher quantums (Table 5.3), mainly due to a recovery in demand from the key EU market.30
Nonetheless, in terms of price factor, the gains in export values are still not appearing. In fact, Pakistan's high value-added exports to advanced economies face tough competition from regional competitors. To make products more attractive, exporters slash their prices. In this way, they tend to maintain their product share in the international market. This situation has been clearly visible in the EU market this year, where Pakistani exporters have received lower unit prices for clothing items (both knitted and woven clothes), as compared to their regional competitors (Figure 5.10).
This performance is despite ample policy support available to the textile industry, which includes the Drawback of Local Tax and Levies (DLTL), tax rebates, and export finance schemes etc. In fact, the textile industry has been making good use of record-low interest rates and other policy incentives this year: imports of textile machinery and fixed investment borrowing by the sector have both recorded healthy increases in Jul-Mar FY17 (Chapter 3). More recently, a Rs 180 billion export incentive package has been announced to support the five key exporting industries.
However, these measures have yet to translate into a broad-based improvement in textile exports. The real benefits of this financial support will be realized when the exporters make the required efforts to increase their efficiency, improve product quality, explore new markets and keep track of changing customer preferences in their key markets. Also, they have to invest more in upgrading physical and human capital so that they could offer high-quality products at competitive prices.
Non-textile The drop in non-textile exports moderated to 6.4 percent during Jul-Mar FY17, from 19.3 percent in the same period last year. Out of three major categories - food, other manufactured goods, and petroleum - only the POL group recorded an increase (of 8.0 percent YoY) during the period (Figure 5.11).
In the food group, the growth in fish and oil seeds exports were offset by a decline in rice, meat and fruit shipments. The exports of rice (both basmati and non-basmati) fell 14.9 percent YoY in Jul-Mar FY17. That said, the entire decline in basmati exports was witnessed in the first half of FY17, as consignments grew by 31.3 percent YoY in the third quarter (Figure 5.12). This increase was driven by higher quantums, as demand from two markets - UAE and Iran - improved during the period.
Moreover, basmati exports to Iran are likely to increase further in the coming months, as the Iranian government has removed import restrictions and lowered the import duties on brown/husked and milled rice.31
In contrast, weaker demand for non-basmati rice from our traditional markets (ie African countries, Malaysia and Philippines) has suppressed export quantums throughout the year; this has more than offset the positive spillover of a recovery in global prices of the commodity since October 2016. Import restrictions by some African countries put further pressure on the export of non-basmati rice varieties.32
Imports The imports continued to surge and reached a historic peak of US$ 38.5 billion in Jul-Mar FY17. Most of this increase was observed in Q3-FY17, when imports of petroleum, machinery and chemical items all rose significantly (Figure 5.13): in fact, machinery and petroleum imports contributed around 55 percent to the overall increase in imports in Q3-FY17.
Petroleum POL imports during Jul-Mar FY17 were entirely driven by higher quantum product imports, with crude oil shipments declining during the period on YoY basis (Table 5.4). The rise in petroleum product imports reflected strong domestic demand by the transport and power sectors: sales of high speed diesel (HSD) and petrol increased by 12.9 percent and 17.4 percent YoY respectively. Meanwhile, furnace oil imports rose by 7.3 percent YoY during the period.33 Infrastructure development activities under CPEC boosted the demand for HSD, which is mainly used by heavy commercial vehicles. This was also reflected by rising imports as well as sales of heavy vehicles.34 On the other hand, the increase in furnace oil imports corresponded with a rise in power generation from the fuel during the period.35
Non-POL Imports of all major non-oil industries rose significantly during Jul-Mar FY17 (Figure 5.14). This was entirely an outcome of higher quantums, as the unit values of most items (except palm oil) fell during the period.
Machinery Machinery imports contributed more than 40 percent to the overall import growth during Jul-Mar FY17, with power, electrical and construction-related equipment leading the charge
Meanwhile, an increase in textile machinery (mainly for spinning and weaving) was observed in Q3-FY17. This basically reflects higher investment by the sector, as firms start taking benefit of various policy support measures (like the export package announced in January 2017, the removal of sales tax on import of textile machinery and record-low interest rates).36
Besides, strong domestic construction activities (both CPEC and non-CPEC related) have led to a sizable increase in demand for cement in the country.37 To cope with this surging demand, many cement manufacturers are investing in capacity expansions. This, in turn, has boosted the import of related machinery, which are classified in the "other machinery" category (Figure 5.14).38 The low interest rate environment also benefitted cement manufacturers, which was reflected in the higher bank borrowing.39
To promote the information & communication technology sector, the exemption of sales tax on import of laptops and personal computers was granted in the budget 2016-17. This measure has led to a significant increase in the import of these products; laptops and personal computers have a 36 percent share in total imports of office and data processing machinery during Jul-Mar FY17.40
Food The rise in food imports during Jul-Mar FY17 was mainly led by higher purchases of palm oil and pulses. In case of palm oil, the recovery in its international prices in FY17 is entirely responsible for the 11.5 percent YoY increase in its imports in Jul-Mar FY17; quantum imports actually declined by 7.0 percent YoY during the period (Table 5.6).41
Meanwhile, lower domestic production of pulses could be the possible reason which necessitated higher imports of pulses to ensure sufficient supplies in the domestic market. Summing up, the trade outlook is likely to continue with the prevailing trend in the remaining period of FY17. The import bill will remain high due to robust demand for fuel, machinery and food items, whereas exports may get some boost in the wake of recently announced fiscal incentives, improved business environment, and ease in energy supplies.
(Concluded)
30. Textile and clothing imports of EU-28 countries rose by 4.1 percent YoY in terms of quantity during-Jul-Mar FY17, after declining by 3.5 percent in the same period last year (source: Eurostat).
31. Iran reduced import duties on husked and milled rice to 5 and 26 percent from 32 and 40 percent respectively from January 2017. The surcharge of US$ 154 per ton was also abolished on both products.
32. Nigeria placed a 50 percent levy on the import of husked and milled rice in December 2016. Senegal suspended rice imports from December 2016 as well, in order to facilitate the placement of privately held local stockpile.
33. Source: Oil Companies Advisory Council.
34. The import of both CKDs/SKDs and CBUs of heavy vehicles increased by 34.0 percent YoY during Jul- Mar FY17 (source: Pakistan Bureau of Statistics). According to the Pakistan Automotive Manufacturers Association, the sales of heavy vehicles (trucks and buses) also increased by 38.7 percent YoY during the period.
35. Total power generation in the country increased by 3,166GWh in Jul-Mar FY17, of which 1,130GWh was contributed by furnace oil (source: NEPRA).
36. This policy support already seems to be having the intended effect: outstanding financing under Long-Term Financing Facility (LTFF) increased by Rs 30 million during Jul-Mar FY17; of this, textile sector was responsible for an increase of Rs 28.4 million. Within textiles, most of the financing was availed by spinning and weaving segments.
37. Domestic cement dispatches increased by 10.9 percent YoY in Jul-Mar FY17 (source: All Pakistan Cement Manufacturer Association).
38. According to detailed SBP data, imports of grinding and crushing machinery for cement plants rose by US$ 105.7 million during Jul-Mar FY17, compared to a minor increase of US$14.0 million noted in the same period last year.
39. Fixed investment and trade financing for the cement sector rose to Rs 8.7 billion and Rs 3.8 billion in Jul-Mar FY17, from Rs 0.1 billion and Rs 0.9 billion respectively in the same period last year (for further details, see Chapter 3).
40. According to SBP data, the import of laptop and personal computers increased by US$ 101.7 million during Jul-Mar FY17, compared to a rise of US$52.1 million recorded in the same period last year.
41. Global palm oil prices increased by 25.0 percent YoY in Jul-Mar FY17 as compared to last year (source: IMF).
======================================================
Table 5.3:Textile Exports Price & Quantum Impact (YoY)
======================================================
during Jul-Mar FY17
======================================================
million US$ Quantum Price Abs. change
======================================================
Textile group -91.4
------------------------------------------------------
of which
------------------------------------------------------
Low value-added -186.9 23.4 -163.5
Raw cotton -40.3 3.6 -36.7
Cotton yarn 38.1 -85.8 -47.6
Cotton fabrics -174.9 104.2 -70.7
Others -9.8 1.3 -8.5
High value-added 69.9 34.9 104.8
Knitwear -57.9 45.8 -12.1
Bedwear 123.5 -40.2 83.3
Towels 4.5 -17.0 -12.5
Tarpaulin 25.9 12.9 38.7
Readymade garments 109.1 -13.5 95.7
Synthetic textiles -135.2 46.9 -88.4
======================================================
Data source: Pakistan Bureau of Statistics
======================================================
Table 5.4: Contribution in POL Import Growth (Jul-Mar)
======================================================
percentage points FY16 FY17
======================================================
Petrol 6.0 4.0
High speed diesel -0.8 4.5
Furnace oil -1.7 4.1
Other products 0.2 0.1
Crude oil 4.9 -2.4
Total (%) 8.6 10.2
======================================================
Data source: Oil Companies Advisory Council
==================================================
Table 5.5: Machinery Imports-YoY Growth (%)
==================================================
FY17 FY16 FY17
Q1 Q2 Q3 Jul-Mar
==================================================
Machinery group 60.1 26.9 43.8 14.1 42.0
--------------------------------------------------
Of which
--------------------------------------------------
Power 164.8 78.6 24.8 43.6 76.8
Office 125.3 31.2 38.2 -26.4 60.4
Textile 5.7 16.3 42.8 -1.2 20.8
Construction 15.3 122.1 98.2 12.3 66.8
Electrical 32.6 -7.2 63.4 51.2 25.9
Telecom -12.4 1.1 4.6 -2.2 -1.8
Agriculture 15.1 23.9 71.3 -20.5 35.2
Others 73.9 26.0 64.9 1.0 52.7
==================================================
Data source: Pakistan Bureau of Statistics
=========================================================
Table 5.6: Import of Palm Oil (YoY change in abs. values)
=========================================================
million US$
=========================================================
FY17 FY16 FY17
Q1 Q2 Q3 Jul-Mar
=========================================================
Quantum impact -85.9 13.4 -14.3 264.7 -86.8
Price impact 16.5 69.4 143.8 -363.2 229.7
Total change -69.4 82.8 129.5 -98.6 142.9
=========================================================