Our policymakers are celebrating the fact that exports have reached $25 billion and claiming that it is due to the business-friendly environment that the government has created. The industrialists are feeling proud too but they have not prepared themselves for the tough times ahead.
In reality government policies and industrialists have nothing to do with the recent rise in exports. This has only happened due to rapid increase in the prices of denim, clothing and cotton in the international market. Textile sector contributes more than 60 per cent of the exports of Pakistan fetching more than $13 billion in financial year 2010-11. The textile sector did not attain the target by improving its production or enhancing its capacity.
The prices of cotton in the last year has doubled reaching record level of Rs12,620 per maund in March 2011. Whereas, in March 2010 its price was only Rs5,540 per maund. As a result, the prices of yarn, fabric, denim, clothes, gray fabric and thread increased sharply.
The government has not explored policies to increase textile production. There have been no improvements or increase in the volume of exports. In terms of value, cotton yarn fetches $2.02 billion which is a 54 per cent increase from last year. We earned $2.31 billion from cotton fabric export and this amount is 41 per cent more than previous year’s value. In fact the increased prices in the world provided Pakistan an opportunity to earn huge foreign exchange
Unfortunately, our industrialists have not gone beyond enjoying this short term success. No steps have been taken to improve production or quality of exports. The prices of cotton are decreasing in the world and now these industrialists are asking for subsidies and special concessions from the government. These industrialists find it easy to blame the government for load shedding of gas and electricity but have done very little to help themselves. Recently, All Pakistan Textile Mills Chairman Gohar Ejaz held energy shortage responsible for all the ‘bad things’. He said $10 billion investment on machinery is becoming redundant in the presence of 10 to 12 hours load shedding of electricity and no gas supply 150 days a year. There is no standby arrangement for electricity and it is very difficult to operate on alternative fuel other than gas to keep Captive Power Plants operational.
As the prices of cotton are coming down these industrialists are lamenting and holding the government responsible. Though the industrial sector is right in asking for energy from the government but at the same time it should improve its efficiency and compete with the world. It is not justified to always blame the government.
Cotton prices decline
Cotton prices, both in international markets and in local markets have witnessed a massive decline as international cotton prices have reached to $1.49 per pound whereas the domestic cotton prices have trenched to an 18 months low at Rs 6,200 per maund. In March 2011, cotton price were at Rs13,000 per maund, which due to enhanced production and slump in the international markets came reeling down to less than half. During FY11, drought in China, floods in Pakistan and export controls in India caused a global shortage of cotton, which led to an unprecedented price hike to a level of $2.29 per pound. However cotton prices started to decline with a forecast of a better output in FY12 as major cotton producing countries have increased their acreage under cultivation this year. World cotton area in 2011/12 is forecasted at 35.6 million hectares, up by 6 per cent from a year earlier.
Global demand and supply of cotton
World cotton output is forecasted to reach 123.8million bales in FY12 as compared to 113.9million bales in FY11 depicting a rise of 7.5 per cent YoY. On the other hand world cotton consumption is also expected to rise from 115.5million bales in FY11 to 119.5million bales in FY12 mainly on the back of healthy demand from China and India.
In Pakistan cotton production is being targeted at 15.2 million bales for FY12 against last year’s production of 11.7mn bales, which was ravaged by floods. The expected jump in cotton output is mainly because of an anticipated 8 per cent YoY increase in the area under cultivation, coupled with higher usage of BT Cotton Seeds.
During FY11 Pakistan’s total exports registered a 29 per cent YoY growth, of which both textile and non-textile sector posted a positive growth. Of the total exports, a lion share came from the textile and food sectors contributing almost 61 per cent and 18 per cent. High growth particularly in textile products was an important factor in rising commodity prices such as that of cotton which rose by 106 per cent during the year. In FY12 as the prices of cotton in particular ease off to ($1.49/lb) we might not witness the same robust growth in cotton related exports, said Usman Saeed at AHL. However higher cotton production (almost 15.2-16.5mn bales) could mitigate the impact of decline in cotton prices, he added.