Windfall benefits: As rupee slides, mills look to increase market share

Published: October 3, 2013
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Observers believe Pakistan’s textile exports will likely double in the next five years to $26 billion if the country receives the GSP-Plus status. PHOTO: FILE

Observers believe Pakistan’s textile exports will likely double in the next five years to $26 billion if the country receives the GSP-Plus status. PHOTO: FILE

KARACHI: 

While the negative consequences of the rupee’s devaluation against the dollar cannot be underestimated, export-oriented sections of the Pakistan economy seem set to reap benefits of a widening exchange rate difference.

The rupee has declined by around 8% since the beginning of 2013. In the last two months alone, the devaluation in the rupee against the greenback is around 4%.

However, with a share of over 50% in the country’s total exports, the textile industry has many reasons to be optimistic in fiscal year 2013-14.

Although the gas tariff for captive power plants increased 17.4% and electricity rates for industrial units went up 57% in recent months, analysts expect the outlook for the textile industry to remain largely positive in the current fiscal year.

According to Pearl Securities, a brokerage house based in Karachi, the textile industry has great potential for further growth in both production and export because of its inherent competitiveness in producing conventional products. “In fiscal 2014, we expect the industry to maintain strong performance due to possible Generalised System of Preferences (GSP)-Plus status with the European Union (EU),” it said in a research note issued to clients on Thursday.

GSP-Plus is a trade arrangement that allows exporters from developing countries, like Pakistan, to export goods to the EU while paying either very low or no duties at all. However, in order to get the GSP-Plus status, a country must effectively implement as many as 27 international conventions on environment issues, good governance and human and labour rights.

While the standard GSP – which will remain effective until the end of 2013 – allows 176 developing countries and territories to enjoy easy access to the EU, the upcoming GSP+ will be limited to 89 low and lower middle-income countries, including Pakistan. Hence, like many other countries, Pakistan too has pinned its hopes on EU legislatures, whose nod is required for the grant of the GSP+ status.

Currently, Pakistan has only 1.5% of the global market share in textiles, which leaves the industry with great possibility for growth. Observers believe Pakistan’s textile exports will likely double in the next five years to $26 billion if the country receives the GSP+ status.

Another reason for analysts to be upbeat about the textile industry is China’s cotton policy. Cotton prices in China have been increasing, causing Chinese textile manufacturers to import the commodity. “This fared well for Pakistan’s textile exports of cotton yarn, and performance in fiscal 2014 is dependent on China’s retention of the current policy. We expect the policy to be maintained, as China is now looking to invest in Pakistan’s ginning and spinning segments,” it noted.

To put it in perspective, Pakistan exported raw cotton worth $24.6 million in August as opposed to $4 million in the same month of 2012, showing a year-on-year increase of 504.2%. Similarly, the annual growth rate was 18.1% for the export of cotton year over the same period.

As for exports to the United States (US) market − which accounts for 19% of the total export bill of Pakistan despite heavy duty barriers − analysts at Taurus Securities, a brokerage house associated with National Bank of Pakistan, believe the textile industry will get a major boost in the likely event of the government successfully securing duty-free access package with the US. Duty-free access to the US textile market will challenge the textile industry of Bangladesh, which exports goods in excess of $4.5 billion to the US, Taurus Securities said in a separate report issued on Thursday.

“With the United States suspending Bangladesh’s GSP status as a result of the poor labour conditions in Bangladesh, Pakistan can further strengthen its position by challenging Bangladesh’s dominance in the US market before the suspension is taken off,” it added.

Published in The Express Tribune, October 4th, 2013.

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Reader Comments (7)

  • Sandip
    Oct 4, 2013 - 2:38AM

    Don’t bet on GSP+. India is going to drag you to WTO unless the MFN is given as per agreement. You cannot just walk away with the GSP+ without giving anything in return. I am sure the Bangladesh government is looking at this issue closely as well.

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  • waseem
    Oct 4, 2013 - 8:20PM

    @Sandip:
    Dost
    MFN is a privilage not a right
    we all know what India is after !!!!

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  • unbelievable
    Oct 4, 2013 - 8:46PM

    Increase in volume of low margin cotton is double edged sword – just enables China to undercut you on selling high margin finished textiles to the USA/EU.

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  • Wasim
    Oct 6, 2013 - 10:38AM

    Why indians have to poke their nose in any positive news about pakistan… Do they have eliminate poverty in india and have nothing to do except poking in others matters…

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  • Sandip
    Oct 6, 2013 - 12:53PM

    @waseem: Dost. Same goes for GSP+. Unless everything that Pakistan lays its eyes upon starts becoming its right (to Pakistanis that is).

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  • Harris
    Oct 8, 2013 - 11:36AM

    @ Sandip – GSP+ is being given by the west, whats your concern? .. we dont want anything with india .. no trade, no relations and locked border !!!

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  • Oct 8, 2013 - 6:24PM

    @Sandip
    Indians fear more from Pakistanis than anything on the earth. While you look at yourself as Asian Super power and fear from trade enhancement and positive developments of Pakistan. You look in the eyes of China but compare arms and ammunition in numbers against Pakistan. Why don’t you compare your statistics with the country you show others as your competitors?

    Indians have been sitting in US tech companies and leaving no space for Pakistani businesses to grow let even flourish in material world as well as on internet. Online Pakistani businesses are suffering due to Indian thinking to restrict Pakistanis by all means. Remember one thing, the more you push someone towards the wall, the more chances of the fight back you will see and face. When the force gathers against you, you will be no where. So please mind your own business before others mind your business. Thanks.

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