Why are Pakistan's exports declining

Definition of Export

A function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services. Exports are one of the oldest forms of economic transfer, and occur on a large scale between nations that have fewer restrictions on trade, such as tariffs or subsidies.

Major exports of Pakistan

1. Raw cotton, Textile products and Cotton yarn.

2. Rice.

3. Leather and leather products.

4. Carpets and rugs, Tents.

5. Synthetic textiles.

6. Surgical instruments.

7. Sports goods.

8. Readymade garments.

9. Vegetable, fruit and fish.

10. Engineering goods.

11. Chemicals and Pharmaceutical products.

Share of commodities in Pakistan Exports

Primary Commodities

The 6 selected commodities of Primary Commodities contributed 18.16% of total exports in which the share of Rice was (11.60%), Fruit, vegetables & preparation thereof (3.77%) and Fish & fish preparation (1.55%).

Textile Manufactures

The 9 selected commodities of Textile Manufactures contributed 52.55% of total exports in which the share of Cotton fabrics was (10.83%), Knitwear (9.01%), Bed-wear (8.29%), Cotton yarn (8.28%) and Articles of apparel & clothing accessories (excl. knitwear) (7.65%).

Other Manufactures

The 7 selected commodities of Other Manufactures contributed 8.41% of total exports in which the share of Leather clothes & accessories (2.39%), Leather (2.07%), Surgical Instruments (1.34%) Sport goods (1.48%) and Carpet, carpeting, rugs and mats (0.69% ).

Decline In Pakistan Exports

It was not supposed to have been this way. After the European Union granted GSP Plus Status to Pakistan, our exports were supposed to have risen sharply, yet instead, Pakistan’s sale of goods to the outside world have gone down by 4.3% during the first half of fiscal 2015. What is happening? What is causing this decline in exports?

Reason For Pakistan Exports Downfall

There are three possible explanations for the slowdown in exports. The first is that Pakistan’s major export markets – the United States, the European Union, China and the Middle East – are experiencing an economic slowdown. The second is that the energy crisis is causing exporters to struggle to meet the demand from importers. And the third possible explanation is idiosyncratic factors that are not connected to systemic issues.

1. Economic Slowdown In Pakistan’s Export Markets

The first possibility – a slowdown in Pakistan’s export partners’ economic growth – is a double-edged sword. On one hand, it means that the decline in Pakistan’s exports is not the fault of our industries, but on the other hand, it also means that there is nothing to be done but wait for economic conditions in our export markets to improve. A look at the data released by the Pakistan Bureau of Statistics suggests that this is only a partial explanation.

Pakistan major export markets are

· United States Of America

European Union

China

Middle East

Of these four major regions, three regions are experiencing a slowdown in economic growth, China and the European Union

1.1. United States Of America

The U.S. economy only grew 1.5% between July and September, according to the Commerce Department. Growth slowed a lot from the 3.9% pace recorded in the second quarter this year.

It is also much lower compared to the third quarter of 2014, when the economy grew 4.3%.

The global economic slowdown and strong U.S. dollar are weighing down American manufacturing, trade and exports.

The low-growth figure was mostly expected by economists .

The graph below shows GDP growth of USA

1.2. China

Currently China's economic growth rate is declining relatively to past years

· However, the country's first production census discovered at the end of 2005 that GDP has recently been grossly underestimated as a result of a failure to take into account the rapid growth of the services sector. As a result, growth rates for 2003-2005 are now recorded at around 10% per year in real terms. Despite efforts to cool the overheating economy, the officially recorded GDP growth rate was 11.4% in 2007.

YEAR	GDP BILLION AT CURRENT PRICES	GDP PER HEAD	REAL ANNUAL GDP GROWTH RATE(%)
2007	26,581.0	26,581.0	14.2
2008	31,404.5	31,404.5	9.6
2009	34,090.3	34,090.3	9.2
2010	40,151.3	40,151.3	10.4
2011	47,310.4	47,310.4	9.3
2012	51.947.0	51.947.0	7.7
2013	56,884.5	56,884.5	7.7
2014	63,600.0		7.4

· In 2008 the global economic crisis began to reduce China's growth rate. In the face of forecasts that this might drop below the rate at which school leavers can be absorbed by the growing economy (7%-8%) the government decided to pump Rmb 4 trillion into the economy in the form of an economic stimulus package consisting largely of investment in fixed infrastructure and human capital.

· The stimulus succeeded in preventing a dramatic fall in GDP growth in 2009 and in providing a sustained recovery in 2010, when the real annual GDP growth rate rose to 10.4%.

· With stagnation in China's major markets in 2011, GDP growth is expected to subside to around 9.2% by the end of the year.

· As global conditions continue to deteriorate in late 2011, it seems likely that economic growth will fall to around 8% in 2012. The government does not have the option of returning to stimulus on the massive scale of 2008-2009 and has to be careful not to stoke inflation.

Trend of year 2013, 2014 and 2015 are shown in graph below

1.3. European Union

European Union are also facing slow economic growth .

The table below shows the trend of real GDP growth

year	Real GDP growth
2007	3.3%
2008	-16.4%
2009	8.2%
2010	11.4%
2011	11.9%
2012	10.6%
2013	3.3%
2014	3.1%

As the economic growth rate of Pakistan's major export markets that is CHINA and EUROPEAN UNION had slow downed , so their demand for imported good had decreased.

2. ENERGY CRISIS

Textile exporters have pinned their hopes of industrial and economic revival on 2014, expecting Pakistan to achieve $14.5 billion of exports by the end of the fiscal year (FY) after being granted duty free access to the European Union (EU)

Textile industry saw helplessly export orders worth $1 billion diverted to other destinations like Bangladesh and Sri Lanka as it lost more than one third of its production capacity during December and January due to power and energy crisis.

Chairman Pakistan Hosiery Manufacturers Association Adil Butt said that past two months have been devastating for the value added exporters. He said impact on exports because of worst ever power shortage would be visible in the export statistic for the month of February and March. “There is no dearth of export orders as Pakistan remains the cheapest source of knitwear but we accept orders after discounting for energy shortage,” he said.

During 2013, the textile sector was hit mostly by the energy crisis, the biggest issue besetting industries in Pakistan that crippled economic activity. Around 50% of the industrial units have either shut down or suspended work.

The two links below further explain and facilitate the topic.

1. http://nation.com.pk/national/21-Jul-2014/power-crisis-hits-industrial-activities-hard

2. http://www.dawn.com/news/1120432

Textile exporters will not be able to benefit from the GSP Plus unless the government took serious measures to resolve the energy shortage that holds back the industry

Not only textile industries but other industries are also under crisis due to shortage of gas Gas and Electicity e.g. vegetable ghee, sugar industries, cement industries and fertilizer industries etc.

3. IDIOSYNCRATIC FACTORS

First I want to define what ''Idiosyncratic Factors'' are

DEFINATION

''Idiosyncratic factors are unique and specific factors. e.g a company specific performance is idiosyncratic factor ''.

Other idiosyncratic factors are productivity of industries ,innovations, ease of doing business and many others.

The final explanation, meanwhile, is the more complicated one: idiosyncratic changes in the environment in many different industries that happen to be affecting exports. The data does seem to support this hypothesis. Of the four major export categories used by the PBS – food, textiles, petroleum, and other manufactured goods – it is the last category that has seen a sharp 18.4% decline in value of exports, from $2 billion to $1.65 billion.

Jewelry exports have virtually collapsed, from over $200 million during July-November 2013 to less than $4 million during the same period in 2014. Leather exports, as well as chemical exports are down substantially, for reasons that have more to do with the specific circumstances in those industries than the broader Pakistani macro economy.
conclusion

In short, the picture on trade – and therefore the policy requirement – is complex. Yes, the government could help a lot by fixing the energy crisis that would let more companies in more industries produce and export and full capacity. But the government would also do well to focus on more industries than just the politically powerful textile lobby.