ISLAMABAD, 7 January— Inspite of the Western talk of providing greater market access, global recession, regional tensions and several other factors are hindering Pakistani exports to find their way out.
As if such prevailing factors were not enough, the new tension between the ever-feuding neighbors — India and Pakistan — now standing on the brink of war, is going to substantially lower trade between the two of them.
In case the present environment persists, Pakistani exports in the current fiscal 2002 may stagnate at the 2001 level of $9.2 billion, or decline, rather than rise to the projected level of $10.1 billion. Commerce Minister Abdul Razzak Dawood shares this pessimism in the post Sept. 11 scenario.
Bilateral trade between the two countries is continuing at the moment, although train, road and air services between them were discontinued from Dec. 31. "Most of the trade with Pakistan used to take place by train and now there is no way to send goods," says Om Prakash Arora, chairman of the Indo-Pak Exporters Association, based in Amritsar, India.
In dollar and cents, trade between India and Pakistan may still be small, but it casts a huge shadow over the South Asian economies, and a ripple effect throughout Asia and the Middle East. Indian exports to Pakistan, chiefly industrial goods and machinery, for instance, totaled $235 million in fiscal 2001 that ended June 30, last. Its exports in fiscal 2000 were $127 million. It meant a 46 percent increase. Pakistani exports to India, mainly fruit and vegetables, were $55 million in fiscal 2001, up from $54 million in 2000. Two-way smuggling or business through third countries annually totals between $1.0 to $1.5 billion. Business and government analysts are of the view that if war really breaks out and trade comes to a halt, India will be loosing business worth $250 million and Pakistan $50 million a year.
In the global market place, Pakistani exports are presently suffering from declining unit prices. Low prices cost Pakistan $703 million in fiscal 2001, a study by the State Bank (central bank) says. The trade volume, however, increased 14.5 percent that year, which compensated for the loss in price terms, and helped exports to inch to $9.2 billion. Textiles, that make 60 percent of all Pakistani exports, have been hit hardest by low unit prices. This trend continues.
Pakistani exports were badly hit in the immediate post-Sept. 11 period, as a large number of export orders were canceled or put on hold by Western, particularly US importers. The situation worsened with Oct. 7 start of American attack on Afghanistan, because of which US and European buyers feared that Pakistani exporters will be unable to fulfill their import orders. That apprehension quickly proved wrong as the American war proved to be a one-way affair, with hardly any resistance from Afghanistan. The shipping lanes, and air services remaining completely safe. Even then, exports declined 7.8 percent during Sept. 11 and Dec. 8, 2001. Exports totaled only $1.89 billion, down from $2.05 billion in the like period of fiscal 2000. Official statistics also show that export consignments declined to 70,847 from 122,146 in the like period of last year.
Post Sept. 11 situation apart, the recession in the US economy that continues, and weakening of the German, EU, and the Japanese economies, as well as the East Asian economies that were thriving on US and European markets, are all hit by recession. This widespread phenomenon is now proving to be a bigger and longer-lasting hurdle for Pakistani exports. It means lower prices and lower demand in foreign markets. The magnitude of Pakistani losses and potential adverse effect of recession abroad can be judged from the fact that 24.4 percent of all exports go to US alone. US is the biggest market for Islamabad’s exports.
Looking east, the South East Asian markets together get 36.9 percent of all exports that were improving over the last two years. As of now, China is still a good market, but what will happen when it starts using all the benefits provided by its joining the WTO? Commerce Minister Dawood is, however, urging Pakistani exporters to take advantage of the Chinese market that annually imports goods worth $240 billion. The Chinese market can be a good buyer for Pakistani goods, although to a limit. The two countries have excellent diplomatic and political relations. They enjoy a geographical proximity, a direct land route between northern Pakistan and western China, as well as air routes over the Himalayas.
To the West, the demand for Pakistani exports in the European Union has weakened from 29.2 percent to 26.9 percent. Where will Pakistan stand as all of its four major importing regions — US, EU, Japan and Southeast Asia — are themselves in trouble? While the difficulties originating in the foreign markets are quite worrying, Pakistani government, industry and exporters have to make strenuous efforts to overcome the home-grown problems. Some of these problems originated with implementation of the harsh IMF conditionalities, purportedly trying to stabilize the economy first, and then restructuring it.
However, in order to support exports, Dr. Ishrat Hussain, governor State Bank, has ordered all the banks to provide export refinance at a concessional 8 percent interest. But, the exporters can definitely use more official help in other fields, including export of reconstruction material for Afghanistan that is projected to bring in $100 million sales this year.