Exports
Compared to FY99, overall export proceeds increased by US$ 789.3 million, from US$ 7.8 billion to US$ 8.6 billion in FY00 (see Table VIII.3a & b and Figure VIII.5). This increase is primarily on account of a large quantity effect of US$ 895.8 million, and a price effect of negative US$ 338.0 million. Since data on quantity and unit values are not available for all items, the price/quantity effects only captures 70.7 percent of the total increase in export values in FY00.

The quantitative increase in Pakistan’s exports is largely driven by the bumper cotton crop in FY00, while the price effect reflects a fall in international commodity prices following an excess supply situation with bumper harvests in the largest cotton producing countries in the World (e.g. USA, China, India, Central Asia and Pakistan).

The quantity effect captures the increase in quantitative exports assuming prices have not changed, while the price effect simply captures the impact of change in the price on current quantum of exports.

Table VIII.3a
Major Exports
(US$ million)

Source: Federal Bureau of Statistics

Table VIII.3b
Growth in Major Exports
(In percent)

Stagnant international consumption also added to the downward pressure. Looking ahead, as there has been a sharp increase in World cotton stocks in FY00, international prices are likely to remain low. Domestic prices, on the other hand, followed the trend in international markets until April 2000, when the government announced its Cotton Policy for FY01. With a support price assurance given to growers who were beginning their sowing season, this shored up domestic prices despite the falling trend in international prices (see Figure VIII.1).

In terms of specifics, the following points capture the broad thrust of Pakistan’s export performance in FY00:

Export of raw cotton increased by US$ 70.3 million to US$ 72.6 million from a low base of US$ 2.3 million in FY99. This can be disaggregated as follows: a quantity effect of US$ 108.1 million, and a negative price effect of US$ 37.9 million as export prices fell by 34.3 percent in FY00 (see Figure VIII.1). As stated earlier, falling international prices dominates the price effect, but receipts have also fallen due to quality concerns with Pakistan’s exports.

As far as cotton yarn is concerned, export revenues were 13.4 percent higher in FY00 over FY99, yielding a total of US$ 1.1 billion. This is on the basis of a 21.7 percent quantity increase, while per-unit prices fell by 6.8 percent. This translates into a price effect of (-) US$ 78.3 million and a US$ 204.7 million quantity effect. Cotton yarn exports have, in fact, been helping Pakistan’s competitors by allowing them to increase their value-added exports (garments and printed fabrics) using cheaper yarn imported from Pakistan (see Figure VIII.6). However, the recent decision to disallow yarn and gray cloth from availing EFS, indicates the government’s intent to discourage this trend and encourage domestic entrepreneurs to add more value to Pakistani yarn and gray cloth.

Cotton fabrics yielded US$ 1.1 billion in export revenues, down 1.7 percent over FY99. This decrease is due to a negative price effect of US$ 199.8 million compared to a positive quantity effect of US$ 180.8 million. This is not surprising, since in the last five years (with the exception of FY97) per-unit prices of cotton fabrics have fallen with the following negative price effects: US$ 73.2 million in FY96, US$ 26.3 million in FY98, and US$ 217.3 million in FY99.

Bed ware exports increased to US$ 709.9 million from US$ 611.0 million in FY99. This is on the basis of a strong quantity effect (to the tune of US$ 118.0 million), while the 2.6 percent decrease in prices created a negative price effect of US$ 19.1 million.

As they are higher on the value-added ladder, readymade garments are less vulnerable to international cotton prices, making them the only item in the textile category that did not experience a fall in per-unit price. Dollar revenues increased by an impressive 18.5 percent in FY00 to US$ 771.7 million. This US$ 120.6 million increase over FY99 can be broken up into a US$ 57.2 million quantity effect and a US$ 63.4 million price effect; both of which were positive.

In FY00, rice exports stood at US$ 539.7 million, which represents a marginal increase of US$ 6.1 million over the previous year. This is due to a positive quantity impact of US$ 38.0 million and a negative price impact of US$ 31.9 million on account of a fall in international prices following a glut in the world market.

Other large categories in the export basket include:

Leather & manufactures: US$ 513.8 million in FY00 (up US$ 2.2 million),
Sports goods: US$ 279.2 million (up US$ 23.0 million over FY99), and
Carpets & rugs: US$ 264.3 million (a US$ 61.7 million increase).

In overall terms, the 10.2 percent increase in export values underestimates the quantitative increase in Pakistan’s exports. Although this should put to rest the skepticism that Pakistan may not have the exportable surplus to achieve higher export revenues, it does raise legitimate concerns whether such quantitative increases (especially in the value-added sectors) are feasible in the future. The increased import of textile machinery in the last quarter of FY00 for balancing, modernization and replacement (BMR), is a hopeful sign.

Table VIII.4
Economic Classification of Exports
(US$ million)

Note: Figures in parentheses represent annual growth rates.
Source: Federal Bureau of Statistics

Nevertheless, the quantitative increase also signals a perceptible shift towards manufactured goods, reflecting some success in diversifying towards higher-value added items like hosiery, fabrics, Bed ware and garments. The share of primary commodities in total exports has come down from 16.1 percent in FY96, to 12.1 percent in FY00. Similarly, semi-manufactured exports that constituted 21.7 percent of total exports in FY96, has come down to 15.4 percent in FY00. In effect, manufactured exports have risen from 62.2 percent of total exports to 72.5 percent in the same period, but total revenues have been stagnant (see Table VIII.4). This can also be seen in Table VIII.5 where value added textiles (as a percentage of total cotton-based exports) have risen consistently since FY96; from 44.6 percent in FY96 to 60.4 percent in FY00.

Table VIII.5
Exports of Cotton & Textile Manufactures
(US$ million)

Source: Federal Bureau of Statistics.

In terms of our export markets, Table VIII.6 below shows Pakistan’s largest export markets over the last three fiscal years. Region-wise, Asia remains our largest export market for the last five years, followed by Western Europe and North America. In terms of the five largest export markets, USA continues to dominate, followed by UK, Hong Kong, Germany and Dubai. The stagnant patterns is not promising in terms of Pakistan’s efforts to open up new export markets.

Table VIII.6
Pakistan's Export Markets
(US$ million)

* Includes Australia, New Zealand and Pacific Islands.

Other notable developments include:
Exports to Japan fell for the fifth consecutive year; from US$ 577.4 million in FY96 to US$ 267.5 million in FY00, reflecting both the economic slowdown in the country and the fact that their textile manufacturers moved to lower wage countries in South East Asia.

Following a shortfall in domestic sugar production in India last year, Pakistan’s exports of sugar increased by 96.3 percent to US$ 174.7 million in FY99. This could not be sustained in FY00, as Pakistan itself was a net importer of sugar.

Going forward, an export oriented Trade Policy 2000/2001 has set the export target at US$ 10 billion, which is to be met by diversifying towards higher value-added exports. Additionally, the following steps are being taken to encourage exports from previously neglected sectors:

Fisheries: duty-free import of fishing machinery and shrimp meal, cultivation of fish farms next to the sea, and a withholding tax of only 0.8 percent on related items.

Fruit & vegetables: duty-free import of machinery, one window operation for exports at Karachi Airport, and dismantling minimum export prices and required registration with the Export Promotion Bureau (EPB).

Rice: Import of par boiling plants from India allowed, port-handling charges reduced, brand development to be encouraged and market penetration with government support.

Gems & jewelry: amendment in related SROs and the gold import policy, lower duties on import of diamonds and rough gemstones, and setting up a Jewelry Design Institute.

Leather garments & products: import of raw materials for shoe production from India to be allowed, and overseas expertise for the National Institute of Leather Technology (NILT) to be acquired.

Software: IT training incentives, reduction in cost of Internet use, setting up of IT parks and incubators.