Pakistan exports to European Union states fall

Pakistan’s exports to European countries have fallen in the current fiscal year despite a GSP+ status that allows duty-free entrance into European markets for the majority of its products.

In absolute terms, Pakistan’s exports to European countries dipped 6.89%YoY in the first eight months of the current fiscal year to US$5.411 billion from US$5.812 billion in the corresponding period last year.

The decline was mainly attributed to reduced demand for Pakistani goods in western, southern and northern Europe.

In FY23, exports to the EU had dropped 4.4% to US$8.188 billion from US$8.566 billion a year ago.

In October 2023, the European Parliament unanimously voted to extend the GSP+ status for another four years until 2027 for developing countries, including Pakistan, to enjoy duty-free or minimum duty on exports to the European market.

Western Europe, which includes Germany, the Netherlands, France, Italy and Belgium, accounts for the largest portion of Pakistan’s exports to the EU.

There has been a significant decrease of 13.2% in exports to this region. The export value was reported at US$2.609 billion in the first eight months of FY24, down from US$3.006 billion during the same period last year.

While exports to western, southern and northern Europe have seen a decline, there is a silver lining in the form of an uptick in exports to Eastern Europe. The exports saw an increase of 8.2% to US$407.6 million in 8MFY24 against US$376.68 m over the corresponding months of last year.

Exports to southern Europe saw a paltry decline of 1.1% to US$1.971 billion in 8MFY24 from US$1.993 billion over the corresponding period of last year. Exports to Spain grew 4.66% to US$966.95 million in 8MFY24 from US$923.85 million a year ago.

Exports to Italy declined 3.36% to US$733.79 million from US$759.36 million.

Exports to northern Europe have not done well, recording a 3.04% dip. The export to this region was reported at US$423.732 million, down from US$437.03 million in the corresponding period last year.

Before Brexit, Pakistan’s major export destination was the United Kingdom. In the post-Brexit period, Pakistan’s exports to the UK slightly went up to US$1.351 billion in 8MFY24 from US$1.329 billion.

In FY23, Pakistan’s exports had dipped by 10.63% to US$1.966 billion to the UK from US$2.20 billion a year ago.

The British government has assured Islamabad of no change in the post-Brexit scenario which is evident from the inclusion of Pakistan in its preferential market access scheme.

Chinese exports grow first time in six months

Chinese exports grew for the first time in six months in November, suggesting factories in the world's second-largest economy are attracting buyers through discount pricing to get over a prolonged slump in demand.

Mixed manufacturing data for November has kept alive calls for further policy support to shore up growth but also raised questions about whether predominantly negative sentiment-based surveys have masked improvements in conditions.

Exports grew 0.5% from a year earlier in November, customs data showed on Thursday, as compared to a 6.4% fall in October. Imports fell 0.6%, dashing forecasts for a 3.3% increase and swinging from a 3.0% jump last month.

"The improvement in exports is broadly in line with market expectations... sequential growth in China's exports in the past few months has strengthened," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "There are green shoots in other Asian countries' export data as well in recent months."

The Baltic Dry Index, a bellwether gauge of global trade, climbed to a three year high in November, supported by improved demand for industrial commodities, particularly from China.

South Korean exports, another gauge of the health of global trade, rose for a second monthin November, buoyed by chip exports, which snapped 15 months of declines.

Trade with China's major peers also painted a rosy picture, with exports to United States, Japan, South Korea and Taiwan all up on October.

China's official purchasing managers' index (PMI) last week showed new export orders shrank for a ninth consecutive month, while a private sector survey highlighted the struggles of factory owners to attract overseas buyers for a fifth month.

"While the level of export volumes hit a fresh high, (they were) supported by exporters reducing prices," noted Zichun Huang, China economist at Capital Economics.

"We doubt this robustness will persist," Huang cautioned, "as exporters won't be able to continue cutting prices for much longer."

Factory gate prices in the official PMI contracted for a second month in November, while input costs expanded for a fifth straight month.

Still, some analysts point to quicker-than-expected growth in the third quarter and a run of mostly upbeat data from October to argue that recent hard data paints a less gloomy picture of the economic health of the Asian giant than the sentiment-based surveys. The hard data also suggest the support measures trickling out of Beijing since June have had some effect, they say.

"The data shows overseas demand is stronger than we thought and domestic demand is weaker than we thought," said Dan Wang, chief economist at Hang Seng Bank China. "The biggest export items are still electrical machinery and cars, so demand in Europe and Russia will have bolstered outbound shipments."

Analysts say it is too early to tell whether the recent policy support will be enough to shore up domestic demand and how sustainable any uptick in overseas demand is, with property, unemployment and weak household and business confidence threatening a sustainable rebound at home.

The International Monetary Fund in November upgraded its China growth forecasts for 2023 and 2024 by 0.4% percentage points each, but that came from a lower base. And Moody's on Tuesday slapped a downgrade warning on China's A1 credit rating.

The Chinese markets seemed to reflect that cautiousness, with the yuan easing against the dollar after the data, while country's blue chip CSI300 stock index fell 0.44% and Hong Kong's Hang's Hang Seng lost 1.46%.

China's crude oil imports in November fell 9.2% year-on-year, the first annual decline since April as high inventory levels and poor manufacturing activity took their toll on demand for products such as diesel. But iron ore imports climbed slightly last month.

"While export demand improved, it is unclear if exports can contribute as a growth pillar into next year," Pinpoint Asset Management's Zhang warned.

"The European and United States economies are cooling. China still needs to depend on domestic demand as the main driver for growth in 2024."

 

Iranian export to ECO members on the rise

Iran exported over US$3.6 billion worth of commodities to the members of the Economic Cooperation Organization (ECO) in the first four months of the current Iranian calendar year. This reflected a 4.52%YoY increase, said an official with the Islamic Republic of Iran Customs Administration (IRICA).

According to Omid Golzari, the head of the IRICA Office of International Affairs and Public Relations, Iran exported 8.161 tons of goods to the ECO members during the said period, Tasnim News Agency reported.

The volume of exports also increased by 31.24% as compared to the same period last year.

As previously announced by the IRICA head, Iran’s trade with the members of the Economic Cooperation Organization reached US$20.5 billion in the previous Iranian calendar year.

According to Mohammad Rezvani-Far, Iran exported US$13 billion worth of commodities to the said nations last year, while the imports were recorded at US$7.5 billion.

Referring to the trade potentials of ECO member countries in various fields, such as rail and land transport, common borders, as well as territorial and population size, Rezvani-Far said the volume of commercial exchanges with ECO members should be more than this figure.

“IRICA is fully prepared to take the necessary measures for increasing the volume of trade and transit exchanges with ECO members in order to achieve the organization’s goals set according to the ECO agreement,” he said.

The official underlined the development of transit ties with ECO members as a way of boosting trade exchanges with the mentioned countries.

“Iran has many customs agreements and memorandums with ECO member countries, and in order for these agreements to be operational in line with the provisions of the ECO agreement, it is suggested that the ECO secretariat announces the necessary measures needed to be taken with the cooperation of the members,” he noted.

Iran and ECO members traded more than 23.723 million tons of goods worth US$11.71 billion during the previous Iranian calendar year, of which the share of exports was 18.419 million tons of goods worth US$6.890 billion and the share of imports from these countries was 5.312 million tons worth US$4.819 billion.

Petroleum products, dairy products, foodstuff, fresh and dried fruits, juices and citrus fruits, carpets, saffron, fish, caviar, ornamental aquatic products, various stones, construction equipment, clothing, industrial equipment, bags and shoes, medicine, and health supplies, as well as plastic products, were Iran’s main exported items to ECO members last year, while basic goods, industrial machinery, raw materials for production, and medical supplies and medicine, were the top imported goods from ECO member states.

The Economic Cooperation Organization or ECO is an Asian political and economic intergovernmental organization that was founded in 1985 in Tehran by the leaders of Iran, Pakistan, and Turkey.

Focus on agriculture can pull Pakistan out of current economic malice

At present Pakistan faces myriad of problems, from rising food import bill to very limited availability of foreign exchange. While the industrial sector remains import dependent, focus on two of the large scale industries i.e. textiles and clothing and sugar and allied can yield multiple benefits: from huge earning of foreign exchange to creating extensive employment for low-skill workers. However, this requires commitment of the government, introduction of supporting policies and implementation of these policies in letter and spirit.

It is on record that 20% to 40% of agriculture produce goes stale before reaching the market. This on one hand deprives the farmers from modest return of their efforts and on the other hand creates shortages and use of paltry foreign exchange available to Pakistan. It is pertinent to point out that the Government of Pakistan (GoP) had come up with Warehouse Receipt Financing (WRF) program as back as in 2013. The lack of commitment on the part of the GoP as well as the financial institutions has failed in facilitating construction of modern grain storage silos in the country.

Over the years the GoP has been increasing quantum of lending to farmers and the indicative target for the current financial year is PKR1.8 trillion. The lending is being done under two heads: for the purchase of inputs and for the development. The most shocking part is that some of the financial institutions prefer to pay the penalty, rather than extending credit to farmers. This has resulted in exclusion of small farmers from the formal banking system.

Financial institutions have been lending to farmers against ownership documents of their land. Despite multiple land reforms, bulk of the land is still owned by the feudal lords. Small land holders or those who have no land ownership documents have remained out of the formal banking system. WRF system was conceived as an alternative system for financial inclusion. Under this scheme farmers could use their produce as collateral and secure funds from the financial institution.

If the GoP is serious it has to take on board State Bank of Pakistan, Securities & Exchange Commission of Pakistan, commercial banks and Naymat Collateral Management Company to undertake construction of grain storage silos on war footings.

The most disappoint fact is that the country produces over 25 million tons wheat, the federal and provincial governments are the major buyers but virtually no wheat storage silos are present. Bulk of the produce is kept in warehouses not fit for the storage of staple food grain. The result is over 20% of the produce goes stale before reaching the market.

I was amazed to hear from some religious clerics that construction and management of warehouses is not Shariah compliant, the basic objection is it facilitates hording. They are unable in distinguishing between ‘safekeeping’ and ‘hording’.

Pakistan earns bulk of its foreign exchange from export of textiles and clothing. Without any exaggeration the country is capable of producing 20 million bales of medium staple fiber. However over the last few years cotton production has reduced to around 6 million bales. An output of 10 million bales can be attained by: using certified quality seed, stopping cultivation of sugarcane in sugar belt and using certified quality of pesticides/insecticides. This would also help in boosting production of ‘cotton seed oil’ – an edible oil as well as oilcakes for feeding cows and buffaloes.

The third important crop is sugarcane which not only produces sugar but also exports ethanol and molasses in huge quantities. Cultivation of superior quality sugarcane varieties can help in boosting production of sugar, molasses and ethanol.

It is necessary to remind the policy planners, if they still don’t know, that ethanol is used for the production of bio-fuels. At one time the GoP had started sale of E-10 - petrol containing 10% ethanol. Only the policy planners know why this project was abandoned?

Maize is yet another crop that can help in containing food import bill. Maize yields oil, flour and oilcake (used in the production of chicken feed). Now cultivation of two crops is a norm and in certain areas third crop is cultivated.

It may be pertinent to mention that maize yield in Pakistan is substantially low and the prime reason is high price of DAP fertilizer.

This takes to another key industry, fertilizer industry. Over the years the industry has help in saving precious foreign exchange. Now it has the capacity to export one million tons of urea. At times the country has to import urea, which is due to the bad policy of stopping gas supply to fertilizer plants during winter.

The GoP must also facilitate running of power plants on furnace oil. The plea taken by the GoP for not running power plants on furnace oil is most absurd – it contains high percentage of sulphur. The GoP must immediately arrange fund for installing sulphur at local refineries. It would yield two benefits: use of furnace in local power plants as well as its export - extra foreign exchange will be earned from the export of sulphur.

 

 

 

 

 

 

 

Bangladesh exports reported at US$4.63 billion for February 2023

Bangladesh export earnings were at US$4.63 billion in February 2023, the lowest in four months; although overall receipts rose 7.81%YoY led by apparel, leather and leather goods shipments.

Last month’s receipts took the total proceeds from the shipment of goods to US$32.44 billion during first eight months of the current financial year. The growth moderated to 9.56%.

The latest data comes at a time when apparel exporters are complaining about falling orders from global clothing retailers as high inflation erodes the purchasing capacity of consumers in Europe and the US, the two biggest export destinations for Bangladesh.

The impact of the weak global demand is already visible for other major sectors such as jute and jute goods, frozen fish and shrimp.

Garment exporters say the overall shipment in volume declined but receipts increased in value.

“We are getting orders for high-value clothes. This has helped us post positive growth in earnings,” said Faruque Hassan, President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

“Once we were used to getting orders to make jackets worth US$15-US$20. Now we are receiving orders to make jackets that are sold at US$100. This is a very positive development.”

Earnings from apparel exports, which accounted for about 85% of national shipments in July-February, rose 14.06%YoY to US$31.36 billion.

Knitwear exports brought home US$17.06 billion, up 13.21% as compared to a year earlier. Woven shipment generated US$14.30 billion, a spike of 15.08%.

Bangladesh has performed well in new markets too, said the BGMEA chief.

“But overall export declined in quantity. If we take into account the expansion of factories in the past two years, we will see that a number of them are running below capacity,” said Hassan, also the Managing Director of Giant Textiles.

The war in Ukraine, geopolitical tension and high consumer prices has eroded the buying capacity of consumers in Europe and the US. “For this, we are worried,” he said.

“But the good news is a number of buyers have shown interest in placing higher orders. So, Bangladesh’s share in the global apparel market will increase in 2023.”

Leather and leather products exports rose 6% to US$832 million in eight months. Other major sectors – home textiles, jute and jute goods, frozen and live fish and agricultural products – suffered more than 20% decline in earnings.

Frozen fish and shrimp exporters recorded a nearly 22% decline and fetched US$318 million.

“The volume of exports has declined too. It has resulted in a stockpile as the shipment is not taking place as it should be,” said Md Amin Ullah, President of the Bangladesh Frozen Foods Exporter Association.

“Exporters are selling products at reduced rates in order to bear operational expenses.”

He expressed a hope for a rebound in export receipts from frozen fish and shrimp, grown mainly in the southwestern coastal region.

Amin said because of the falling imports, there will be a shortage of products in the western market.

“The demand will improve as people can’t stop eating despite the war. So, prices will rise.”

Helal Ahmed, Chief Operating Officer of Janata Jute Mills and Sadat Jute Industries Ltd, also expects a revival in export earnings in the second half of 2023.

Exports from jute and jute goods, one of the few sectors for which raw materials are locally available, plunged 24% to US$610 million in the eight months.

The sector suffered drops in shipment for the shrinking demand for jute yarn among carpet makers, the main user of jute yarn. The use of alternative yarn following a spiral in prices of jute in Bangladesh has also affected the export performance.

Ahmed said reduced prices of jute would lead to increased use of jute yarn, “The situation is expected to improve.”

A sharp depreciation of the taka against the US dollar has made exports from Bangladesh attractive in the global markets. The local currency has lost its value by about 25 per cent against the American greenback in the past one year.

“Besides, orders for garments from major markets will shift away from China. So, there is an opportunity to elevate garment shipments,” said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.

He said the prices of cotton, yarn and other items have increased and the latest export earnings figure reflects the price effect of the garment items shipped.

“The growth is price-driven to some extent as the prices of raw materials have increased. Until now, the demand side remains depressed.”

The trade expert called for an increased focus on regional markets as demand is growing there.

“At the same time, productivity would have to be raised and the cost of doing business would have to be brought down.”

 

Iranian heavy crude oil price rises over 3% in January 2023

Iranian heavy oil price increased by US$2.45 in January 2023 registering slightly more than 3% increase as compared to December 2022, according to OPEC’s latest monthly report published on February 14, 2023.

The Iranian heavy crude oil price reached US$81.56 per barrel in the first month of 2023, compared to US$79.11 per barrel in December 2022.

According to the report, the country’s average heavy crude price came to US$85.59 in 2022.

The average price of Iranian oil in the first month of 2023 registered a decrease of US$4.03 compared to the same month in 2022. The price of Iranian heavy crude in the first month of 2022 was US$85.59 per barrel, at an average.

The report put Iranian crude output for January 2023 at 2.557 million barrels per day (bpd) indicating a 22,000 bpd decrease as compared to the figure for the previous month.

Based on OPEC data, the country’s average crude output in the last quarter of 2022 was reported at 2.567 million bpd indicating a nearly 2,000 bpd rise as compared to the average figure for the year’s third quarter.

OPEC basket price also increased by US$1.94 or 2.4 percent to settle at US$81.62 a barrel in January 2023 as compared to the earlier month.

Iranian heavy crude oil prices had followed an upward trend from the beginning of 2022 up to June, however, following the increase in production by OPEC members and the fading of the pandemic impacts on the global economy, the prices started to fall in late 2022.

Despite the negative impacts of the US sanctions, Iran has been ramping up its oil production and exports over the past few months.

Earlier this month, Iranian Oil Minister Javad Oji said the country’s income from the sales of oil, natural gas, gas condensate, and petroleum products in the first 10 months of the current Iranian year increased by 40% as compared to the same period last year.

Addressing an open session of the parliament on February 01, Oji said that 70 million barrels of gas condensate were exported in the mentioned time span.

According to the official, the goals set in the current year’s national budget bill for the exports of oil and gas will definitely be achieved by the yearend.

He noted that the National Iranian Oil Company (NIOC) has already sold enough oil and gas and petroleum products to realize the budget goals by 100%, however, collecting the revenues needs more time.

Back in January 2023, the US Energy Information Administration (EIA) in a report put Iran’s average oil production in 2022 at 2.54 million bpd, 140,000 bpd more than the previous year.

Iran's oil production in 2021 was about 2.4 million bpd.

 

Rising remittances prove issuing Eurobonds was a bad decision for Pakistan

In one of my recent blogs I had opposed the idea of flotation of Eurobonds. It was based on two premises: 1) the issue will add to debt servicing and 2) the rate of return being offered is fabulous. I had also suggested that whatever amount Eurobond will provide would be mobilized in less than a month.

A review of remittance received indicates that receipts extended their unprecedented streak for the 10th consecutive month in March 2021 and rose to US$2.7 billion for the month, 20% higher than earlier month and 43% higher than March 2020. 

Cumulatively during first 9 months of current financial year (FY 21) remittances rose to US$21.5 billion, up 26% over the same period of FY20.

Remittance inflows during the period under review were mainly originated from Saudi Arabia (US$5.7 billion), United Arab Emirates (US$4.5 billion), United Kingdom (US$2.9 billion) and the United States (US$1.9 billion).

Proactive policy measures taken by the Government of Pakistan (GoP) and State Bank of Pakistan (SBP) to encourage inflows through official channels, limited cross border travel due to the COVID-19 and orderly foreign exchange market conditions contributed to this sustained rise in workers’ remittances.

I am still concerned about deteriorating balance of trade situation of Pakistan. The deficit during first nine months of FY21 swelled to US$21.241 billion from US$17.352 billion over the corresponding months of last year, reflecting an increase of 22.4%. The surge in trade deficit has been mainly led by higher growth in imports and lower growth in exports.

During the period under review, import bill increased by 14.68% to US$39.91 billion, from US$34.799 billion. This hike was contributed by import of raw material as well as import of wheat, sugar and cotton. As against this, export proceeds rose by 7% to US$18.669 billion, from US$17.447 billion.

I am also inclined to draw a conclusion that Pakistan would have faced serious balance of payment crisis, had there been not so huge influx of remittances. Even IMF tranches and borrowing from friendly countries would have proved too paltry.

Therefore, it is suggested that GoP must look into the problems faced by overseas Pakistani, particularly those living in UAE and Saudi Arabia. Similarly, efforts should also be made to convince these countries to resolve problems faced by Pakistanis.