Pak-AIMS (Institute of Management Science | Top Three Export Commodities of Pakistan | |

Program: MBA (Evening)

Submitted To:
Sir Abdul Qayyum Qureshi

Submitted By:
Muhammad Tayyab

Roll # 111405

Top Three Export Commodities of Pakistan
Rice:
Rice Export in 2012-13:
PAKISTAN’S basmati rice exports are showing signs of an upswing after suffering a plunge in the first six months of this fiscal year because of domestic higher prices, poor marketing and lower prices of India’s basmati.
In January 2013, basmati exports were up by 15 per cent, reaching 43,718 metric tonnes compared to 38,294 tonnes in January 2012. Traders are optimistic that the commodity would regain normal levels before the end of the current fiscal year as the price gap between Indian and Pakistani basmati rice has started narrowing. India has been selling rice at a price lower than Pakistan’s – at $100 per tonne against Pakistan’s $1,100-1,150 per tonne.
According to Rice Exporters Association of Pakistan (Reap) Pakistan exported 21,000 metric tonnes basmati rice during the first week of March 2013. Total rice exports during July 2012 to February 2013 have already touched more than $1 billion mark, and during the July-March period, the country exported around 350,000 tonnes, and two million tonnes non-basmati rice. Meanwhile, China has become a major market for Pakistani non-basmati rice, and a record sale of 72,623 tonnes, worth $30 million, took place in January 2013 alone. Besides, another country buying Pakistani rice is Tanzania.
Basmati exports, according to figures of Pakistan Bureau of Statistics (PBS), have been on the downward trail earlier, and during the July-December 2012 period, declined by 31 per cent to 239,765 tonnes from 349,970 tonnes exported during the same period in the previous year. But Reap put the decline at 60 per cent during July 1 to November 28, after India lifted a ban on its rice exports last year and sold the commodity at lower prices. India kept basmati exports banned for two years, and keeps doing so from time to time to protect domestic market.
Pakistan’s non-basmati rice exports also dropped by 39 per cent during July-October period. One reason for basmati’s poor performance abroad has been its high price in the domestic market because of hoarders and profiteers. The price of basmati in wholesale market has seen a rise of 30 per cent since March 2012. Some exporters have felt so depressed that they tried to seek subsidies from the government in their efforts to revive falling exports.
President of the Basmati Growers Association of Pakistan (BGA) says research is almost non-existent as no new high-yield variety has been evolved in the past decade that could replace the Super Basmati introduced in 1996, which is still planted in more than 90 per cent of the basmati growing area. In contrast, India has been very active and doing a lot of research and introducing new varieties.
Besides, another setback that Pakistani basmati has suffered is the continuous depletion of the area under cultivation, as growers are finding the crop unprofitable and are shifting to other crops. According to official figures, area under cultivation in Punjab, which has so far been producing over 90 per cent of the country’s total yield, has declined by 34.5 per cent to 1.89 million acres in 2012-13 from 2.89 million acres planted in 2008-09. It is a loss of one million acres of basmati area in just five years.
India’s total rice exports in the current fiscal year (April 2012 to March 2013) are expected to cross 10 million tonnes for the first time in history, increasing by 30 per cent from previous year’s export figure following strong demand for its rice in West Asia, Africa and South East Asian countries.
Although being rivals in the rice export market, Pakistan and India have also been seeking each other’s cooperation to protect their precious rice variety which is unique for its aroma, taste and texture. Pakistan has asked India to work out a joint strategy on marketing the premium basmati rice to counter the non-tariff barriers imposed by other countries.
Trade Development Authority of Pakistan’s (TDAP) chief executive, who was on a visit to the neighbouring country in April 2012 while heading a delegation, told Indians in bilateral discussions that it was high time the two countries, which share a common heritage of basmati, worked together to formulate a strategy for marketing the much sought-after rice variety to other parts of the world. He also talked about registering basmati as a Geographical Indication (GI) of the two countries under WTO’s Trips regime. Several attempts had been made in the past for that but without much success, because Pakistan has no GI law.
Basmati rice exporters in Pakistan feel frustrated over the government’s indifference and delay in enacting the law of geographical indication. Unless it is done, basmati cannot be protected, nor a joint strategy worked out with India to jointly protect the unique rice variety. The current Trade Marks Ordinance for basmati rice is inadequate, and may cause long-term harm to its exports. According to media reports, a draft of the GI law prepared by TDAP is lying buried in the files of the ministry of law despite repeated appeals by the exporters to get it passed by the parliament.
The proposed law has to be first approved by the ministry of law before it is placed before the cabinet for consideration and approval. The varieties of basmati rice, which are countless and grown in several countries, can harm basmati exports. So, there is need for legislative measures to protect country’s rice industry. The only other country that produces basmati and is Pakistan’s competitor, India, has already passed a GI Act.
The urgency to protect basmati rice comes in the wake of two recent developments. Firstly, Philippines had earlier announced that it will begin basmati rice cultivation soon and start exporting it in 2013. And secondly, Bangladesh rice exporters have said that Bangladesh must also be registered for geographical indication (GI) for basmati rice since this rice variety is being grown and consumed in the country for centuries. But officials in Pakistan say they are opposed to countries other than India and Pakistan for growing or exporting rice under the basmati label. They insist that basmati is a common heritage of Pakistan and India only, and they should adopt a joint strategy for the registration of basmati rice as a geographical indication in the international market.—Ashfak Bokhari

TDAP support can up rice export to $3b:
The rice exporters are eying to achieve $3 billion export target annually with the support of TDAP, as the authority’s role is vital to boost export and earn foreign exchange.Ch Samee Ullah, Vice Chairman REAP, hoped that TDAP will solve the problems instead for creating hurdles in the way of exports. “We also hope that in future TDAP will sit together with the stakeholders whenever need so as to ensure growth of exports.
In a statement, he appreciated the dynamic role of Abid Javaid Akbar, Chief Executive Trade Development Authority of Pakistan (TDAP), for boosting up Pakistani rice exports across the world.

He informed that TDAP Chief Executive has announced to develop comprehensive program focused on promoting rice export to Central Asian States. Exhibition would be arranged with collaboration of rice exporters to showcase Pakistani rice. It is a good sign by TDAP for rice exporters and we always stand by TDAP. Central Asian states have huge potential of export and Pakistani Basmati is an integral part of Turkish cuisine.
It would help exporters to earn more foreign exchange for the country. He said that Punjab Government would soon hand over 5 acres of land for the establishment of Rice Technical Training Institute, where we would produce skilled manpower for the rice industry. We expect that TDAP would give our due share from EDF for the establishment of Technical Training Institute.

He stated that TDAP has promised involvement of REAP into EDF Board of administrators and also given his due support for release of funds of Rs200 million, as asked by REAP, for the construction of Rice Technical Training Institute.

Pakistan’s MY 2011/2012 rice production:
Pakistan’s MY 2011/2012 rice production is estimated at 6.5 million tonnes, 30 per cent higher than the 2010/11 flood affected production level of 5 million tonnes. MY 2012/13 production is forecast at 6.8 million tonnes.Rice exports in MY 2012/13 are projected at 4 million tonnes based on the expectation of a good harvest.

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Pakistan expects orders from Indonesia for rice soon:

Pakistan expects Indonesia to place orders for its rice in coming days, said Irfan Ahmed Sheikh, the outgoing chairman of the Rice Exporters Association of Pakistan (REAP), as the Southeast Asian country seeks alternative sources of the grain.
“There will be a potential for Pakistan in coming days. We are expecting orders from Indonesia,” Sheikh told Reuters on Thursday, but added that the Indonesian side has not approached them yet. “We are one of the cheapest sources and we have a natural edge. Our IRRI-6 prices on average are less than $500 a tonne, FOB.” The price of Thailand’s benchmark export-grade rice was $627 a tonne this week, up from $619 last week, exporters said on Thursday, ahead of a government intervention scheme likely to push the price further up from next month.
And Vietnam’s rice export prices rose nearly 1 per cent on Thursday, with the 5 per cent broken grade hitting $575 a tonne and heading towards $580, the highest in more than three years.
Indonesian Trade Minister Mari Pangestu said on Wednesday the country has alternative sources of rice from Pakistan, India and Vietnam, even as it tries to iron out the reported cancellation of a proposed Thai government sale to Indonesia.
Sheikh said Indonesian officials had approached Pakistani commerce ministry about three months ago for a government-to-government deal but were told to go to the private sector.
Commerce Ministry officials were not immediately available for comment. REAP handles the bulk of rice exports from the South Asian country.
Heavy monsoon rains have caused little damage to Pakistan’s rice crop and traders are expecting output of up to 6.5 million tonnes. Pakistan, the world’s fifth-largest rice exporter, is hoping to export 4.5 million tonnes of rice in the 2011/12 (July-June) fiscal year.

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Pakistan to export up to 4.5 MT of rice in FY11/12-trade:
Pakistan is likely to export up to 4.5 million tonnes of rice in the 2011/12 fiscal year on an expected bumper crop, traders said on Thursday, adding to an amply supplied rice market.
The world’s fifth largest exporter of rice, Pakistan’s rice exports fell to about 3.7 million tonnes in the fiscal year to June 2011, from 4.6 million in the year before, after it was lashed by devastating floods in summer 2010.But farmers and traders are expecting a bumper crop of six million to 6.5 million tonnes this year. Harvesting of non-basmati rice begins in late September and basmati a month later. “So far things are going in the right direction and we are expecting a bumper crop … We should be able to export between four million and 4.5 million tonnes this year,” Taufeeq Ahmed Khan, vice chairman of the Rice Exporters’ Association of Pakistan (REAP), told Reuters. The country also has a carryover stock of more than one million tonnes, according to traders. Annual consumption is about 2.3 million tonnes.
Pakistani rice will enter a market already well-supplied by Vietnam, which is expected to export up to 7.3 million tonnes; India, which is lifting an export ban in place since 2008 and Thailand, which expects to export more than 10 million tonnes. Khan expected “decent prices” for this year on expectations of Thailand, the world’s largest rice exporter, boosting its prices. “Thailand has increased their prices and chances are that with the new government there, prices will go up further,” he said. Thai prices have started rising in recent weeks with the new government in Bangkok, which promised higher prices to farmers. On Wednesday, the benchmark 100 per cent B grade Thai white rice which has jumped nearly four per cent from last month because of hoarding on speculation about aggressive intervention by the incoming government, was steady from last week at $550 per tonne.
Vietnam’s five per cent broken rice stood at $505-$510 a tonne on Wednesday, which was up from $495 last week but still well below the same grade of Thai rice, offered at $530.
Pakistani traders see enough market for their grains. Pakistani basmati goes mainly to the Middle East, Europe and the United States. Non-basmati is sold all over the world.
In 2010/11, Pakistan sold about 2.6 million tonnes of non-basmati rice and 1.1 million tonnes of basmati, according to REAP’s provisional data. Rice is Pakistan’s third biggest crop after wheat and cotton, and accounts for about eight per cent of Pakistani exports. It contributes about 1.6 per cent to the country’s gross domestic product.

International trade of Rice:
International rice trade is estimated between 25 and 27 million tons per year, which corresponds to only 5-6 percent of world production. It makes the international rice market one of the smallest in the world compared to other grain markets such as wheat (113 million tons) and corn (80 million tons).
Besides the traditional main exporters (Thailand, Vietnam, India and Pakistan), a relatively important but still limited part of rice traded worldwide comes from developed countries in Mediterranean Europe and the United States. There are two major forces behind this: new food habits in developed countries and new market niches in developing countries.

World's main importers of rice (all types), average from 1998 to 2002, in millions of tons
Source : UNCTAD Secretariat from the Food and Agriculture Organization of the United Nations (FAO) data
World's main exporters of rice (all types), average from 1998 to 2002, in millions of tons
Source : UNCTAD Secretariat from the Food and Agriculture Organization of the United Nations (FAO) data
The Middle East is the leading import and export region, accounting for 35 percent of the world's rice imports and about 75 percent of total exports.
It is projected that the global market will increase 3 percent per year over the mid to long term. However, there are uncertainties about this projection because importers, normally low to lower-middle income countries, have vulnerable economies.
The map below shows the main importers and their suppliers. Each color represents an importer (either a country or a group). The values correspond to imports of different types of rice (paddy, brown, white, broken), in thousands of dollars. The major importers are Indonesia, Bangladesh, Nigeria, the Philippines, Iraq and Brazil.

Textile | |
Pakistan’s textile exports grow 7% in first three quarters
Textile exports from Pakistan jumped 7.09 percent year-on-year during the first three quarters of the ongoing financial year that started on July 1, 2012. According to the figures released by the Pakistan Bureau of Statistics (PBS), the country exported US$ 9.63 billion worth of textiles in the first three quarters of the current fiscal, against exports worth US$ 8.993 billion made during corresponding period of last fiscal year. Posting a 29.17 percent year-on-year growth, cotton yarn stood to be the biggest contributor to textile export growth during the nine-month period. Other textile items that registered positive growth include cotton cloth, whose exports grew by 11.56 percent year-on-year, knitwear by 2.84 percent year-on-year and yarn other than cotton yarn by 13.79 percent year-on-year. Towel exports grew by 18.11 percent year-on-year during July-March 2012-13, while exports of made-up articles except towels and bedwear grew by 6.31 percent year-on-year; tents, canvas and tarpaulin by 30.89 percent y-o-y; bedwear by 0.09 percent y-o-y; and other textile materials by 44.83 percent y-o-y. Items with negative export growth include raw cotton, whose exports dipped by 65.07 percent y-o-y, synthetic textile by 25.33 percent y-o-y and cotton carded or combed by 93.86 percent y-o-y. During March 2013, Pakistan’s textile sector exports posted a 13.21 percent year-on-year and 17.77 percent month-on-month growth. Exports of Pakistani textiles are vulnerable to a few world economies. The country exports 70 percent of its cotton yarn to China and Hong Kong, while United States and European Union account for 78.5 percent of its bed wear exports, 83.3 percent of knitwear and 79 per cent of readymade garments exports. “We will have to expand our export markets to ensure a sustained and shock free textile exports,” said Gohar Ejaz group leader of All Pakistan Textile Mills Association. He said cotton yarn, cotton cloth, knitwear, bed wear and garments are the five categories in textiles that earn more than one billion dollar foreign exchange a year. “Together these four categories accounted for $9.606 billion (78 percent) out of $12.357 billion textiles exports in 2011-12,” he said. Baring cotton cloth where exports are evenly distributed exports in other four categories are concentrated to few economies. He said in cotton yarn out of total exports of $1.79 billion in 2011-12 China and its controlled territory Hong Kong accounted for yarn exports worth $1.27 billion, which was 70 percent of total yarn export from Pakistan. He said after Pakistan’s inability to fulfill China’s demand for yarn it is increasingly importing Indian yarn. Gohar said that currently we enjoy competitive advantage over India and are preferred the world over in the type of yarn we produce. However, he warned that the Indians are catching up fast in efficiency and technology and the competition would be tough in coming years. “We simply have to increase exports to other countries like Indonesia, Vietnam and Turkey,” he added. In cotton cloth, Pakistani exports are better spread as out of $2.454 billion exports made last fiscal Bangladesh was the largest buyer with imports of $350 million (14.8 percent). The other major buyers of Pakistani cotton cloth were China 11 percent, Turkey and Italy 5.6 percent each and remaining was destined to 20 different countries. “In fabric, there is no dependence of Pakistani exporters on US, China or EU,” said Mian Anjum Nisar, a textile miller. “Pakistan’s bed wear exports in 2011-12 were $1.748 billion. Out of which, $1.363 billion went to European Union and United States,” said A Siddiqui, a bed wear exporter. He said despite frequent no tariff barriers imposed from time to time on Pakistan bed wear the exports by EU were $850.91 million last fiscal equivalent to 49.5 percent of total bed wear exports. He said United States accounted for 29 percent of $551.7 million of bed wear exports. He said Pakistan enjoys competitive advantage in bed wear world over but Pakistani exporters are shy of moving south. All they have to do is to find out designs and needs of market in China and Asia Pacific and they could triple their exports of this category. In knitwear, the US market alone accounted for 51.3 percent of total knitwear with exports of $1.092 billion out of $1.974 billion in 2011-12,” said Adil Butt, chairman of Pakistan Hosiery Manufacturers Association Punjab. He said 32 percent of knitwear exports went to EU, while the share of rest of the world was only 17 percent. He said any economic downturn in these two economies impacts knitwear exports badly. He said Latin America, Canada, Australia and New Zealand are lucrative economies that remain unexplored to date. In readymade garments, the largest market is EU having a share of 54 percent equivalent to $884.5 million in total exports of $1.634 billion in this category in 2011-12. The United States was the next largest market with exports of $409.4 million, or 25 percent, of total knitwear exports in 2011-12. Cotton yarn, cotton fabric, bed wear, knitwear and readymade garments together accounted for $9.606 billion out of total textile exports of $12.357 billion in 2011-12. The share of rest of textile exports is only 22 percent.
Pakistan fetches $10.2 billion of its $12.5 billion textile export revenue from 20 countries. However, it accounts for merely 5.7 percent of their total textile imports, suggested an analysis of the trade statistics of last fiscal year. United States is the largest importer of textiles and clothing from Pakistan, importing $2.98 billion worth of textiles in 2011-12, which was 24.1 percent of total Pakistan’s textile exports. However, these exports were equivalent to only 2.98 percent of total US textile imports of $100.93 billion. Industry players point out that Pakistan’s share in the US textile market has been continuing to decline in recent years. “We lost many corporate US buyers during recent years and the exports were maintained at past level by luring new buyers,” said Adil Butt, chairman of Pakistan Hosiery Manufacturers Association, Punjab. He said if we could lure back buyers lost due to bad image of the country and travel advisories issued by the US government we could simply double our exports to the US market. Further, China is the second largest buyer of Pakistani textiles, importing $1.527 billion of textiles last fiscal. Unlike US where mostly value added textiles are imported, Chinese buy only cotton yarn and cotton fabric from Pakistan. “The textile exports to China could be tripled with better understanding of Chinese market,” said Gohar Ejaz, group leader of All Pakistan Textile Mills Association. He said under free trade agreement the Chinese government provides several concessions to Pakistan that our entrepreneurs have failed to avail. He said for instance there is no duty levied by China on Pakistani bed wear. Pakistan is the cheapest supplier of cotton bed wear in the world but “we have not exported even a single bed sheet to China”. “Pakistani entrepreneurs have never explored the Chinese bed wear and home textiles market,” he said, adding that they have no idea about designs, sizes and colours popular in China in home textiles. He said China could be a big market for our home textiles if entrepreneurs overcome language barriers and do proper home work. As far as cotton yarn and fabric are concerned, the demand in China is unlimited. “Our production is limited due to energy shortages and orders that we cannot execute are being diverted to India,” he added. He said Pakistan’s textiles account for only 12.4 percent of total Chinese textile imports of $37.19 billion. European Union as a block accounts for $3.6 billion textile exports from Pakistan led by the United Kingdom that imports $951 million worth of textiles and clothing from Pakistan, which is 7.7 percent of total textile exports of Pakistan but only 3.03 percent of $32.39 billion textile imports of U.K. Similarly, Pakistan’s textile exports to Germany are worth $809 million, being 6.5 percent of total textile exports from Pakistan and 1.6 percent of $55.14 billion textile imports of Germany. Leading knitwear exporter M I Khurram said that Pakistani exports to EU are limited due to high duties imposed by the trading block on Pakistani textiles. He hoped that Pakistan would get generalised system of preferences (GSP) plus status in 2014 after which there would be an appreciable surge in value-added textile exports from Pakistan. In fact, developed economies have lucrative value-added textile markets, while demand for yarn and fabric in these markets is waning. Bangladesh imports $520 million (4.2 percent) of Pakistani textiles, which is $2.57 billion (5.53 percent) of Bangladesh’s textile imports. Other top importers include Belgium, Spain, Italy, Netherlands, UAE, France, Turkey, South Africa, Vietnam, Korea, Saudi Arabia, Sri Lanka, India and Kenya. Interestingly, India is the 19th largest importer of Pakistani textiles worth $88.8 million in FY12, 0.7 percent of Pakistani textile exports and 0.8 percent of India’s total textile imports of $4.155 billion.

Though the year 2012, which is about to end, like past few years confounded the problems of the industries with severe energy crisis, textile sector is still optimistic at the prospect of the opportunities knocking boisterously at the door. One such is the inability of Chinese textile manufacturers to produce efficiently basic textiles, while the GSP Plus status from European Union is another. The propensity to add value was also a positive sign in 2012. Gohar Ejaz Group Leader All Pakistan Textile Mills Association (APTMA) said yarn exports from Pakistan to China are growing at an astonishing pace. “Two years back, our average monthly yarn exports were 40,000 tonnes, while average exports during last three months stood at 65,000 tonnes per month. The growth was mainly because of growing appetite for yarn in China,” he added. “This is just beginning since yarn and fabric demand in China will continue to scale up because of closure of basic textiles,” he said and added the labor costs in China are very high, making it unviable to produce low value added textiles. He said in order to meet the Chinese demand the industry will have to invest in new machines. However, ‘at 13-14 percent markup, it would not be possible to add new machinery,” he added. He said the energy crisis is another drawback. He warned that if the planners failed to resolve these two issues, India would replace Pakistan as main yarn supplier. In fact, he added, India is already making inroads into Chinese yarn market, as the Pakistani spinners are working on reduced capacities due to energy and power shortages. “Yes the textile sector is buoyant,” he admitted, saying but buoyancy is limited to the relatively larger mills that have resolved their energy issues through investment in alternate energy resources. However, smaller units of 25,000-30,000 spindles do not have resources to invest in alternate energy, he added. “Thirty percent of the production capacity is closed due to energy shortages,” he regretted. He said most of the close units are otherwise highly efficient but they cannot run without power. There is a need to revive these units urgently, he added. A spinner and knitwear exporter M I Khurram said that besides Chinese demand the industry is also expecting higher market share in the EU block at the start of 2014 when we are expected to be granted the GSP plus status. “We will have to plan now to avail that golden opportunity. We will need more yarn for local production and the demand for fabric would also increase,” he added. “Would we be able to grab this opportunity or miss the bus again as we did in the past,” he questioned. “Pakistan has got inherent advantage in basic textiles. It has not been able to grab its due share in the global market,” said Shahzad Ali Khan chairman of APTMA Punjab. He said the country failed to cash in on opportunities that came its way during last two decades. “The first opportunity came during the East Asian crisis when the entire processing sector of Hong Kong was willing to relocate their industries in Pakistan,” he said. “We missed that bus as our entrepreneurs were not prepared to enter into partnership with foreigners. Moreover, our planners lacked the vision to lure the prospective investors to Pakistan,” he added. The second bus was missed when Pakistanis invested over $5 billion in balancing and modernisation of their units on the firm assurance of the then finance minister that the interest rates would remain in single digit, he said. He said the markup increased in few years to 15 percent. The entrepreneurs that took bank loans at 4-5 percent to import machines suddenly found themselves in hot water as they were unable to service their loans at exorbitant mark-up. So, instead of consuming their energies of growth they spent most of their time trying to save their enterprises from bank defaults, he added. Chairman APTMA Ahsan Bashir said the other regional countries shielded their textile sector from the financial crunch by facilitating them through subsidies on machine import and lucrative duty drawbacks on exports. India, China and Bangladesh used this period of great opportunity to strengthen their textile sector, he added. Bashir said Pakistan added 1.8 million spindles and 3,179 shuttle less looms in basic textiles since 2006 against an increasing addition of 6.2 million spindles and 21,850 shuttle less looms in Bangladesh, which now has 3/4th spinning capacity and higher weaving capacity than Pakistan. He said the statistics of International Textiles Manufacturers Federation reveal that in past six years during 2006-11 periods, India added 15.33 million spindles and 30,850 shuttles less looms. The statistics also reveal that China has added 38,290 spindles and 360,100 looms in its spinning and weaving industries, he added. It now has total of 120 million spindles and 587,500 shuttles less looms. All these additions in capacities were possible due to prudent policies of the competing economies, he said. Chairman Pakistan Hosiery Manufacturers Association Punjab Adil Butt said that energy and power crisis was a wakeup call for the textile sector. He said most of the industries in textile sector improved their efficiency to global level to cut costs particularly in 2012. In addition, they concentrated on value addition. He said though the textile exports have remained much below in quantity terms from the peak achieved in 2008, the exports in value jumped by over $3 billion due to higher value addition. Pakistan added 1.8 million spindles and 3,179 shuttle-less looms in the textile sector since 2005, against 6.2 million spindles and 21,850 shuttle-less looms in Bangladesh, according to official statistics. Bangladesh now has three-fourth spinning capacity and a higher weaving capacity than Pakistan. The drying up of investment in basic textile is playing havoc with the local textile sector, which is still the most efficient among the South Asian countries according to Werner, a globally renowned textile consultant. It is, however, slowly losing its competitive edge to its less efficient neighbours. According to official statistics, since 2005 installed spindles in Pakistan are 11.9 million and the total number of shuttle-less looms stand at 24,000. The International Textile Manufacturers Federation (ITMF) reveal that during 2006-11 India added 15.33 million spindles and 30,850 shuttle-less looms to its textile sector, which is larger than the total size of the Pakistani textile industry. As per official Indian data, it now has 41.27 million spindles and around 38,000 shuttle-less looms. Bangladesh added 2.830 million spindles and 21,850 shuttle-less looms in the same time period, which led to a total of 8.7 million installed spindles and more than 28,000 shuttle-less looms. Thus, Bangladesh has a higher weaving capacity than Pakistan today. Statistics also reveal that in 2004, Pakistan had 24,000 shuttle-less looms and Bangladesh had only 3,200 shuttle-less spindles. Another interesting fact revealed by the ITMF is the huge advantage that China has over the three South Asian countries mentioned in textile machinery. According to various statistics, China added 38.290 spindles and 360,100 looms to its spinning and weaving industries. It now has a total of 120 million spindles and 587,500 shuttle-less looms. The spinning capacity of the Chinese is two times more than the cumulative spinning capacities of India, Pakistan and Bangladesh. It has added four times more shuttle-less looms since 2006. Currently, it has six times more shuttle-less looms than the combined shuttles installed in India, Pakistan and Bangladesh. During 2000-12, Pakistan attracted the lowest foreign direct investment (FDI) of $367 million in textiles among the South Asian Association for Regional Cooperation countries, against $1.162 billion in India and over $1 billion in Bangladesh, according to the official FDI statistics of the three countries. Group leader All Pakistan Textile Mills Association (APTMA) Gohar Ejaz said that it is a pity that Pakistan is losing its efficiency advantage to it neighbours because of issues that could be resolved through proper management. “The war on terror has neither impacted our efficiency or the appetite to grow,” he said, adding that the energy crisis has crippled the textile sector’s productivity. “We are still the most competitive sector in yarn and fabric both,” he said, revealing that Pakistan is exporting 68 million kg of yarn every month against an average of 48 million kg in 2010. He added that fabric exports are also up by 25 percent as compared to 2010. “This is despite the fact that 30 percent of the production capacity in textiles is closed,” he said, adding how impossible it is for the industry to expand due to energy crisis. Chairman APTMA Ahsan Bashir said that textile is the only sector that could take Pakistan out of the present economic turmoil. “It could reduce trade deficit, create employment opportunities and boost downstream value chain if its energy needs are fulfilled,” he added. Foreign investors are hoping that the government would take prudent steps to take advantage of the competitive edge that Pakistan enjoys in the textile sector.

Cement:
The cement industry in Pakistan:
The cement industry in Pakistan is composed of 24 players with annual production capacity of around 40mln MT. The sector is dominated by six major players – Lucky Cement Limited, Bestway Cement Limited, D.G. Khan Cement Company Limited, Maple Leaf Cement Factory Limited, Gharibwal Cement Limited, and Kohat Cement Company Limited – constituting over 60% of the total production capacity. The industry maintains a positive correlation with GDP growth, which stood at around 7% during last five years. The major domestic demand drivers are Public Sector Development Programs (infrastructure), real estate and industrial construction.
Conducive economic environment not only fueled the local demand but also provided impetus for capacity expansion. Resultantly, the industry added significant capacity and several new production lines are scheduled to commence operations in 2009. The sector is currently facing stern challenges emanating from a wide spectrum of socio-economic risks including contracting domestic economic activity, slowdown in GDP growth and construction activity and heightened security risks.

Due to the commodity nature of the product, differentiation and brand equity is minimal. Furthermore, manufacturers as well as major consumers in the local market are reluctant to enter into exclusive supply contracts. Hence, the possibility of gaining captive markets through long-term contracts is nonexistent.
3. Lately, profitability of the industry came under pressure due to high energy costs (comprising around 50% of total raw material costs) and increasing financial expenses. Although international energy prices have receded from their 2008 high, the beneficial impact on margins was largely negated by substantial depreciation in Pak Rupee. However, with commodity prices expected to remain low and declining trend in the interest rates anticipated, the operating margins would improve in the near term. This would provide price cushion to manufacturers. Nevertheless, dwindling local demand and resultant low capacity utilization could put further pressure on pricing.
4. During 2007 and 2008, the cement manufacturers also established export operations by capitalizing on the growing demand in regional economies. Cement exports predominantly targeted Afghanistan due to established trade channels. However, in recent years, exporters have established a foothold in Africa and the Middle East as well. Clinker exports to the Middle East offers competitive margins, too. The significant export volumes, while stabilizing the local cement prices, had a positive impact on capacity utilization and the bottom line. However, sales in lucrative export markets, including India, Afghanistan and the Middle East, are likely to be reduced due to the global slowdown. The downturn has narrowed the export window, which was regarded as a limited time opportunity otherwise, too. Meanwhile, decrease in local demand coupled with the increase in capacity may precipitate into a price war amongst domestic cement producers. The looming supply overhang scenario in the sector could potentially worsen the situation. Furthermore, regional markets – mainly India, Saudi Arabia and Iran – may emerge as competitors in the export market, following a slowdown in their domestic economies and/or enhanced production capacity.
5. On the domestic front, cement demand is expected to improve (on MoM basis) with peak construction period (summers) approaching and large part of Public Sector Development Programme (PSDP) still unutilized. However, with a sharp cut in PSDP expenditure (from PKR 400bln to PKR 219bln), the allocation of these funds for infrastructure development remains to be seen. Thus, the local demand is likely to lag its recent high growth trends.
The Indian authorities are intentionally creating non-tariff barriers (NTBs) for Pakistan’s cement sector, despite the fact that Pakistani cement is of better quality as compared to Indian cement, said sources. “Discouraging the entry of cement trucks from the Wagah-Attari border to India by limiting them to seven to eight trucks as compared to 50 trucks of gypsum – a basic raw material for cement – is also a NTB for Pakistani cement,” said Chairman All Pakistan Cement Manufacturers Association (APCMA) Aizaz Mansoor Sheikh. Highlighting another NTB, Sheikh said that the Truck Association at Attari charges Rs25 (Indian rupee) per bag to transport cement from Attari to Amritsar as compared to Rs3 to Rs4 per bag to transport another product from the border to Amritsar. Another leading cement manufacturer also has similar observations while doing cement trade with India. He mentioned that technically, only one truck moves once a day to transport cement to India from Pakistan. “Every cement truck moving towards India takes at least four hours due to multiple checks imposed by the Indian customs and border security force officials and the same amount of time is spent when trucks return back,” he said. He added that even though the border opening hours have been increased to 10 hours from eight hours a day, real time trading occurs for eight hours only. Thus, one truck can cross once in a day only. On the other hand, Indian customs officials fully facilitate trucks carrying gypsum. No extra security checks apply to it, which is why 40 or 50 gypsum trucks enter India from Pakistan’s side of the border. This exposes the interests of the Indian high-ups to discourage the entry of finished goods from Pakistan. He mentioned that the trucks loaded with gypsum cost almost $50 to Indians, inclusive of all costs of transportation, handling and customs clearance. On how to address the situation, Sheikh said that Pakistan’s customs officials could discourage gypsum exports from Pakistan so that India would automatically create space to increase cement imports from Pakistan with pressure from their importers and to fulfill domestic needs. However, Pardeep Sehgal, vice president of Indian Importers Association, while talking to The News admitted half of the NTBs faced by Pakistan’s cement exporters. He admitted that the truck union was very strong at the Attari border and no importer could confront it. However, he said that no uniformity exists in freight charges at Attari as the union defines its own rates. However, while criticising Pakistani cement exporters, Sehgal believes that Pakistan’s cement exporters have not been doing business with direct dealers and thus, Pakistani exporters are also selling cement at almost 30 percent below the market price, while the middleman is benefitting. He said that Indian Punjab’s cement manufacturing units have also started, which is the main reason for the reduction in Pakistani cement imports. However, he also admitted that Pakistani cement is much better in quality as compared to Indian.

Pakistani cement exports to Afghanistan and India declined by $20 million in the first-half of the current fiscal after the Afghan government increased the transit fee and Indian authorities refused to renew export licences of some Pakistani manufacturers, sources in the ministry of industries said on Thursday. The Afghan government increased the transit fee by 100 percent at Torkham border for each truck that carries cement from Pakistan, they said. Indian businessmen played a cardinal role in pursuing the Afghan government to increase the transit fee and they succeeded in their designs, they added. The Afghan government had earlier been charging Rs9,000 transit fee on a truck, which has now been doubled to Rs18,000. The decision was taken 14 days ago and the cement industry so far has lost $14 million worth deals. The concerned ministries of commerce and foreign affairs remain unmoved over this development. However, the businessmen engaged in exporting cement to Afghanistan, including cement dealers, transporters and some representatives of the cement industry, are scheduled to hold talks with the Afghan authorities on Monday to resolve the issue of transit fee. In 2008/09, Pakistan exported 3.18 million tonnes of cement worth $150 million to Afghanistan, which surged further to four million tonnes, valuing $200 million in 2009/10. However, during the first six months of the current fiscal year, Pakistan’s cement exports stood at 2.265 million tons worth $110 million. Similarly, Pakistan suffered a decline of $6 million in its exports to India because of the non-renewal of quality licences by the Bureau of India Standards (BIS), the sources said. An official said that in 2008/09, Pakistan exported 0.634 million tonnes cement worth $35 million to India which increased in 2009/10 to 0.723 million tonnes worth $40 million. But during the first-half of the current fiscal year, the country exported only 0.215 million tonnes of cement worth $12 million. The cement companies of Pakistan are required to obtain quality certification from the BIS. Between 2007 and 2008, BIS had granted quality licences to 22 Pakistani cement companies. Some of these licences, such as those obtained by DG Khan Cement and Maple Leaf, expired. These companies, according to the All Pakistan Cement Manufacturers’ Association (APCMA), have approached BIS for renewal, but their applications remain pending for the last four to five months. The BIS did not reply to an emailed query. “Pakistani cement has been well received in India. The BIS should renew licences as early as possible after completing the formalities,” said a spokesman for APCMA. Since 2007, Pakistan has exported 2.32 million tonnes of cement to India and more licences would expire in the coming months, he added. According to Anudeep Singh Madan, president of the Amritsar-based Cement Importers Association, the region is getting good quality cement from Pakistan at a lower price. After taking into account the cost of rail transport from Wagah to Amritsar and further transportation within the country, the Pakistani cement is delivered to Indian buyers at Rs220 per 50kg bag, Rs30 less than the Indian cement. Diminishing local demand also remains a concern for the Pakistani cement industry, which has been particularly hit hard by few projects in public sector development. In 2008/09, Pakistan exported 6.06 million tonnes cement, earning $600 million. In 2009/10, it exported 5.6 million tonnes of cement, valuing $530 million. During the first six months, the industry exported 2.08 million tonnes worth $230 million.

The local cement consumption has surpassed 2.24 million tons, registering a growth of 11 percent in December 2012, which is the highest-ever local cement despatch for the month of December, said sources. However, the slump in exports continues as exports in December declined by 10.55 percent to 0.580 million tons. A spokesman of All Pakistan Cement Manufacturers Association termed the cement sector’s performance in the first half of FY2012-13 as a good omen. He said that the local cement despatches increased to 11.728 million tons, registering an increase of 7.61 percent. However, exports remained under pressure and declined by 5.28 percent to 4.22 million tons. “During the first half of FY2012-2013, cement units located in South registered a growth of 7.98 percent in the local market but posted an even higher 16.34 percent decline in exports,” he said. “The majority of the cement capacity, however, is located in the northern part of the country where the industry posted a growth of 7.52 percent in domestic market, while exports declined by 1.31 percent only.” He added that the hype created on trade with India has so far not materialised and exports to that market stood at 0.209 million tons only during the last six months, which was well below the expectation of the cement sector and declined by 40.41 percent. Exports to India, in fact, have been on a constant decline ever since the two countries opened their borders for liberal bilateral trade. “The decline is not due to lack of cement demand in India but because of very stringent non-tariff barriers created by our neighbour,” he said, adding that Pakistan’s cement is preferred by Indians because of better quality. Cement exporters, with a potential to export a large quantity to the Indian market, have been facing strict resistance by the Indian government as non-tariff barriers have not been removed even after having been specifically mentioned during the different rounds of official and unofficial talks between the two countries. During the last six months, Afghanistan’s market remained stable and the cement sector exported 2.41 million tons to Afghanistan. Exports to other destination through sea, excluding India, also remained stable in comparison with the last six months of 2011-2012. Pakistan can earn additional $6.5 million through cement exports to Afghanistan if it fixed the minimum export price at $55 per ton instead of existing $42, which will still be less than other countries, an official of the industry said on Thursday. Even if the minimum export price is fixed at $55 per ton the country would earn $50-60 million additional foreign exchange annually, the official said. In an SOS to the economic planners, he said that the cement industry is in dire need of immediate government action. He said cement would cost $60 per ton in Afghanistan if imported from any other country. “We are exporting cement at $42 per ton due to competition between cement plants situated in the Northern parts of the country,” he said. Operational capacity of cement mills situated in the North is 34.26 million tons (2.855 million tons per month) and the operational capacity of cement units in South is 6.97 million tons (580,875 tons per month). Saigol said that the mills in the Northern Region of the country exported 372,048 tons of cement to Afghanistan in February, which was 13 percent of their operational monthly capacity of 2.855 million tons. The total production of the North-based mills in February was 1.385 million tons. The total production of cement in the North in February was seven percent less than 1.494 million tons production recorded in the corresponding month last year. He said declining uptake in the domestic market was the main reason for decline in cement production in the North. Another Cement mill-owner said that in order to maintain minimum production level, a few North-based mills have been forced to export cement by sea though it is not a commercially viable option due to high transportation cost. According to APCMA, cement units situated in the South exported bulk of 337,476 tons of cement through sea, which was over 40 percent of their monthly operational capacity of 580,875 tons. The South-based mills produced 393,287 tons of cement in February. The mills in South, he said, would have caved in without exports as the demand in the local market, which picked up in February, was still very low. The cement units in South posted a production increase of 37 percent over 283,395 tons they produced in February 2010. A spokesman of APCMA said that the cement production declined by 8.49 percent during the first eight months of this fiscal year, ending in February. During July-Feb, the cement production was 15.073 million tons. Cement exports declined during the same period by 14.81 percent from 6.930 tons in July-Feb 2010 to 5.904 million tons during July-Feb 2011. However exports during February increased by 6.22 percent that helped the industry post a nominal growth of 0.04 percent, he added.

Cement Industry set to break records:
Acceleration in regional constructional activities and other exogenous factors like war in Afghanistan have created unprecedented demand for rehabilitation during last 5 years. Pakistan has come under lime light as the a major exporter of cement which has not only fostered the industry but also earned precious foreign exchange to mitigate the budget deficit. There are 29 cement production units in the country.
Pakistani cement sales surged 25 percent in the first ten months of the 2007/08 fiscal year. Cement sales totalled 24.6 million tonnes, compared with 19.7 million tonnes sold in the same period last year. Government expenditures become a major stimulator in creating tremendous demand for cement, thus resulting in the expansion of production.

The 2007/08 budget earmarked a record 520 billion rupees for the public sector, which meant more construction as development spending is channeled into sectors such as health, education and infrastructure. During the July-April period, cement exports from Pakistan jumped 142 percent to a record 5.95 million tonnes, compared with 2.45 million tonnes shipped a year earlier. From 2003 to 2007 cement industry of Pakistan had registered an average growth rate of 20pc. Cement export is expected to reach 6.6 million tonnes in financial year 2008 in the light of growing regional demand for construction.

Orascom Telecom, a leading mobile telecommunications company with various international operations, has shown intent to invest in cement sector realizing its tremendous growth potential. This will further the production capacity of the sector in coming years. On the other hand, cement export to Middle-East counties is in full swing. Regional outlook has gone in favor of Pakistan in terms of ever increased demand for cement in especially two neighboring countries, namely, India and Afghanistan. India's exponential growth in all sectors augmented its construction
Million Tonnes 9MFY08 9MFY07 % change

Local Sales 16,610,096 15,380,297 8.0
Export Sales 6,819,964 2,145,951 217.8
Total Sales 23,430,060 17,526,248 33.7

appetite. Faced with demand supply gap, India has to rely on Pakistan for its cement needs for several years. This bodes well for the expansion of the industry. Likewise, Afghanistan, having been reduced to rubble, will depend of cement imports from Pakistan for a decade or so. The country has unprecedented thirst for infrastructural growth and construction which will be satiated by none other than Pakistan. Apart from these two countries, rising cement demand and high construction activity in Sri Lanka have led to a rise in cement prices in the island nation; as a result the country is planning to import 10,000 metric tonnes of cement from Pakistan to meet its requirements. According to Sri Lanka's Trade, Marketing Development, Co-operatives and Consumer Affairs Minister Bandula Gunawardena, an agreement has been signed with a company in Pakistan to import 10,000 metric tonne of cement to the island country. "A high cement demand has been created in the country with the commencement of many construction projects, including buildings and bridges".

Presently, the cement industry of Pakistan is heavily burdened due to levy of Federal Excise Duty which is Rs. 750 per tonne and GST 15pc on duty paid price. In addition to Federal Excise Duty and General Sales Tax, cement industry is also paying the provincial levies (Royalties and Excise Duties) on acquiring of raw material for production of cement i.e. lime stone and shall clay. A comparison of taxation and retail prices with other regional countries revealed that taxation in Pakistan is highest while cement retail prices are lowest. Housing sector has been looked upon as stimulator of economic growth since there is a large estimated gap of 5.38 million housing units against annual addition of 300,000 units in the country, many tax exemption and incentives are provided to encourage new construction activities in the country. This will stimulate growth of cement industry. If negative factors are looked into, we find that hike in discount rate will mar cement sector's growth. Increase in Oil prices globally and depreciated local currency pushed forward State Bank of Pakistan to take decision towards enhancing the discount rates from 10.50pc to 12pc per cent which will negatively affect cement sector and construction activities. Due to bulk imports and high expenses of fuel cost already hurting local cement manufacturers, increase in interest rates generate new hurdles in paying their debts which have already been taken from the local banks. During 2007 the total capacity of cement production was 32.7 million tonnes which is now reached to 37 million tonnes and in future it will reach up to 42 million tonnes per annum. To achieve these expansion targets, cement companies have taken huge loans from the local and foreign banks and according to our valuations and company reports, companies are to pay Rs. 26 billion to banks till 2012.

In the budget 2007-08, government has also made the outlay of Rs. 1,847 billion where the target on PSDP at Rs. 520 billion with current expenditure at Rs. 1,353 billion where revenue is set at Rs. 1,475 billion will enforce it to avail credit from the banks. Increase in interest rates may hamper already sanctioned loans for the expansions plans in the existing industry. It is in the view that most of the companies already facing losses due to augmented fuel costs, and secondly, the step taken by the government to help enhance the finance costs of the companies which is to be paid over KIBOR.

Reference: www. Slideshare.com www.google.com/vikepedia www.dawn/articals/cement/textile/rice
Ashfak Bokhari Articles
Chamber of commerce www.finance.gov.pk www.pakistan.gov.pk

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