Economy gives mixed signals

Domestic demand weakens, export prospects improve

Friday, December 11, 2009
By Mansoor Ahmad

LAHORE: The economy is giving mixed signals as a low purchasing power has reduced domestic demand while signs of global recovery have revived prospects of export despite a rise in terrorist activity.

The News has found the accelerated growth during 2003-07 was a result of increase in domestic demand coupled with a robust growth in exports from $12 billion to $18 billion. However, the growth fell in subsequent years as domestic demand weakened and exports got static.

Car and motorcycle sales have declined and auto vendors who have failed to diversify their product range are in trouble, says Almas Hyder, an auto vendor. He says sales of vehicles rose in the past on the strength of affordable bank finance. Though bank finance is still available, monthly installments because of high mark-up are too high for middle-class consumers. He says sales will remain slow till the mark-up declines appreciably.

“We are getting more enquiries because of the strength of our competitive rates,” says MI Khurram, a clothing exporter.

He says the clothing sector came under severe pressure after 9/11, particularly in the wake of negative travel advisory issued by developed countries. However, he adds the real pressure came after textile quotas were abolished and cheap producers the world over attracted foreign buyers. He says the clothing industry in Pakistan during this period improved its efficiency to the highest level.

Now, he says, that the world is slowly recovering from its worst recession in decades, foreign buyers are preferring Pakistani clothing products because of low rates and high quality.

Cheap producers like Bangladesh and Vietnam have quality problems which do not exist in Pakistan, he says and predicts overall export of textiles will increase by over 20 per cent this year.

Television manufacturer Syed Haroon says a local TV brand has become market leader for the first time in the last four years. However, despite maintaining its position as number one selling brand its production has declined by 50 per cent in the past two years because there are no buyers.

He says since most of the components of TV sets are imported and the dollar rate has increased from Rs62 to Rs84, the prices of TV sets have also gone up. This has reduced sales and the decline is still on, he adds.

All Pakistan Textile Mills Association (Punjab) former chairman Akber Sheikh says for almost three years the spinners were forced to sell yarn at a loss or at a very low margin. Now they are flooded with orders both from domestic and foreign buyers and prices of yarn have also gone up.

He says the huge capacities which remained idle in the past are coming back to production, adding the huge investments made in the past will benefit investors now.

Engineering entrepreneur Nabeel Hashmi says the engineering sector is now getting enquiries from all over the world.

He says precision parts manufactured for the auto sector has prompted the engineering sector to make precision parts for all types of equipment at competitive rates. The sector, he adds, is getting enquiries despite terror label on Pakistan.

As far as the local market is concerned, he is of the view that the decline in rupee value, increase in petroleum product prices and expected increase in gas and electricity tariffs from January 1, 2010 will further fuel inflation and suppress demand.