LAHORE:The Rs180bn stimulus for the five major manufactured goods exports — textiles, leather, sports goods, carpets and surgical instruments — should shore up the country’s dwindling export earnings, reward value-added industries and boost the companies’ profitability.
The Nawaz Sharif government has stitched together the 18-month package to partially compensate exporters of these products — for the steep hike in their costs — through generous cash support and duty and tax waivers on import of raw materials and machinery in order to help them compete globally.
Exporters, particularly the Punjab-based manufacturers, had long been complaining of losing competitiveness in the international market mainly on account of the higher-than-the-region energy prices, a stronger rupee and incidence of multiple domestic taxes. The government had announced similar incentives in the past but did not implement them.
The new initiative commits to provide exporters of five sectors unconditional cash support in the first six months of its announcement, to June 2017. But they will be required to grow their export proceeds by 10pc to become eligible for the rebate during the next fiscal year (July 2017/June 2018).
The sectors eligible for rebates under the stimulus package account for approximately 70pc of the country’s export earnings. The remaining 30pc exports, comprising smaller sectors like engineering goods and agriculture/food products, are not covered under the initiative though the increase in the cost of doing business has affected their competiveness as adversely as the beneficiaries of the package. Nor do the incentives offer anything to encourage diversification of the country’s exports.
The export incentives package had drawn a positive response from all sectors benefiting from it, but the textiles and clothing exporters, who fetched about 58pc of the total export revenues of $20.78bn last financial year, seem to be more bullish than the others because the chunk of the cash subsidy — almost 87pc — will be diverted to them.
“Protection given to the domestic spinning industry will act as an incentive for the spinners to spike their prices at the expense of value-added textile exports”
Unlike similar initiatives announced in the past as part of the federal budget or textile/trade policy, the new stimulus proposes cash support for the entire textile supply chain: 7pc on export of all types of garments, 6pc on home textiles and made-ups, 5pc on fabric, and 4pc for yarn and grey fabric. The removal of import duty and sales tax on cotton will also improve margins of the textile firms that import cotton to make their final products.
“The stimulus is a positive for exports in general and for the textiles and clothing sector in particular. It will significantly push profitability of the textile companies. Increasing exports shouldn’t be an issue,” noted Danish Ali Kazmi, an analyst at the Alfalah Securities.
“The firms operating below their installed capacity now have an opportunity to increase their production and exports to avail the cash subsidy, but the revival of the closed mills will be difficult in the near term because structural issues facing the industry remain in place.”
