Textile industry, kicking the bucket

by Azhar Bukhari
Textile industry, kicking the bucket
Long-hours power outage, PKR decline trashing investment in textile sector
Share in total exports continues to fall off
Azhar Bukhari
The prolonging power crisis and significant decline in PKR against the US dollar, have smashed the investment in textile sector, as the share of textile exports in the total exports of the country has decreased to 50.2 percent from 62.6 percent.
A decade before, the textile export was at 80 percent of the total exports of the country. Despite enjoying subsidies worth over Rs 25 billion, the share of textile exports in the total exports of the country is continued to decrease.
According to a research study, more than 300 big and small textile and spinning units have been closed or merged after the martyred of former Prime Minister Benazir Bhutto. The industry has not been able to reap the benefits arising out of the depreciation of the rupee by 30 percent, and textile exports have registered a negative growth of 7.2 percent in the 3rd quarter of current fiscal year.
But on the other, when the food crisis is hitting the world’s major economies, here in Pakistan, without any government support, the share of non-textile exports have increased to 49.6 percent from 37.4 percent. The share of non-textile exports in the total exports of the country have increased to $2.730 billion in the Jan-March 2009.
Due to the unending power crisis, the local textile sector has not been able to develop its capacities and product development and meet international challenges.
The reliance of the local textile sector on textile quotas, duty drawback, refund and rebate culture has had a negative impact and its inefficiencies have exposed its capacity in the post-quota era.
In Pakistan, the textile sector commonly uses the locally produced cotton, yarn and raw materials and relies less on imports, but even than it has not been able to increase its exports at par with the last fiscal year. Experts in the government also argue that utility prices like gas, electricity and petroleum products have increased and are having a negative impact on all export-oriented industries.
The rupee witnessed a downslide soon after the Pakistan People’s Party-led government took charge of the affairs of the country. It depreciated from Rs 62 a dollar to Rs 80 a dollar during the last few months leaving export-oriented industries with no option to import or buy imported raw materials at higher costs.
In the recent past, the country’s exports have been witnessing marginal growth and imports have been registering sky rocketing increase, which has created balance of payment problems for the country. Availability of locally produced industrial raw materials would be the key to enhance country’s exports in future as the overall inflation and depreciation of rupee and rising power tariff would be limiting growth in exports.
The continued high prices of cotton yarn may cause a setback to the ongoing progress in the investment tempo of extensive-scale modernization replacement and expansion in the value-added section of the textile industry.
It is estimated that the export of one kg. of cotton yarn earns $2.70 as against which the similar quantity of cotton yarn/polyester fibre would earn $7.50 if exported after conversion into a value-added product. In order to achieve the best results on the textile front, it would be advisable that quotas may be imposed for the export cotton yarn so that the commodity could be made comfortably available to the value-added industry.
The demand for textiles in the world is around $21 trillion, which is likely to be increased by 6.5% in 2010. China is the leading Textile exporter of the world's total exports of US$ 500 billion in 2007. Country wise major market shasres of the textile exporting countries are: China: $ 55 billion, Hong Kong:$ 38 billion, Korea: $ 35 billion, Taiwan:$ 16 billion, Indonesia:$ 9 billion.
Though Pakistan has emerged as one of the major cotton textile product suppliers in the world market with a share of world yarn trade of about 30% and cotton fabric about 8%, having total export of $ 7.4 billion which accounts for only 1.2% of the over all share. Out of this Cotton fabric is 0.02%, Made-ups is 0.18% and Garments is 0.15%.
This is mainly due to the laxity towards the promotion of value added sector. Pakistan should learn a lesson from Bangladesh, which, by importing yarn and fabrics from Pakistan and other countries, has increased the export volume of Textiles made ups. If we desire to achieve the target of Textile Exports as envisaged in Textile Vision 2009, we will have to promote Value added sector in Textiles.

Role of textile industry in national economy
Textile products are a basic human requirement next only to food. This industrial sector in Pakistan has been playing a pivotal role in the national economy. Its share in the economy, in terms of GDP, exports, employment, foreign exchange earnings, investment and contribution to the value added industry; make it the single largest determinant of the growth in manufacturing sector. Textile share of over all manufacturing activity is 41%, export earning is 50.2%, value addition is 7% of GDP and as a provider of employment 32%.
In spite of the government's efforts to diversify exports as well as industrial base, the textile sector remains the backbone of industrial activity in the country.
Bottlenecks & deregulation strategy for investment
1. Poor infrastructure
2. Delay in sales tax refund causing serious cash flow / liquidity problem to the industry.
3. Pakistan's bad image portraited by the international media.
4. Adverse travelling advice by the foreign countries to their citizens discouraging travel to Pakistan.
5. Pakistan to sign international agreements, providing protection to intellectual property rights and international arbitration agreements.
6. Non-availability of good quality soft water for the textile industry.
7. Arrangements to provide Insurance guarantees to U.S. investors on their investment in Pakistan