The textile industry is one of the most important sectors of Pakistan. It contributes significantly to the country's GDP, exports as well as employment. It is, in fact, the backbone of the Pakistani economy.
Established capacity
The textile industry of Pakistan has a total established spinning capacity of 1550 million kgs of yarn, weaving capacity of 4368 million square metres of fabric and finishing capacity of 4000 million square metres. The industry has a production capacity of 670 million units of garments, 400 million units of knitwear and 53 million kgs of towels.
The industry has a total of 1221 units engaged in ginning and 442 units engaged in spinning. There are around 124 large units that undertake weaving and 425 small units. There are around 20600 power looms in operation in the industry. The industry also houses around 10 large finishing units and 625 small units.
Pakistan's textile industry has about 50 large and 2500 small garment manufacturing units. Moreover, it also houses around 600 knitwear-producing units and 400 towel-producing units.
Contribution to exports
In Asia, Pakistan is the 8th largest exporter of textile products.
Contribution to GDP and employment
The contribution of this industry to the total GDP is 8.5%. It provides employment to 38% of the work force in the country, which amounts to a figure of 15 million. However, the proportion of skilled labor is very less as compared to that of unskilled labor.
Organizations in the industry
All Pakistan Textile Mills Association is the chief organization that determines the rules and regulations in the Pakistan textile industry.
Opportunities available
The world demand for textiles is rising at around 2.5%, due to which there is a greater opportunity for rise in exports from Pakistan.
Exports;
According to recent figures, the Pakistan textile industry contributes more than 60% to the country's total exports, which amounts to around 5.2 billion US dollars. The industry contributes around 46% to the total output produced in the country. According to the "ECONOMIST" intelligence report of August 2003 for Pakistan the following observations have been made: Despite Government efforts to diversify exports and widen the industrial base, the industrial sector remains dominated by the Textile sector. Textile Sector still represents 46% of total manufacturing and provides 68% of Pakistan's Export receipts.
The strong performance stemmed from two factors:
a- Increase in import quotas especially by U.S.A, EU and TURKEY
b- Textile industry has invested over US$1.5 billions in new technologies and modernization in the last 3 years.
Efficiency and the innovation in textile is the only hope to get the country out of economic problems.
Textile engineering sector
The Pakistan Textile Engineering Sector is underdeveloped and under utilized. Mostly it caters in the form of spares, components for modernization and machines used in cottage or small scale industries.
A cursory look at the structure of Pakistan Textile Industry shows that most of them are cottage industry, small/medium industrial units and little large integrated state of art units. The number of units which fall under each category varies from sub-sector to sub-sector. Similarly the Textile Engineering Units also vary from small, medium and large in size. The Textile Engineering Industry comprises approximately 80% small work shops, 15% medium engineering Units and 5% large Engineering Units. It will not be out place to mention that the large engineering units are in Public Sector. The small and medium Engineering Units work on reverse Engineering principles, only few work according to Engineering Drawings and still fewer have Testing or Quality Control facilities.
On the basis of initial survey of Textile Engineering Units (Not complete yet), approximately 500 units are engaged all over Pakistan, employing approximately 50000 work force which is mostly skilled. Even under the present conditions and without any support, Pakistan Textile Engineering Industry is providing import substitution worth around one billion US dollars. This sector also exports to small and medium Textile Units in Bangladesh, Iran, Sri Lanka, etc.
The Textile Engineering Sector is throttled through taxes on raw material, import of components, electronic and electrical parts.
Competition
The present Textile Engineering Industry is up against competition from smuggled, under invoiced and mis-declared components, parts and accessories. For example, in case of second hand machinery, there is little or no check and the competition mainly rests on lower price. Machines smuggled especially from China, India, Taiwan are not better in quality but are selling cheaper. A bold initiative is needed which can boost the production as capacity and markets are there, only change in environment is need.
Finishing look and control components
The products manufactured locally, when displayed against foreign goods - offer a poor look - primarily because of the unsightly finishing of welding seams, electroplating, painting and other surface treatments. In addition, the adoption of wrong design parameters, or the attempt to reduce the cost of production, lead to the incorporation of under-sized electrical motors and electric / electronic control panels.
Quality control
There are very few units which have their own material testing facilities, or have an access to any such service from out side. Although reverse engineering is practiced, yet this copying is done without adequate material testing. This results in poor quality or in many cases in an undue over - engineering. A great stress on quality control is being laid by all the major importing countries, especially in the wake of ISO 9000 series. There is, therefore, a need of assisting the local textile engineering the relevant institutions, such as PSI, NPC, CTL, etc.
Assistance of present institutions
To encourage the local textile industry an access to the modern practices in the specialized areas of manufacturing processes, productivity enhancement and quality control, an institutional mechanism should be set up which provides the industry an adequate and industry-friendly assistance from such organizations as MIRDC, PITAC, CTL and PSI, etc. In addition such institutions as Pak-Swiss Training Centre and Pak-German Training Centre, as well as
the Small Scale Industrial Estates should be encouraged to provide the industry necessary technical assistance and production aids such as tools, jigs, fixtures, gauges, etc. for productivity improvement and quality control.
Employment opportunities
Keeping in view the linkage of the Engineering Sector to other sectors of economy, it can be safely assumed that every one person employed in Engineering will add at least 2 more persons in the over all economy. There is ample scope for qualified engineers in mechanical, electric and electronics disciplines to boost this sector.
Need for training institutions
Diploma Level Courses on the pattern of Pak-Swiss Training Centre in Karachi should also be opened in the Textile Institutions in Faisalabad and Karachi and more such courses should be introduced in the Polytechnics in areas like Multan, Hyderabad, Lahore and Gujranwala.
Exhibitions
Most of these small workshops are shy or afraid of getting registered or displaying their products, mainly from the fear of the revenue collection, labor controlling and other government regulating agencies. This fear keeps them away from the mainstream Industry. This also leads to the lack of interaction among the small scale, medium scale and higher level industry for a purposeful vendor development.
National Exhibitions held annually can be very helpful in bringing out the skills, the range of products and opportunities of group collaboration. It will help the planners and large scale engineering industry in defining the way for developing skills in order to make this sector strong and viable. This will culminate a Vendors List which can be recommended to foreign suppliers interested in coming to this market and starting assembling / manufacturing on large scale.
The interaction between the foreign textile manufacturing industry could also be enhanced by facilitating the indigenous Textile Engineering Industry to participate in the specialized Exhibitions and fairs being held in those countries.
Future opportunities
Our main competitors in primary textile products with the advantage of large engineering sector in this region are China and India. The only country in this region without strong engineering base is Pakistan and our dependence upon outside Engineering Industry keeps our cost of production higher with low engineering skills.
Looking into the future a strong competition from China and India for these market requirements can be used to involve them to start assembly plants under their guidance and cooperation.
Some progress in the direction has led to the development of a Task Force in the Ministry of Industries and Textile Engineering is growingly lucrative for investors, local and foreigners.
E-commerce a Gateway MoU with Chinese Co.
The E-commerce Gateway has signed a memorandum of understanding (MOU) with a Chinese company Global Enterprise Consulting to launch a business a match making' service in Pakistan and China.
According to E-commerce Gateway Pakistan. "This service includes seeking of agents, distributors, buyers, suppliers or joint venture partners in Pakistan or Middle east for Chinese companies that intend to do business in these markets".
The service will include all kinds of facilitation required to help increase the Chinese exports to the Middle East and South Asian markets.
The role of Government.
Various representatives of the textile industry have termed the federal budget 2009-10 as disappointing, mainly because, according to them, it did not explain as to how the government was going to revive the industrial sector, particularly the textile industry, which contributes about 60 per cent of the country's total exports.
Pakistan Readymade Garment Manufacturers & Exporters Association (PRGMEA) ex-chairman, Ejaz Khoker said that three million people are employed by the textile industry and another three million indirectly, but the federal budget 2009-10 said nothing for the revival of the sector. Moreover, the imposition of new taxes on the import of raw materials and the withdrawal of cross subsidies on electricity and gas would make the industry further incompetent in the region, particularly with competitors like China and Bangladesh, as stated by Mr. Khoker.
Pakistan Bedwear Exporters Association (PBEA) Chairman Shabbir Ahmed said that the budget illustrated no planning at a governmental level, as it suggested no solutions to the deteriorating conditions of the textile industry. He said that the budget failed to address anything regarding industrialisation; how to enhance exports; how to increase foreign exchange reserves and how to create employment opportunities in the country. As per Mr. Ahmed, the government has announced to constitute a fund of Rs.40 billion for export promotion, but the government would only contribute Rs10 billion and questioning of who will provide the rest of the Rs.30 billion for the fund as the high rate of mark-up, depreciated rupee value and the end of cross subsidies on electricity and gas would further add to the cost of doing businesses and would result in the closure of more industries.
Pakistan Leather Garments Manufacturers & Exporters Association (PLGMEA) Chairman, Fawad Ejaz, said that the doubling of withholding tax (WHT) from two to four per cent on import of raw materials for the whole industry would create havoc. Moreover, according to him the end of the Presumptive Tax Regime, under which his industry was paying one per cent on the receipt of exports proceeds, would revive the bribe bazaar.
There is no doubt that the textile spinning and weaving industry is facing an unprecedented crisis since July 2006. Consequently, sizeable textile capacity has been severely impaired and textile exports in quantity and value terms have declined all across the value chain by 30-40 per cent, compared with the maximum export in 2006-07. One major factor behind the declining trend is the erosion of Pakistan textile industry's competitiveness, particularly against the huge facilities being provided by competing countries like China, India and Bangladesh to the industry and exports. The industry circles have sought favourable actions from the government on the existing tax structure particularly that of income tax, customs duty and sales tax. Taking income tax into consideration, it is believed that the Federal Board of Revenue should exempt all textile machinery, raw materials, spares and chemicals from one per cent withholding tax at the import stage. Similarly, the levy of minimum tax was abolished in federal budget 2008-09, which should continue in the federal budget 2009-10 as well. These circles said that the government should reduce maximum corporate tax to 25 per cent in the budget 2009-10 to attract foreign investment in the sector, in the context of the prevailing shortage of polyester staple fibre (PSF), the industry has proposed that the customs duty of 4.5 per cent on polyster staple fibre on the import stage should be reduced for local consumers.
Advisor to the Prime Minister on Textile Ministry, Dr. Mirza Ikhtiar Baig recently unveiled his vision for the revival and boosting of textile industry. He underlined the need for value-addition in textile sector by converting raw material to value-added projects. He emphasised on reduction of cost of doing business in textile sector by enhancing productivity, human resources and skill development. To broaden the export base to non-traditional new markets and to make export of textile products at zero rated in true sense. Presently, the taxes on Pakistani exports range from 4 per cent to 5 per cent which include withholding tax. He said the country needs more market access to sign Free Trade Agreements, Preferential Trade Agreements, Regional Trade Agreements and ROZs which should cover Pakistan's textile products as well. The ROZs have been planned for FATA, Wazirstan and other areas bordering Afghanistan. To ensure the implementation for the supply of contamination - free cotton to textile industry, up-gradation of plant and machinery of ginning industry/textile sector should be treated as priority sector in terms of utility rates. Cross subsidy in gas prices given to other sectors at the cost of textile industry is hurting its cost of production. There is a great potential to increase our textile exports to Turkey and Iran. Iran is buying Pakistani textile products (fabric) from Turkey because of the concessional tariff. There is huge potential to directly supply our textile product to Irani market if some preferential tariff is allowed. Research and Development (R&D) facility to be allowed to textile sector to support our exports. To increase man made fibre use in our textile industry from 23 per cent to 50 per cent for less reliance on cotton as our regional competitors are using 50 per cent cotton and the same quantity of man-made fibre.
The textile group exports have witnessed negative growth of 9.27 per cent during the first ten month of current financial year. Exports from July-April (2008-09) were recorded at $7.898 billion as against the exports of $8.706 billion during the corresponding period of last financial year. During the period under review exports of cotton yarn were decreased by 15.98 per cent, cotton carded or combed by 1.41 per cent, yarn other than cotton yarn by 54.74 per cent, knitwear by 6.7 per cent, bed wear by 12.19 per cent, tents, canvas and trapulin by 14.70 per cent, ready made garments by 14.65 per cent, art, silk and synthetic textile by 33.64 per cent where as the exports of other textile materials were declined by 15.43 per cent. The only two textile groups including raw cotton, cotton cloth and towels witnessed positive growth as their exports were increased by 40.32 per cent, 0.75 per cent and 3.26 per cent respectively during the first ten months of current financial year as against the same period of last year.
The textile industry currently faces other challenges as well which are massive and accumulating over a period of long time. Those problems cannot be tackled by the government alone. The industry must show seriousness and come up with better performance. The All Pakistan Textile Mills Association (APTMA) needs to enhance the quality of its products, upgrade the technology used, and encourage effective Research and Development (R&D) in order to compete internationally. However, APTMA argues other factors such as high interest rates and cost of inputs, non conducive government policies, and non-guaranteed energy supplies hinder their competitiveness. Critics argue that the indolent attitude of the industrialist in the 1990s has led up to the current crisis. If the textile industry had worked with the government towards implementing policies that prepared for the current international scenario, Pakistan textile industry would have boomed. Instead, the industry suffers from 'severe technological obsolescence' insufficient R&D, falling cotton crop, and an unclear path forward. The lack of R&D in the cotton sector of Pakistan has resulted in low quality of cotton in comparison to rest of Asia. Moreover, critics argue that the textile industry has obsolete equipment and machinery. The inability to timely modernise the equipment and machinery has led to the decline of Pakistani textile competitiveness.
The main wheel of growth of the textile industry is the often forgotten growers of cotton. About one-quarter of Pakistani farmers of whom about 40 per cent have household incomes below the poverty line are engaged in growing cotton under harsh weather condition and severe financial constraints. Cotton is an important cash crop of Pakistan. It is an occupation of over 1.5 million farming families and a source of livelihood for several millions of labour in cities and towns. In cotton growing areas sale of cotton produce may account as much as 40 per cent of cash income of rural households. Besides this, it accounts for about 85 per cent of domestic oil production. It provides raw material to 458 textile mills, more than 1200 ginning factories and 5000 oil expellers. In view of economic importance of cotton crop in Pakistan's economy the conditions of the growers also need to be improved. Those poor farmers also need attention and packages by the government and the APTMA so they are also benefited and live honorable life.
Declining of exports
Pakistan's textile and clothing exports fell in the first eight months of the current fiscal year, due to surging raw material prices, energy crisis, financial costs and global recession. Shipments to foreign countries were down 6 percent in value terms during the first eight months of the current fiscal year compared with the same period last
year.
Cotton yarn, the primary export earning category went down by 15%, woven readymade garments by 12%, bed wear by 10%, knit wear garments by 3% during the period.
However, exports of cotton cloth and Towels went up by 6% and 10% respectively.
2006-07 (July-June) was the best year for Pakistan's textile and clothing industry when the industry managed to export US$ 10.8 billion with the support of friendly government policies, international propitious environment, and lower cotton prices.
The shift in government policies, increases in input costs, and the global recession have changed the scenario for textile exports from Pakistan. Now the textile industry in the country is passing through a very critical period with
Number of closures and shutdowns
Since 2004, diesel prices in Pakistan has gone up by 150 percent, petrol prices by 71 percent, gas prices by 91 percent, electricity cost by 60 percent, minimum
wage of unskilled workers by 140 percent.
The textile industry in Pakistan invested US$6.4 billion during the period 1999-2007, when interest rates were extremely low. Textile machinery imports, as a result reached the highest level of US$928 million during the fiscal year 2004-05. This was US$438 million in the last fiscal year, reflecting the lack of modernization in the industry.
Cotton remains a primary raw material for the textile industry in Pakistan, accounting for over 70 percent of the total production cost.
Consumer price index (CPI) in Pakistan reached the highest level 21.1 percent (YoY) in February 09.
The increase mainly came from surging food prices which recorded at 22.9 percent during February 09, mainly due to an increase in the prices of essential food items. In addition energy prices also contributed a lot to the inflation.
To counter the rising inflation in the country, the government of Pakistan has announced an increase in minimum wages of unskilled workers to PKR6000/month (US$75/month), but there is reported wide payment of the older rate still, of PKR4000/month (US$50/month).
Government Supports and Subsidies
The government of Pakistan devalued the local currency by around 27% against the US dollar in last one year.
The government of Pakistan had been paying a 6% Research and Development (R&D) subsidy on exports of woven and knitted garments, 5% on dyed and printed home textiles, and 3% on dyed and printed fabrics. These payments are now suspended since July 2008.
The government has paid some PKR 31 billion to the textile exporters against the scheme, including PKR 6.975 billion to fabrics, PKR 0.997 billion to bed wear and knitwear and PKR 21.175 billion to garments sector.
The subsidy was first announced in June 2005, but only for knitted and woven garments. In mid-2006, home textiles and finished fabrics were included in the scheme.
State Bank of Pakistan (SBP) has also paid more than US$ 800 million to the textile sector under the Long Term Financing of Export Oriented Projects (LTF-EOP) scheme since May 2004.
The interest rate is charged at around 7.5 percent -repayable in 7 years-against normal rates of 12 to 13 percent. Initially only value added sectors of textile chain (weaving onward) were eligible under the scheme.
In the trade policy announced on 18th July 2007, scope of the scheme was further enlarged to cover export oriented, core and developmental sectors, purchase of locally manufactured machinery and compact spinning.
