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Importance of the textile sector in Pakistan

In Pakistan, one of the most important sectors is textile sector. It’s over all contribution in the GDP, exports and employment in significant. In fact we can call it the back bone of the Pakistan economy.

Established capacity

The total established spinning capacity in the textile industry of Pakistan is 1550 millions kg of yarn, weaving capacity of 4368 million sq meters kg of fabric and finishing capacity of 4000 million sq meters. The production capacity of this sector is 670 million units of garments, 400 million units of knitwear and 53 million kg of towels.

There are 1221 units engaged in ginning and 442 units engaged in spinning in this industry. There are around 124 large units that assume weaving and 425 small units. There are around 20600 power looms in operation in the industry, including 10 large finishing units and 625 small units.

There are about 50 large and 2500 small units of garment manufacturing in Pakistan, moreover, it also has around 600 knitwear producing units and 400 towel producing units.

Contribution to exports

Pakistan is the 8th largest exporter of textile products.

Contribution to GDP and employment

Textile industry has a contribution of 8.5% to the total GDP. Around 38% (15 million) of the employment is provided by this sector. But the number of the skilled labor is very less as compared to the 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

There is a great opportunity for rise in exports from Pakistan as the world demand is rising at 2.5%.

Exports

The textile sector has a contribution of 60% in the total exports of the Pakistan, which can be written as 5.2 billion US dollars. The contribution of the textile industry in the total output of Pakistan is 45% approximately. The ECONOMIST intelligence report made some observations for Pakistan; despite government efforts to diversify exports and widen the industrial base, the textile sector dominates the industrial sector.

There are two factors for this strong performance;

Increase in import quotas by USA and Turkey, etc. etc.

A huge investment of around us $ 1.5 billion in the last 3 years in this sector.

We can see a hope for the better economy of Pakistan because of the textile industry.

Textile Engineering Sector

The Pakistan engineering sector is under developed and under consumed. Mostly it provides in the form of spares, components for modernization and machines used in cottage or small scale industries.

A quick look on the textile industry of Pakistan shows that there is little large integrated state of art units. The Textile Engineering Units also differ from small, medium and large in size. The Textile Engineering Industry contains almost 80% small work shops, 15 % medium and 5% large engineering units. And the large units are in public sector. The small and medium units work on reverse Engineering principles, only few of them are working on the illustration of Engineering and still fewer have testing or quality control facilities.

In our first 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. Under the current conditions and without any support, Pakistan Textile Engineering Industry is providing import substitution worth around one billion US dollars. The exports are also made to small and medium Textile Units in Bangladesh, Iran, Sri Lanka, etc. by this sector. The Textile Engineering Sector is strangled through taxes on raw material, import of components, electronic and electrical parts.

Competition

There is a lot of competition for the present textile industry, i.e. smuggled, under invoiced and miss-declared components, parts and accessories. For example, if we talk about of second hand machinery, there is little or no check and the competition mainly rests on lower price. If some one smuggle machine from China, Taiwan, they will get better machinery in cheaper rates. We need a bold initiative which will boost the production as capacity and markets are there, only change in environment is need.

Finished look and control components

If we display a locally manufactured product against a foreign good, it will offer a bad look primarily because of the unsightly finishing of welding seams, electroplating, painting and other surface treatments. Plus, the adoption of wrong design parameters or the attempt to reduce the cost of production will lead to the incorporation of under-sized electrical motors and electric / electronic control panels.

Quality Control

There is only little number of units which have material testing units owned by them, or have an access to any such service from out side. They also practice reverse engineering, yet this copying is done without adequate material testing. The result they get is very poor because of this act or in many cases in an undue over - engineering. A huge pressure on quality control is being laid by all the major importing countries, especially in the stir of ISO 9000 series. The local industry should be assisted from the relevant institutes such as PSI, NPC, CTL, etc.

Assistance of present institutions

An institutional mechanism should be set up which offers the industry an sufficient and industry-friendly support from such organizations as MIRDC, PITAC, CTL and PSI, etc. this will help to support the local textile industry an access to the modern practices in the specialized areas of manufacturing processes, productivity enhancement and quality control, Plus such institutions as Pak-Swiss Training Centre and Pak-German Training Centre, as well as the Small Scale Industrial Estates should be encouraged to supply the industry necessary technical backing and production assist such as tools, jigs, fixtures, gauges, etc. for productivity improvement and quality control.

Employment opportunities

By keeping in observation the connection of the Engineering Sector to other segments of economy, it can be securely implicit that every one person employed in Engineering will add at least 2 more persons in the over all economy. We can see a plenty of scope for skilled engineers in mechanical, electric and electronics disciplines to boost this sector.

Need for training institutions

There should be some institutes offering Diploma Level Courses on the pattern of Pak-Swiss Training in most of the cities in Pakistan,

Exhibitions

There are some small workshops are introverted or scared of getting registered or displaying their products, mainly from the fear of the revenue collection, labor controls and other government regulating agencies. This fright is the reason which keeps them away from the mainstream Industry. It also escorts to the need of interface among the small scale, medium scale and higher level industry for a focused vendor expansion.

Another helpful thing can be the National Exhibitions held annually, in bringing out the skills, the range of products and opportunities of group collaboration. It will assist the planners and large scale engineering industry in defining the way for developing skills in order to make this sector well-built and feasible. There would be a Vendors List which can be recommended to foreign suppliers interested in coming to this market and starting assembling / manufacturing on big scale.

The communication between the foreign textile manufacturing industries could also be improved by assisting the indigenous Textile Engineering Industry to participate in the specialized Exhibitions and fairs being held in those countries.

Future opportunities

China and India are our main competitors in primary textile products with the advantage of large engineering sector in this region. Pakistan is the only country in this region without tough engineering foundation and our dependence upon outside Engineering Industry maintains our cost of production higher with low engineering abilities.

If we take a look on the future, we can see 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.

E-commerce a Gateway MOU with Chinese Co

The E-commerce Gateway has signed a memorandum of accepting (MOU) with a Chinese company Global Enterprise Consulting to open a business a match making' service in Pakistan and China.

According to E-commerce Gateway Pakistan; "This service comprises looking for agents, distributors, consumers, brokers or joint venture partners in Pakistan or Middle East for Chinese companies that intend to do business in these markets".

The service will contain all types of facilitation necessary to help augment the Chinese exports to the Middle East and South Asian markets.

The role of Government

A wide range of representatives of the textile industry have phrased the federal budget 2009-10 as unsatisfactory, primarily because, according to them, it did not explain as to how the government was going to renew the industrial sector, mainly the textile industry, which contributes about 60 per cent of the country’s total exports.

Ejaz A. Khoker, who is ex-chairman of Pakistan Readymade Garment Manufacturers & Exporters Association (PRGMEA), said that three million people are working by the textile industry and another three million ultimately, but the federal budget 2009-10 said nothing for the revival of the sector. Furthermore, 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.

Mr. Shabbir Ahmed, who is the Chair-person of Pakistan Bed wear Exporters Association (PBEA); said that the budget showed no preparation at a governmental level, as it recommended no solutions to the weakening conditions of the textile industry. He also said that the budget failed to address anything concerning industrializations; how to improve exports; how to augment foreign exchange reserves and how to generate employment opportunities in the country. According to Mr. Ahmed, the government has declared to comprise a fund of Rs.40 billion for export encouragement, 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 closing stages of cross subsidies on electricity and gas would additional add to the cost of doing businesses and would result in the end of more industries.

MR. Fawad Ejaz; Pakistan Leather Garments Manufacturers & Exporters Association (PLGMEA) Chairman, said that the repetition of withholding tax (WHT) from two to four per cent on import of raw materials for the whole industry would create disorder. Additionally, 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 renew the inducement bazaar.

We can easily say that the textile spinning and weaving industry is in front of an extraordinary crisis since July 2006. As a result, large textile capacity has been harshly impaired and textile exports in quantity and value terms have declined all across the value chain by 30-40 per cent, contrasted with the maximum export in 2006-07. Another key factor following the declining drift is the wearing down of Pakistan textile industry’s competitiveness, above all, against the huge amenities being provided by competing countries like China, India and Bangladesh to the industry and exports, the industry circles have required constructive measures from the government on the vacant tax structure predominantly that of income tax, customs duty and sales tax. When we take income tax into thoughtfulness, it is assumed that the Federal Board of Revenue must exempt all textile machinery, raw materials, spares and chemicals from one per cent withholding tax at the import phase. Likewise, the duty of minimum tax was eliminated in federal budget 2008-09, which should carry on in the federal budget 2009-10 as well. These circles said that the government should decrease utmost corporate tax to 25 per cent in the budget 2009-10 to magnetize foreign investment in the sector, in the circumstance of the current lack of polyester staple fibre (PSF), the industry has planned that the customs duty of 4.5 per cent on polyester staple fibre on the import phase should be concentrated for local consumers.

Dr. Mirza Ikhtiar Baig who is consultant to the Prime Minister on Textile Ministry, just revealed his vision for the renewal and boosting of textile industry. He emphasized the requirement for value-addition in textile segment by converting raw material to value-added projects. He highlighted on lessening of cost of doing business in textile sector by enhancing output, human resources and skill progress. To widen the export foundation to non-traditional new markets and to make export of textile products at zero rated in true sense. Currently, the taxes on Pakistani exports vary from 4 per cent to 5 per cent which comprise of withholding tax. Dr. Mirza Ikhtiar Baig said the country wants 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 designed for FATA, Waziristan and other areas nearby Afghanistan. To make sure the execution for the supply of contagion – free cotton to textile industry, up-gradation of plant and machinery of ginning industry/textile sector should be treated as precedence sector in terms of utility rates. Cross subsidy in gas prices given to other segments at the cost of textile industry is throbbing its cost of construction. There is a huge probable to augment our textile exports to Turkey and Iran. Iran is buying Pakistani textile products (fabric) from Turkey because of the fewer tariffs. There is vast prospective to directly provide our textile product to Iran market if some preferential tariff is permitted. Research and Development (R&D) capacity should be allowed to textile sector to support our exports. To augment man made fibre use in our textile industry from 23 per cent to 50 per cent for less dependence 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 observed negative increase of 9.27 per cent during the first ten month of present financial year. Exports from July-April (2009-10) were witnessed at $7.898 billion as against the exports of $8.706 billion during the equivalent period of last financial year. Throughout the period under review exports of cotton yarn were reduced by 15.98 per cent, cotton carded or examined 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 tarpaulin 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 merely two textile groups counting raw cotton, cotton cloth and towels observed optimistic growth as their exports were augmented by 40.32 per cent, 0.75 per cent and 3.26 per cent correspondingly during the first ten months of current financial year as in opposition to the same period of last year.

Our textile industry at present faces other challenges as well which are huge and built up over a era of long time. The government alone cannot deal with those troubles. The industry has to demonstrate significance and come up with improved presentation. The All Pakistan Textile Mills Association (APTMA) needs to improve the class of its products, improve the technology used, and give confidence to the effective Research and Development (R&D) in order to struggle internationally. Though, APTMA disagrees with other factors such as high interest rates and cost of inputs, non favorable government policies, and non-guaranteed energy supplies delay their competitiveness. Opponents disagree, that the idle approach of the businessmen in the 1990s has led up to the existing crisis. If the textile industry had worked with the government towards applying policies that equipped for the current international situation, Pakistan textile industry would have boomed. In its place, the industry undergoes from ‘harsh technological obsolescence’ insufficient R&D, declining cotton crop, and an indistinct trail onward. The lack of R&D in the cotton sector of Pakistan has resulted in low excellence of cotton in contrast to rest of Asia. Furthermore, critics argue that the textile industry has outdated apparatus and equipment. The lack of ability to timely update the apparatus and machinery has led to the turn down of Pakistani textile competitiveness.

The major control of expansion of the textile industry is the frequently elapsed growers of cotton. About one-quarter of Pakistani farmers of whom about 40 per cent have household incomes under the poverty line are busy in growing cotton under cruel weather situation and strict financial limitations. Cotton is a significant cash crop of Pakistan. It is a job of over 1.5 million agricultural families and a foundation of livelihood for numerous millions of labor in cities and towns. In cotton rising areas, sale of cotton created may account as much as 40 per cent of cash income of rural households. In addition to this, it accounts for about 85 per cent of domestic oil construction. It gives raw material to 458 textile mills, more than 1200 ginning factories and 5000 oil expellers. In vision of economic significance of cotton crop in Pakistan’s economy the circumstances of the growers also need to be enhanced. Those poor farmers also require concentration and correspondence by the government and the APTMA so they are also advantaged and live honorable life.

Declining of exports

Pakistan's textile and clothing exports cut down in the initial eight months of the present fiscal year, due to rolling raw material prices, energy crisis, financial costs and global recession. Consignments to foreign countries were down 6 percent in value terms during the first eight months of the current fiscal year evaluated with the same period last year.

Cotton yarn, the main export earning category went downward by 15%, woven readymade garments by 12%, bed wear by 10%, knit wear garments by 3% during the period. Still, 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 supervised to export US$ 10.8 billion with the support of welcoming government policies, international favorable environment, and lower cotton prices.

The change in government policies, augmentation in input costs, and the global recession has altered the situation for textile exports from Pakistan. Now the textile industry in the country is passing through a very serious period.

Number of closures and shutdowns

Ever since 2004, diesel prices in Pakistan has moved out by 150 percent, petrol prices by 71 percent, gas prices by 91 percent, electricity cost by 60 percent, minimum salary of untrained workers by 140 percent.

The textile industry in Pakistan spent US$6.4 billion through the period 1999-2007, when interest rates were enormously low. Textile equipment imports, as a consequence reached the highest level of US$928 million through the fiscal year 2004-05. This was US$438 million in the last fiscal year, reflecting the requirement of renovation in the industry.

Cotton residue a main raw material for the textile industry in Pakistan, accounting for over 70 percent of the total production cost.

Consumer price index (CPI) in Pakistan arrived at the highest level 21.1 percent (YoY) in February 10.

The main increase came from heaving food prices which witnessed at 22.9 percent throughout February 10, largely due to an increase in the prices of essential food items. In addition energy prices also put in a lot to the inflation.

To argue against the increasing inflation in the country, the government of Pakistan has declared a boost in minimum wages of unqualified workers to PKR6000/month (US$75/month), but there is reported broad payment of the older rate still, of PKR4000/month (US$50/month).

Government Supports and Subsidies

The government of Pakistan diminished 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 expenditures are now balanced since July 2008.

The government has salaried some PKR 31 billion to the textile exporters next to the system, counting PKR 6.975 billion to fabrics, PKR 0.997 billion to bed wear and knitwear and PKR 21.175 billion to garments segment.

The subsidy was first announced in June 2005, but only for knitted and woven garments. In mid-2006, home textiles and finished fabrics were incorporated in the scheme.

State Bank of Pakistan (SBP) has also salaried 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 accused at around 7.5 percent -repayable in 7 years-against usual rates of 12 to 13 percent. Firstly only value added sectors of textile chain (weaving onward) were qualified below the scheme.

In the trade plan declared on 18th July 2007, scope of the scheme was additional inflated to wrap export oriented, core and developmental segments, purchase of locally manufactured machinery and solid spinning.

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