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Beleaguered textile trade

Published on 19th Oct, Edition 42, 2015

 

Immediate incentives, policy change can revive the exports of Pakistan

Pakistan’s share in global textile trade dropped from 2.2 to 1.8 percent during last five years and the share may further reduced to 1.5 percent by 2020 if the sector was not made competitive in the region in respect of power supply, reducing cost of doing business and giving relief in taxes.

Pakistan as compare with other states in the region does not see a satisfactory future in textile industry. The annual textile export growth in Bangladesh is 20 percent, India 12 percent and China 12 percent whereas Pakistan has 3 percent. With such speedy growth, Bangladesh has increased its share in global textile trade from 1.09 percent in 2006 to 3.3 percent in 2013. Similarly, India increased from 3.4 percent to 4.7 percent, China from 27 percent to 37 percent while Pakistan has dropped from 2.2 percent to 1.8 percent.

In view of the growing size of the sector, the textile industry has remained the core source of foreign exchange earnings for the country. The industry, which has a potential to invest $1 billion per annum, demands a congenial environment.

Increase in exports is imperative for sustainability of external sector. In this regard, much-needed boost to Pakistani exports may come through US economic recovery and through further gains in GSP-Plus scheme with the European countries. The country’s mainly exports textiles and clothing products to the EU, accounting for over 60 percent of the total Pakistani exports to the EU nations, followed by leather products, which account for 13 percent of the total Pakistani exports. However, structural bottlenecks in the textile sector, remains a major risk to exports outlook.

Motivation

Pakistan’s textile industry, which accounts for two-thirds of the country’s exports, is currently struggling to revive growth. With high cost of doing business, the country’s overseas sales of textiles are threatened by power outages and law and order situation.

Present government needs to formulate a comprehensive policy to salvage the textile industry. The exporters and manufacturers are really disappointed with the way the government has handled the industry. The government should focus on enhancing the country’s competitiveness and take steps to make this sector competitive in the global market.

Local textile manufacturers have demanded that the government should provide globally competitive interest rate on short and long term loans to the textile value chain to avoid Non Performing Loans in a situation when cotton prices are under pressure world-wide.

All Pakistan Textile Mills Association (APTMA) sees the major factor behind the declining trend is the erosion of textile industry’s competitiveness, particularly against the huge incentives being provided by the competing countries to their export sectors. About Rs100 billion of textile exporters are stuck up in sales tax, customs rebate and federal excise duty refund regimes creating severe financial crunch. About 30 percent production capacity of textile industry is impaired. Heavy investment was made in terms of machinery in competing countries.

During five year period (2008-13), China added further 35.29 million spindles; while India added 14.20 million and Bangladesh added 1.98 million spindles in textile sector. In Pakistan, only 1.02 million spindles were added in five years.

High cost of doing business

Critics say that the government has burdened the textile industry with taxes and surcharge of Rs170 billion including Rs72 billion in the head of tariff rationalization surcharge, Rs38 billion Gas Infrastructure Development Cess and Rs60 billion innovative taxes on consumption/production and export. The export-oriented industry cannot sustain the burden of Rs170 billion.

Despite the country’s textile industry has a potential to double its export from $13 billion to $26 billion, yet it is unable to do so due to the higher cost of doing business. The energy tariff in Pakistan is 14 cent as compared to 7.3 percent in Bangladesh, 8.5 cent in China and 9 cent in India. Reduction in cost of doing business can further provide 3.5 million additional employment opportunities in the country.

Industry sources claim that textile export has declined by 2.65 percent per month during the last financial year. As many as 40 textile mills have been closed during the year rendering 0.5 million workers jobless. It is the high cost of doing business that closed 30 percent of textile industry with value of $3.5 percent of total export.

The cost of doing business is constantly going up not giving a sigh of relief to industrialists. The exports of apparel from Pakistan in the last ten years had increased from $1.5 billion to only $3.5 billion, whereas in Bangladesh the exports increased from $1.5 billion to $12.5 billion, which showed that Pakistan’s exports were much below as compared to other competitors in the region.

 

Energy crisis

The energy crisis has caused great concern in the textile value chain. Repeated breakdowns in uninterrupted supply of electricity and gas to the textile value chain units continue to incur production loss. Chronic energy crisis has forced many textile manufacturers in Faisalabad – the country’s textile hub – to move their manufacturing units to Bangladesh.

In view of the comparatively 35 percent cheaper electricity and 30 percent higher profit margins in Bangladesh, many industrialists have already moved their factories to Bangladesh and many have opened up additional manufacturing units there. It is feared that a mass exodus of the country’s textile manufacturing base is likely to render the millions of people currently employed by the sector jobless. Uninterrupted power supply, cheaper labor costs, tax-free status for the first ten years and tariff-free access to markets in the European Union and other incentives being offered by Bangali authorities have convinced many Pakistani businessmen to invest heavily in Bangladesh.

Suggestions
  • The government must announce a comprehensive and growth-oriented package to help resurrect declining textile exports.
  • The government should give priority to the industry in supplies of energy and power and ensure sustainable supplies.
  • It must announce a relief package for the farmers, which have to provide a supportive cotton crop for the industry.
  • The government must immediately lift ban on the new gas and electricity connections for the textile industry besides provision of uninterrupted supply of gas and electricity.
  • It must remove duties and Man Made Fiber (MMF) imports and introduce investment support schemes to the textile sector.
  • It should operationalize the closed capacity by providing uninterrupted energy supply to the export-oriented textile industry at competitive rates.
  • The government must announce some immediate incentives including zero-rating tax holiday, interest support for new investments in all textile sector should be ensured without excluding the spinning sector, which has lagged behind competitors due to the present inefficient technology.

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