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Changing preference of buyers damaging local carpet exports

Published on 28th July, Edition 30-31, 2014

 

Pakistan’s carpet industry needs likely reforms

Carpet has more than 2,500 years of ancient history as Iranians were amongst the first carpet weaver of the age-old civilizations and through centuries of creativity and initiative building upon the talents of the past, this industry has achieved a special degree of excellence since. Though this industry is more technologically advanced now as new trend and design demands had made it more attractive and choosy, so the ancient type of making carpet is loosing its charms after the emerging markets in Europe and in the US begin working on more advance machines. To make hand-made carpets its manufacturing requires simple technology no heavy equipment and machinery, only wooden looms, yarn, knotting skill and simple tools are required. Many rural families doing the work inside their homes while female members of the family also taking part in this economic activity. Hand-made carpets are still in demand where Afghanistan, Pakistan and Iran products are taking the limelight.

In Pakistan, carpet industry plays a pivotal role in economy’s growth. It is not only a substantial foreign exchange earner for the economy of a country but can also remove poverty and unemployment particularly in the rural areas. It is a small scale industry spread all over Pakistan, especially in the far flung rural areas. It is a source of income for downtrodden families. This cent percent exportable product provides livelihood to more than one million people in the far flung areas of Pakistan.

But, Pakistan known as a pioneer exporter of traditional carpets has witnessing the downtrend in their hand-knotting products because of its refusal of changing market trends and needs. A large number of firms, especially those operating out of Karachi, have already gone out of business and above a million jobs have been lost. Export of carpets, has been continuously declining, standing at $136 million in 2009-10, $132 million in 2010-11 and $120 million in 2011-12. Pakistan accomplished a steep decline of more than 60 percent in carpet export during the last six years owing to drastic shortage of electricity, worsening law and order, soaring inflation, dearth of skilled labor force, increasing utility rates and high mark-up rate.

During the past six years hand-knotted carpet exports are on the decline due to change in the trend in the United States and the European markets. Even then with all the odds the exporters have found new markets that compensated to some extent. Currently, there is a no high degree of domestic market for handmade carpets, due to high prices. Most of the local buyers of handmade carpets are the expatriate Pakistanis. The target local markets are Karachi, Islamabad and Lahore based on exporters, wholesalers and retailers.

Pakistani carpets are of higher quality compared to Indian and Chinese carpets but their cheap labor, low cost raw material and low utility charges, and financing on low rates are taking a price edge over Pakistan. In the past, Pakistan exports gained strength in the global market as a result of larger utilization of Afghanistan technology and skills. No doubt Pakistan is still using the same technology and skills to survive in the international market. About two-fifth percent carpets Pakistan exports are weaved in Afghanistan and the war-ravaged country remains the first choice of carpet producers for procuring wool.

Carpet industry was once Afghanistan’s flourished industries that had made a niche in various international markets. Carpets were the second major exports of Afghanistan, accounting for 47 percent of the country’s export earnings in 2002 and 2003. In the past Pakistan’s carpet exporters could use a little help from the government to boost their presence in their existing markets and diversify into new ones.

India has an ancient tradition of carpet weaving. It is the world’s largest producer and exporter of hand-made carpets in terms of value as well as volume. About 90 percent of the carpets manufactured in India are exported. Indian carpets are known worldwide for their excellent design and quality. Seven types of hand-made carpets are produced in the country. Most of the carpet manufacturing in India takes place in the northern part of the country in the towns of Bhadohi, Agra, Jaipur, Srinagar and Danapur.

In 2012-13, exports of hand-made carpets stood at $1,074.29 million, registering a growth of 12.4 percent over the previous year. Indian hand-made carpets are exported to over 100 nations and the US accounts for the largest share. For example, around 40 percent of the total hand-made carpet exports in 2011-12 were to the United States. The Carpet Export Promotion Council is the apex body of exporters of hand-made carpets and other floor coverings in India. The Council provides assistance to exporters by identifying new markets, providing financial aid, sponsoring participation in worldwide events, arranging buyer-seller meets and resolving trade disputes.

 

Earnings from carpet exports declined 13.64 percent to US$ 61.01 million in the last fiscal year 2012-13. According to the Trade and Export Promotion Centre (TEPC), shipments of hand-knotted woollen carpets dropped 22.92 percent to 479,277 sq m along with export revenue. Exporters said that increased cost of production and tough competition in the international market were the major factors behind the decline in carpet exports. Carpet exports were affected by growing competition Chinese products in the main export markets.

In 2011-12 Nepal exported 621,771 sq m of carpets and earned $70.65 million. United States is the largest buyer of Nepali carpets followed by Germany, the UK, Canada and Italy. According to the TEPC, Nepal exported 194,399 sq m of carpets (40.56 percent of the total export volume) worth $29.11 million to the US. Earnings from exports to the US amounted to $32.25 in 2011-12 on when Nepal shipped 228,713 sq m of carpets.

Iran produced 59.181 million cubic meters of machine-made carpets in the first three quarters of the current calendar year, which started on March 21, 2013. Iran exported 80 percent of its hand-made carpets to the international markets. Hand-made carpet is an absolute advantage for Iran. Iran is the leading exporter of hand- made carpet in the world. Hand-made carpet exports currently accounts for 1.2 percent of Iran’s total non-oil exports. Persian rugs are highly sought out for their intricate design and skilled craftsmanship, and that’s why Iran exports carpets to more than 100 world countries. Carpet-weaving is no doubt one of the most distinguished characteristics of the Persian culture and art, and dates back to ancient Persia.

There is an estimated population of 1.2 million weavers in Iran producing carpets for domestic markets and international export. The country produces about 5 million square meters of carpets annually of which 80 percent are sold in international markets. The United States, Europe (especially Germany and Italy), China, Brazil, South and Central Africa, along with neighboring countries are the most important markets for Iranian made Persian Carpets.

Turkey is the second largest buyer of Pakistan’s hand-knotted carpets after the United States. Owing to the rapid industrialization and significant increase in tourist demand in Turkey over last few years the demand for Pakistan hand-knotted carpet has increased. Pakistan’s carpet trade, like Turkey, has also suffered enormously in the last 5 to 7 years. The domestic production in carpets has gone down by 50 percent. Exports of carpets from Turkey are expected to touch $2.4 billion in 2014, said Istanbul Carpet Exporters Association (IHIB) chairman Ibrahim Yilmiz, during a press conference held recently.

Turkey has exported carpets worth $2.19 billion in 2013, which makes it the second largest exporter of the product after China. According to the IHIB official, around 40 percent of the world’s machine-made carpets are exported from the country, and the carpet industry believes it could achieve the export target of $2.4 billion in 2014. Carpets made in Belgium and the Netherlands sell for euro 150 to euro 200 per sq ft, whereas Turkish carpets sell between $5 and $15 for the same length, which is one of the main factors increasing the sales of Turkish carpets.

Nevertheless the Syria crisis may decrease the exports of Turkish carpets to the Middle East, but demand is expected to pick up gradually and Turkey’s carpet industry can reach the export target of $5.5 billion by 2023. Last year, the country exported carpets worth $2.19 billion, indicating a rise of 9.3 percent compared to the exports of carpets made in 2012.

Pakistan’s carpet industry is greatly in need of the federal government support, which can provide it short term relief to revitalize the carpet sick industry, besides helping 0.5 million unemployed people to return to work. It will be very difficult for the carpet sector to benefit from the duty-free access to EU market under GSP Plus status unless the government restores zero-rated facility. It needs some concession from the government side in areas of credit financing and bank loans. The small-scale carpet factories in rural areas can help a lot to give a boost to the industry. Some traditional workers of carpet manufacturing industry in Khyber Pakhtunkhwa, interior Sindh and South Punjab, need proper training and financing to maintain proper supply chain of the product.

Pakistan carpet business will be very challenging in the future as it faces a tough competition from India in the global arena, as cost of production in this business is constantly rising. Eastern Europe, China and South America are the potential regions of carpet export. Turkey, known as carpet country, has replaced Germany as second largest buyer of Pakistan’s hand-knotted carpets after the United States. The economic recession that pinched the United States and Europe mostly in 2008 and the changing preferences of the buyers salvaged Pakistan’s carpet trade. Iran, a major exporter of traditional carpets, witnessed its foreign sales fall by 70 percent because it refused to change with the changing market trends.

There are still vast opportunities for Pakistan exporter of high-to-middle-end carpets, to substantially boost its exports. There is still a large demand for carpets in the world markets. Turkey with about 31 million tourists visiting it in 2011, for example, can prove to be a big market for Pakistan.
Carpet manufacturing is very labor-intensive trade. By investing a little capital many jobs can be created especially for rural women, unlike capital-intensive industries and increase exports many times. For instance, the government can train shepherds in Cholistan in wool farming. It will help boost their income. The industry will be able to procure quality wool locally. Pakistan should get access to new markets like Brazil, the Philippines, South Korea, Indonesia, etc. Pakistani carpet exporters have an edge over their rivals in India, China and Iran because of their innovative designs, cheaper prices and technology but require the government to understand the significance for the economy and rural poverty reduction.

The government would soon announce the new textile policy 2014-19, which would incorporate major issues related to the carpet industry, as the government is determined to enhance exports of hand-knotted carpets for economic stability and growth. The practicing of old methods and shortage of skilled manpower were the major hurdles in the growth of Pakistan’s carpet industry. The government should bring in necessary reforms and also provide special status to export-oriented carpet industry, besides allowing zero-rating facility.

Trade Development Authority of Pakistan (TDAP) Chairman S. M. Muneer said that reforms have been initiated to bring TDAP back on track to achieve export target of $50 billion. Carpet sector cannot benefit from the duty-free access to EU market under GSP Plus status unless the government restores zero-rated regime for export-oriented carpet industry to help ease its liquidity flow.

The Pakistan Carpet Manufacturers and Exporters Association (PCMEA) have asked the government to collaborate with the body on disbursement of loans through the Prime Minister’s Youth Business Loan Scheme. The carpet industry’s representative body believes the industry is best suited for job creation in rural areas, which is the primary focus of the loan scheme.

Carpet industry in Pakistan faces harsh competition from Iran, India, China and Nepal. Carpet industry needs to improve quality, lay technological foundations, and strengthen global business operations to generate more employment opportunities and become once again a global player. Hand-made carpet industry is a multi-billion dollar industry that has great scope to grow. The product already has demand in many countries of the world, especially in Middle East, Europe, Japan and USA.

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