Pakistan Faces Challenges
Pakistan's textile industry plays a pivotal role in the country's economy but must overcome numerous obstacles in order to hold its position.
Sarah C. Thomasson, Associate Editor
Located northwest of India and also bordered by the Arabian Sea, Iran, Afghanistan and China, Pakistan also has gained recognition as an important market among other textile manufacturing countries in the region. However, its textile industry is going through one of the most difficult periods in decades and is in decline. Currently, its textile exports rank 12th globally.
Pakistan's textile industry broadly comprises a large-scale organized sector, and a small-scale cottage sector. Its integrated industry consists of subsectors including processes such as ginning, spinning, weaving, knitting, finishing, and apparel and textile product making-up; fibers such as cotton, man-made fibers, artificial silk, wool and jute; and end-products such as carpets, rugs, home textiles, towels, tents, hosiery, apparel and knitwear.
The Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA) reports that in 2010, the industry comprised 1,260 ginning units processing 20 million bales of cotton; 442 spinning units comprising 10 million spindles producing 2.9 billion kilograms (kg) of yarn; 549 weaving units producing 1 billion square meters (m2) of fabric; 635 finishing units processing 4.8 billion m2 of fabric; 2,550 garment units comprising 450,000 machines producing 670 million pieces; 600 knitwear units comprising 21,000 machines producing 350 million pieces; 400 towel units comprising 7,500 looms producing 53 million kg of towels; an unspecified number of man-made-fiber units producing 635,000 tons of fiber; and an unspecified number of man-made fiber fabric production units comprising 90,000 looms producing 1,478,571 million m2 of fabric.
According to Fakt Exhibitions Pvt Ltd. - organizer of IGATEX Pakistan, a biennial textile garments, textile machinery and accessories exhibition - Pakistan's principal textile exports include ready-made garments and bedware, comprising 28 percent of exports; cotton fabrics, 19 percent; cotton yarn, 19 percent; hosiery, 19 percent; made-ups including towels, 10 percent; man-made fiber textiles, 4 percent; and raw cotton and cotton waste, 1 percent.
Cotton Still Significant
Cotton textiles and apparel historically have been the focus of Pakistan's textile industry, mainly because of the large amount of cotton grown in the country. In 2010-11, Pakistan was the fifth-largest producer and the third-largest consumer of cotton globally, producing approximately 8.8 million 480-pound bales of cotton and consuming approximately 10.3 million 480-pound bales, according to U.S. Department of Agriculture numbers provided by PRGMEA. Pakistani cotton is used mainly to manufacture home textile items, while imported cotton is mainly used to manufacture garments. Cotton and cotton products represent 61 percent of Pakistan's export earnings.
According to PRGMEA, Pakistan ranks third among Asian countries for spinning capacity - having more than 10 million spindles and 200,000 rotors - and accounts for 5 percent of global spinning capacity. The country exports approximately 25 percent of the yarn it produces, and sends 75 percent to its domestic textile and apparel manufacturers.
According to the German Engineering Federation (VDMA) Textile Machinery Association, German exports of spinning machinery and accessories to Pakistan in 2010 totaled 7.4 million euros in 2009; 17.3 million euros in 2010; and 19.1 million euros in 2011. However, German exports of weaving, knitting and finishing machinery to Pakistan decreased in 2011 over 2010.
The Pakistani government currently is negotiating free trade agreements (FTAs) with the United States and the European Union (EU) - its largest trading partners and the top two importers of its textiles and apparel - to allow Pakistan's exports greater duty-free access to those markets and thus help stimulate its textile industry. Together, those two markets receive 91 percent of Pakistan's apparel exports, according to PRGMEA: In 2010, Pakistan's woven apparel exports to those markets were valued at US$1.29 billion, and its knit apparel exports to those markets were valued at US$1.82 billion.
In June, the European Parliament approved Pakistan as a beneficiary of Autonomous Trade Preferences (ATP), a preferential trade deal proposed by the EU Council to help boost Pakistan's economy after it was affected by extensive flooding in 2010. The deal allows duty-free export of 75 Pakistani products, including approximately 65 textile and apparel items, to the EU over the next two years, and is expected to generate a marked increase in Pakistan's textile and apparel exports to the EU.
The World Trade Organization's approval of the ATP should also help clear the way for Pakistan's negotiations with the EU for Generalized System of Preferences Plus (GSP+) - which will provide for reduced tariffs or duty-free entry of eligible products exported by Pakistan to the EU. If Pakistan qualifies for GSP+ status, it will be able to export products under concessionary tariff lines duty-free to the EU beginning Jan. 1, 2014. PRGMEA has contended that GSP+ status not only would help Pakistan increase its exports and its trade with the EU, but also would open up immense opportunities for the country's apparel sector.
Energy Crisis & Other Issues
Pakistan's textile industry is facing some significant obstacles. The global recession and the eurozone crisis have contributed to a decline in its exports, along with economic factors such as depreciation of the Pakistani rupee (PKR), double-digit inflation, rising interest rates and increasing costs of inputs such as cotton and yarn. A reduction in internal demand and competition in the international market from other developing countries such as China, India and Bangladesh also are affecting Pakistan's textile industry, which lacks adequate infrastructure, modern machinery and technology, research and development capabilities, and skilled manpower. Political instability and internal security also remain a concern.
However, the increasing cost of production resulting from Pakistan's energy crisis has been the textile industry's primary setback. Due to reduced energy resource availability, the Pakistani government began implementing rolling blackouts of electricity in 2008, and though the textile industry was exempt for a while, it now is required to participate, as well as pay soaring electricity rates. Gas - the industry's primary energy source - is now in short supply, too. Various Pakistani media sources report that approximately 40 percent of textile factories have shut down or are running at reduced capacity because of the gas and electricity shortages, and thousands of workers have lost their jobs.
Foreign buyers have been reluctant to place orders out of fear that the shortages will hamper production and Pakistan's textile exporters won't fulfill commitments. Indeed, many Pakistani manufacturers have stopped booking new orders because they are unable to produce backlogged orders due to reduced productivity. EU buyers in particular have moved business away from Pakistan to other countries in the region.
The high cost of doing business in Pakistan has caused many of its domestic production units to shift operations to other countries such as Bangladesh. Continual power shortages and rate increases will cause others to follow suit. Growing frustration throughout the industry has led to rioting by thousands of textile workers.
Pakistan's textile industry is in desperate need of government support. The industry asserts that the administration has failed to take adequate steps to address its issues, seemingly leaving it waiting on the sidelines while it continues its downward spiral. Specifically, the government has neither taken feasible measures to ensure a continuous gas supply nor allocated sufficient funds to overcome the rolling blackout problem. Its promise to install new electricity and gas plants has yet to be fulfilled.
Textile exporters have long been demanding a cut in interest rates to help boost production. In August 2012, the State Bank of Pakistan (SBP) lowered the interest rate by 150 basis points to 10.5 percent - a decision hailed as a progressive action in favor of Pakistan's textile exports, and one that is vital not only for the textile industry's revival but also for the overall economy. However, the interest rate remains high. At a recent meeting with the prime minister initiated by an All Pakistan Textile Mills (APTMA) delegation to discuss the industry's future, SBP Governor Yaseen Anwar pledged his support to the textile sector, and noted that a special committee would be created to boost the industry's viability and competitiveness globally.
In 2009, Pakistan's Ministry of Textile Industry (MINTEX) introduced the Textiles Policy 2009-14 with the goal of developing the textile sector as an integrated chain and reaching an ambitious export target of US$25 billion. The five-year policy addresses issues of all of the textile value chain's subsectors, and contains short- and long-term measures to revive the industry. MINTEX Federal Minister Rana Farooq Saeed Khan has stated that the government is aware of the textile sector's importance and is taking necessary steps to protect and promote the industry.
However, MINTEX requested that the government allocate in the 2012-13 Federal Budget PKR42 billion to the textile and garment sector, with PKR30 billion earmarked for textile exports. Textile manufacturers and exporters were dismayed when the government ignored the request and approved only PKR10 billion for the Export Development Fund. (Note: PKR1 = U.S.$0.01042 as of Aug. 30, 2012.)
Recently released numbers from Pakistan's Federal Bureau of Statistics (FBS) indicate that the textile industry has been greatly affected by the energy crisis and other aforementioned issues. Textile exports in fiscal year (FY) 2011-12 (July-June) were valued at US$12.36 billion, representing a 10.4-percent decrease in value from FY 2010-11 exports valued at US$13.79 billion. This is the second consecutive FY that exports under the Textiles Policy have decreased: in FY 2010-11, textile exports decreased 9 percent. Textile exports had increased 7 percent and 34 percent, respectively, in the first two FYs of the 2009-14 Policy.
Pakistan's textile industry has great potential for expansion - in fact, President Asif Ali Zardari recently stated that it has an export potential of some US$100 billion that has not been utilized because of the numerous obstacles plaguing it. Unless the government steps up to support the sector, which is expected to remain vital to the future growth of Pakistan's economy, it will be unable to compete with rivals in the international market and will further decline.
Click here to view 2010 & 2011 International Textile Machinery Shipments To Pakistan Chart (Source: ITMF International Textile Machinery Shipment Statistics, Vol. 33, 2010, and Vol. 34, 2011)
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