Pakistan can potentially increase textile exports to $35 billion in the next five years if the country maintains consistent policies. Regionally competitive electricity tariffs (RCET) have enabled the textile sector to perform exceptionally well. All the political parties have acknowledged the textile sector’s performance in the past few years. Textile is the only sector with real potential to show accelerated growth since a strong foundation already exists, and we have an export surplus; however, balanced & sustainable policies are required. However, many potential and existing impediments exist to hinder textile export growth.
Energy is economy
Continuity of regionally competitive electricity tariffs (RCET), reforming the entire power sector, and eliminating cross-subsidies are essential to growing the textile sector. The whole industrial sector has been burdened with inefficiencies; the textile sector has 70 percent consumption through B3 tariff, which is dedicated feeders, thus no technical loss, 100 percent recovery of bills from the industry plus three months security deposit with distribution companies. However, the two main features of tariff determination are T&D losses & Recovery. This is loaded on the sector when the average tariff is determined. In the case of Gas, 8.5 percent UFG is being charged to the sector, whereas the textile sector does not have more than 0.5 percent losses. Gas distribution companies have real-time excess from their SMS to consumer TBS. They can monitor volume & pressure on a real-time basis. Even then, industrial consumers are burdened by high UFG.
Moreover, a uniform tariff is required across the country. The private sector must improve energy efficiencies through heat recoveries and stopping wastages. The Energy Ministry should benchmark each segment’s energy consumption, bringing us closer to SDGs.
Long-term Financing & Working capital, Pakistani entrepreneurs only have access to commercial banks for their financing needs. It has become hard for them to go public for reasons known to everyone. Due to current economic constraints, the sector can not bring FDI or raise debt by issuing commercial papers from the international market. Currently, 16 percent of sales go into the refund regime, whereas sector profitability is 4-5 percent.
Textile subsidy myths
There is a myth that the government subsidizes the Textile export’s working capital. Furthermore, only 18 percent of the total banking sector advances are on subsidized rates. In fact, PKR 490.4 Billion under EFS out of a total of 2717 Billion & 68.875 Billion under LTF-EOP, Whereas PKR 143.51 Billion stands from own source Kibor-based financing.
if we analyze carefully, the subsidized advances to the Textile sector are less than what government owes to the sector under various refund schemes. The sector is paying the cost of this stuck working capital.
The FASTER sales tax refund scheme, which brought some relief to the sector, is also faltering for one or the other reason. The sector is also absorbing the inefficiencies of the energy sector and paying the burden of other consumers.
The key to success is competitiveness. We will continue to grow & thrive as long as Pakistan is competitive. Ease of doing business can enhance our competitiveness; deficient areas are not identified & therefore, a long-term plan is unavailable—Pakistan ranks 110 globally on the competitiveness index scoring 51.36 points. Digitalization of several regions could not only reduce our costs but will also bring transparency. We cannot compete globally with an inefficient supply chain.
National Logistic Policy
The national logistic policy must be envisaged with the objective of seamless multimodal transportation & modern connectivity, as it will shift the transportation stress from roads to other modes (railways). The paperless supply chain initiative, strengthened cooperative federalism, ease of logistics services portal (e-log), and standardization of the warehousing sector will help Pakistan a long way. It will help the sector to drive the ESG goals and focus on a better cost structure.
Training & development
The corporate sector has taken initiatives by having its training centers for skill development; however, a well-coordinated strategy needs to be adopted by the Federal & Provincial governments, including the private sector, which lacks a cohesive strategy and works in isolation.
Sustainability is the most crucial topic. The manufacturing processes need to be optimized, and water consumption during the processing of textile goods needs to be optimized. The world has moved towards sustainable materials, and the usage of sustainable materials has also increased in Pakistan; however, more focus is required. To increase women’s participation in the mainstream, Bio diversity should also be the focus. There is a massive opportunity for Pakistan on this front. MoC & Textile Division should conduct a detailed survey of each enterprise & data bank should be maintained. Benchmarking carbon emissions is the need of the hour. Integrated reporting on sustainability by the sector should be encouraged. Pakistan is one of the world’s biggest victims of climate change. These initiatives are in our interest.
Pakistan’s dilemma on 100% polyester & other artificial fibers
Pakistan somehow has not developed a 100 percent polyester & other artificial fibers supply chain; The domestic polyester fiber manufacturers have the protection of about 20 percent through policy interventions. The use of polyester & other synthetic fibers has increased globally in the last two decades; the opportunity for Pakistan is enormous.
There is a dire need for a comprehensive plan; all stakeholders must agree on a ten-year plan for how and where to increase our market share from the global textile trade of $900 billion. Without strategic planning, the country’s objective may not be achieved, even if Pakistan has all the ingredients; one of the best infrastructures, a young workforce, expertise in making finished products since the early 1990s, world-class factories & productivity whenever textile exports have picked up growth. The GOP becomes jealous and bites the sector in one form or another.
The selling of finished goods is getting converted to a digital spectrum very fast, where many existing players & start-ups are adapting to the new normal. It is not that the conventional relationship-based approach or buying will vanish tomorrow but sooner or later, with an increase in price pressure, more & more will happen on a digital medium. The global industry has realized that the cost of PD, sampling, travel, meeting, etc., can be eliminated. A measured paradigm shift will happen in the total trade with more emphasis on quicker sample turnaround. Speed to market & quicker turn around of finished goods. Pakistani entrepreneurs must have tech-savvy teams & tools to compete globally. The sooner, the better!
We conclude that the textile sector can play a pivotal role in overcoming Pakistan’s grave challenge of balance of payments, creating new job opportunities & enhance economic activity if the decision makers take concrete steps in bringing the required reforms & continuously monitor targets & objectives.
Khurram Mukhtar is Patron, Chief of the Pakistan Textile Exporters Association (PTEA) and CEO of Sadaqat Limited, a vertical manufacturing facility engaged in Home Textile, Knitted & woven Apparel export.