The demand for textile apparel in the world reached $860 billion at the end of FY19, and it is projected to increase at a CAGR of 4.4% during the next 4 years, but Pakistan’s textile industry has not captured a sufficient level of this demand, given its potential.
The textile industry is faced with countless opportunities to capture greater market share, but reforms in energy, technological upgradation, diversification and value addition will be necessary in order to enhance the potential of the sector and facilitate economic growth at unprecedented levels. Meanwhile, regional competitors such as Vietnam have been recording textile growth rates of over 15% per annum for the past several years and continuing to grow.
Backbone of Pakistan’s Economy
Despite having been acknowledged as the backbone of the economy since early on, the textile sector has suffered through a period of weak policy support over the years. Past issues such as high manufacturing expenses, frequent power shortages, flawed strategies and lack of government support led to an overall textile contraction of 10% from the year 2011-2017, as per Business Recorder.
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The progress of the textile sector had remained static at $12.3 billion for the fiscal year 2019. Now that we are at the brink of 2021, we must take this fresh start as an opportunity to amend the missteps of the past and strategize for a more effective Textile Vision in the coming decade.
It is important to note that the textile sector had its order books full for much of 2020, despite the countless setbacks of the year due to external challenges – lockdowns and COVID-19. By identifying key setbacks and garnering policy support and facilitation from the government at unprecedented levels, the sector emerged successful in meeting a majority of the demand, increasing its output and improving its logistics network. These results have been tangible and had a great bearing on the economic growth projection for the coming year.
The key facilitators of trade competitiveness are growth, diversification, quality, persistence of trading relationships, and integration with global value chains. Government support is a crucial factor that ties into each of these paradigms, while the measures taken are often insufficient, leaving Pakistan’s performance in trade grossly inadequate to sustain sovereign debt servicing.
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There is an evident lack of diversification in Pakistan’s export bundle, in terms of both products and markets, which makes the country highly vulnerable to product and market shocks. The country’s Market Penetration Index (MPI), which measures the extent to which a country’s exports reach established markets, was merely 14.68 in 2017. On the other hand, India had an MPI of 27.8 during the same period.
Nearly 60 percent of Pakistan’s export basket is comprised of textiles and clothing, and this percentage has been stagnant for more than a decade. Although Pakistan holds a relative advantage in the export of textiles and clothing, it is not sustainable to have such a myopic focus. Apart from failing to make use of the numerous opportunities for product and market diversification, Pakistan’s export base has not sufficiently leveraged its advantage in the market for textiles.
The ready-made garments industry has emerged as one of the most important small-scale industries in Pakistan, with sizeable demand both at home and abroad. The garment generates boundless employment opportunities at a very low capital investment. For example, “50,000 kilograms of cotton fibre creates 400 jobs in spinning, weaving and finishing stages.
The same amount of cotton fibre creates 1600 jobs if utilized in garments manufacturing.” (Pakistan Textile Journal, January 2018). It also represents the first steps in the progression towards higher value addition in the textiles chain. For the rapid expansion of this sector, we have planned to set up 100 new textile garment units in the next few years, and are actively supporting this initiative.
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In terms of quality, Pakistan’s products can greatly benefit from technological upgradation. Advancements in equipment and e-manufacturing can exponentially improve our exports and facilitate an entry into high performance apparel and MMF. This will also allow the sector to meet its needs in terms of value addition and diversification of the export bundle.
Other South Asian economies have diversified their export baskets to not only capture an abundance of untapped markets, but to increasingly tap into high-tech, high-value-added products. As an example, Pakistan’s dominant textiles sector has primarily been producing short-staple fiber raw cotton with very high trash content (9 percent as opposed to a global average of 3 to 4 percent) and very high moisture content, while the world moves forward with a focus on synthetic fibers. The categories (cotton, synthetics, wool) within Pakistan’s textile exports and their relative proportions are pictured below.
The demand for MMF-based apparel has grown exponentially, owing to the convenience it affords. Furthermore, cotton and textiles in Pakistan suffer from a lack of quality research and application. The Pakistan Central Cotton Committee (PCCC) has been unable to launch new seed qualities due to lack of research. The downfall of the cotton crop calls for urgent and immediate action by the government in restructuring and privatizing the PCCC in order to upgrade the quality and effectiveness of research.
Pakistan must reduce its focus on primary commodities, and make the much overdue shift towards secondary and tertiary sectors – manufactured, nontraditional goods and value added services. This highlights the need to equip labor with new technologies and train them in the latest skills, thus shifting them from primary to secondary and tertiary activities.
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With that said, the textile sector is highly sensitive to energy outages, so given Pakistan’s troubled energy sector, these matters ballooned into a large-scale hindrance in its growth and made it difficult to meet costs, let alone achieve much needed revenue targets that could allow for modernization and expansion. A long term Energy Tariff Policy (i.e. USD 6.5/mmBTU and 7.5 cents/kWh for power) with clear billing mechanism is an essential component to be ensured moving forward so that the performance of textile sector can be rid of the problems created by an unstable and uncompetitive energy supply.
More specific issues to be addressed include the issues of grid-connected electricity; quality, transmission and availability issues, system inefficiencies, increasing circular debt, and an expensive energy mix. Another crucial paradigm is sustainability, and thus further government support is essential in moving towards sustainable energy options (distributed generation) as our regional competitors have already done.
The exporting industry cannot pass on the incidentals of taxation & institutional inefficiencies to international buyers. 5-7% of incidences of various local provincials & federal taxes are not zero rated on exports. On the topic of competitiveness, the table below provides a detailed comparison of energy and other costs/factors that impact textile production at home, alongside our neighboring countries/competitors.
Pakistan’s Cotton Sector: A need for reforms
Pakistan is the 4th largest producer and 3rd largest consumer of cotton worldwide. This necessitates the need to provide greater support to the cotton sector by ensuring direct support to farmers to reduce their input cost. Cotton sector reforms must cater to the vertical and horizontal growth of cotton, with the acquisition of high yield cotton technology and seeds. Furthermore, there needs to be broad-basing of sustainable cotton production (BCI & CF cotton). Further measures to strengthen the cotton sector include:
- Provision of agricultural extension services to cotton farmers
- Implementation of cotton standard act
- Establishment of center of excellence in cotton research.
- Consolidation of seed development companies
- Modernization of Ginning industry
Certain financing concerns have served as key hindrances in the textile sector’s attempts to modernize and expand. In this regard, I must emphasize the support of the State Bank of Pakistan in easing difficulties, both long-term and those which were a result of the pandemic. Moving forward, indirect exporters should be made eligible for the State Bank’s Long Term Financing Facility. The LTFF facility should also to be broadened in its scope, so that infrastructure costs for garment plants can also be included, alongside the development of sustainable solutions for compliance with importers requirements. The Export Refinance Facility (ERF) should also be available to all exports, including yarn & greige fabric.
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Sustainability is another crucial aspect of economic growth through enhanced exports. To achieve a sustainable growth rate while remaining cognizant of environmental concerns, certain measures that we seek to implement are:
- Setting up of CETPs in major textile industry clusters.
- Establishment of integrated Textile Parks with built in facilities of CETP, rainwater harvesting systems.
- Policy support to meet international compliances.
- Green banking finance scheme to harness renewable energy, water efficiency, chemical management (ZDHC) & social standards.
- Allocation of funds to operationalize Sustainable Production Centre (SPC) to provide services to the entire textile value chain for overcoming sustainability challenges.
Augmenting the Textile sector
This brings us to a critical paradigm for the expansion and modernization of the textile industry – marketing, for which the Textile Policy for 2020-2025 proposes important strategies that go hand-in-hand with changing consumer behavior and technological upgradation. The goal is to target leading brands and retail chains of the world, via fashion shows and meetings with their Presidents/CEOs in order to exhibit the potential of our textile sector.
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For showcasing products, an exhibition plan is to be developed in consultation with textile stakeholders and support from the Ministry of Commerce. The Ministry of Commerce has already initiated the process of holding virtual exhibitions. In addition, Pakistan’s first virtual fashion show took place in June 2020 in the midst of the COVID-19 pandemic, following a global trend of continuing the tradition safely.
The plan also suggests holding the dedicated textile exhibition ‘TEXPO’ every year rather than alternate years, and expanding it to other countries. Efforts to upscale value addition and secondary manufacturing will cater to the end goal of bolstering our world ranking in exports of fashion wear.
Digital marketing has already played a vital role in showcasing textile products and attracting new business. The Textile Wing, Ministry of Commerce has created a one stop E-Portal for this purpose. However, SMEs do not have ease of access to this portal, so measures are needed to make it more SME-friendly.
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The Ministry of Commerce is also in negotiation with developed and developing economies for market access. Competing textile economies have opened up their markets, thereby securing major market shares. Following this strategy, Pakistan must formulate its trade policies with a view towards increasing market access, on a reciprocal basis whereby Pakistan’s market openness would also have to increase.
With our first-ever e-commerce Policy under implementation, the objective of giving open access to textile manufacturers/exporters worldwide will allow us to tap into countless new business opportunities. By 2030, we hope to have made great strides in climbing up the value chain into original brand manufacturing (OBM) and original design manufacturing (ODM).
This will necessitate support in developing skills eco-system around design and branding to capture higher value, and the development of fast-fashion design districts in Karachi and Lahore with strong academic linkages. Furthermore, the industry must streamline its collection of relevant and updated data. Hiring skilled youth with expertise in trade and textiles, e.g., NCA and IVS graduates, would allow the industry to gauge emerging trends and adapt to new technologies effectively.
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Investment is also critical during this phase of expansion. The regional Textile Production-Consumption Hub, FTA 2nd phase with China, EU GSP+ until 2023 and our growing domestic market each provide fruitful opportunities to attract new investment in the sector. CPEC, in particular, will allow the industry to leverage Chinese technology, efficiency and discipline to enhance its existing potential as well as to initiate new projects for higher value.
There must be a dedicated effort to promote private investment in the industry, which is naturally contingent upon interest rate support and a reputation for never compromising on quality. Export-oriented industries in Pakistan are 25 percent more productive than non-export oriented businesses, and their productivity increases with an increase in economic activity. However, systemic inefficiencies cannot be exported, so these must be mitigated from all inputs before results can be seen.
Since exports in Pakistan are labor-intensive, expansion in this industry is a surefire way to ensure large-scale job-creation and an increase in foreign currency to pay for required imports. The problem has not been a lack of policy development, but rather the implementation of policies to mitigate the disadvantages that have persisted over the years. With a greater focus on the implementation of reforms, there can be a tangible impact in terms of sustainable development and economic growth, greatly enhancing the textile industry’s position and Pakistan’s exports by 2025.
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Mr. Gohar Ejaz has served as Chairman of All Pakistan Textile Mills Association (APTMA), elected unopposed in the year 2010-2011, the premier textile industry association of the country. He is the Chief Executive of “Ejaz Group Of Companies” comprising Ejaz Spinning Mills and Ejaz Textile Mills Limited. Mr Gohar Ejaz was awarded Hilal-e-Imtiaz, in the year 2011, the highest civilian award.