A REPORT ON CRISES OF TEXTILE INDUSTRY IN PAKISTAN DURING 2008 TO 2010 (Autosaved)

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2008 TO 2010

REPORT ON CRISES OF

TEXTILE IDUSTRY IN

PAKISTANANALYTICAL REPORT

D E P A R T M E N T O F B U S I N E S S A D M I N I S T R A T I O N S H A H A B D U L L A T I F

U N I V E R S I T Y K H A I R P U R S I N D H P A K I S T A N



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A REPORT ON CRISES OF TEXTILE INDUSTRY IN

PAKISTAN DURING 2008 TO 2010

INTRODUCTION OF TEXTILE INDUSTRYHistory of Pakistan Textile Industry:

Increase in the cotton production and expansion of textile industry has beenimpressive in Pakistan since 1947. Cotton ± bales increase from 1.1 millionbales in 1947 to ten million bales by 2000. Number of mills increased from 3to 600 and spindles from about 177,000 to 805 million similarly looms andfinishing units increased but not in the same proportion. It employs 50% of industrial labour force and earns 65% foreign exchange of total exports.

Pakistan¶s textile industry experts feel that Pakistan has fairly large sizetextile industry and 60-70% of machines need replacement for the economicand quality production of products for a highly competitive market. Butunfortunately it does not have any facility for manufacturing of textilemachinery of balancing modernization and replacement (BMR) in the textilemills which need to think about joint ventures for the production of completespinning units with china, Italy and production of shuttle less looms

(Projectile) with Korea, Taiwan and Italy.

Cotton textile industry has been premier industry in Pakistan and a majorsource of export earning and employment. It also helps in value addition to

the manufacturing sector of the economy. During the six years between1993 and 1998, production of yarn (in quantity terms) registered a steadyannual growth rate of 302% in Bangladesh and 405% in India. On thecontrary, Pakistan registered a growth rate of 101% per annum in yarnproduction although it ranked third after China and India in the global yarnproduction during the same six years. In exports, while Taiwan, India andthe republic of Korea registered an annual increase of 18.1%, 27.7% and5.4% respectively during 1993-1998, Pakistan registered a negative growthof 4.8% one important development was that till 1997, Pakistan was theworld¶s largest exporter yarn followed by India. However, in 1998, India

gained the NO 1 position, leaving Pakistan at NO 2 In the case of cottoncloth production, a number of Asian countries have been emerging in theinternational market to compete with Pakistan. These countries areBangladesh, India, Taiwan, Indonesia, Thailand, Turkey, Sri Lanka and Iran.The latest available date on overall export performance of Pakistancomported with some regional countries is given in table 1: The above-mentioned presentation in the context of international scenario highlightsthe adverse position of Pakistan¶s textile industry when is likely to continue



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further following the full implementation of WTO agreement from 2005onwards when an era of free trade will start globally. Notwithstanding theabove fact, current stagnation in the local textile industry can be overcomethrough efforts, consistent with charges occurring in the internationalmarket. It must be appreciated that all successive governments since the

birth of cotton textile industry in Pakistan have been encouraging the textileexporters to penetrate into new market and also to broaden the base of exportable commodities by including value added textile goods so thatreliance on exports of cotton, cotton yarn and coarse fabrics gradually

become minimal.

Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchantsAssociation (PCMA) Chairman, Appreciated government¶s efforts toencourage new exports and finding new markets, which need aggressiveexport marketing. The steps taken on the monetary front, such as thefrequent devaluation of Pak rupee in terms of dollar could not improve thecost competitiveness of exportable products due to increase in prices of thelocal and imported inputs of the local textile industry, and also due toinelastic demand for the Pakistan¶s exports. It has been rightly mentioned inthe latest stage bank of Pakistan¶s annual report (FY01) that, ³Over theyears Pakistan¶s exports receipts have been vulnerable on account of thenarrow base of exportable items, concentrated markets and low valueaddition µthis indicated that the growth in the country¶s overall exports,including textile products which contributed more then 60% of total exportreceipts each year, could to be related some cosmetic and ad hoc measurelike devaluation of Pak rupee and concession export credits. The first textile

commission, which was constituted by the first material law government in1960 had, inter-alia, recommended that an economic size textile unit shouldpreferably have 25,000 spindles and 500 looms. No new mill with only12,500 spindles and without looms should be sanctioned. However, no needwas paid to the advice by the sanctioning authorities with the result that anexcess capacity had tented to build up in the spinning sector.

During the period 1973 to December 1992, some 71 spinning units with1,136, 835 spindles, 6,600 rotors ands 7,329 looms were closed down. In1992, a foreign consultant form was hired by the government to look intothe stagnating conditions in the local textile industry. One of theobservations of the foreign consultant was ³Pakistan has failed to make realprogress in the international market and is being over taken by many of theneighboring competitor countries. The spinning sector, traditionally the coreof the industry, is already in the crisis with many spindles lying idle and millsbeing forced to close. Worse still, this sector will be hit by the projecteddecline of its major markets in Japan and Hong Kong in the coming years.´



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Another important strategic recommendation given by the foreign consultant

very much relevant to the current

conditions: ³It is vital that companies play very positive role in the markets,which each one having its own marketing activity, whose job is to

understand the need of the customers and the ever changing competitivedynamics of the markets. In order to improve exports, Pakistan¶sReadymade Garments Manufacturers and Exporters Association (PRGMEA)has urged the commerce minister Abdul Razzak Dawood to set up anApparel Board for the promotion of export of woven and kit garments whichfetch US$ 2.5 billion foreign exchange for the country. The industry expertsare of the opinion that in the order to have a strong industrial base, Pakistaneconomy need investment upswing. Pakistan¶s economic growthperformance during recent years has been dismal: as against the averagegrowth rate of 6.1% in the 1980s, the half and 4.0% in the 2nd half of the1990s. The major micro-economic instability factors like high inflation rate,budgetary deficit, continuous depreciation of rupee, economic sanctions, etc.could not help the investment process. Such an environment cannot beconducive to investment and growth. Exporters of textile products havefound the target of US$ 10.4 billion set by the government for the year2002-2003, as achievable and termed it a realistic approach. The textilesector which constituted 69% of total export during 2001-2002, believesthat enhanced quota by the European Union and Turkey would make this

possible to fetch another US$1 billion this year.

The rise in export of value-added products from Pakistan was another point

of encouragement for the textile sector. ³The export of value-added productsrose to 57.4% from 53.9% last year-a clear sign that we are moving in the

right direction, ³said the Chairman of all Pakistan textile mills association.

The trade policy is considered an acceptable paper, but in the industry doesnot fine anything that could lead to a high level exports achievement and

remove trade imbalance.

Pakistan¶s textile sector earned US$5.77 billion during the outgoing

year, compared with US$5.577 BILLION OF 2000-2001 indicating a

growth of 0.69%. ³Textile vision 2005´ has identified the presentstatus and opportunities to make in roads in conventional and hew

markets and has developed sectoral recommendations, hence the

sectoral committees set up by the federal textile Board (FTB) would

play an important role be ensuring the availability of quality raw

materials on competitive prices and improvement in designing, and

would adopt quality standards and increase productivity levels. It



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would attract foreign brands and promote Pakistani brands with world-

class standards

ROLE OF TEXTILE INDUSTRY IN PAKISTAN:

Historically, Pakistan¶s textile industry and clothing sector has always been amajor contributor to the foreign exchange earner and still contributes about

55% to the total export proceeds.



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Pakistan has a diverse economy that includes textiles, chemicals, leatherproducts, food processing, financial services, telecommunications, retail,automobile manufacturing, light and heavy armaments, agriculture andother industries. It is the 45th largest economy in the world in terms of official exchange rates ($144b) and 25th largest based on purchasing power

parity ($410b PPP). Its service sector accounts for more than half of its GDP.

Although Pakistan is blessed with abundant raw cotton and cheap labour, theindustry has not been able to exploit the potentials in real terms and has

failed to make real progress in the international markets and is under threatof being overtaken by its competitors and new entrants.



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The export have been stagnating during the last three years as detailedbelow:-

EXPORT OF TEXTILES ALL SORTS.

1996-97 1997-98 1998-99 1999-2000 2000-2001

2001-2002

Cotton & Cotton Textiles : 4943 4986 4506 5201.2295398 5563

Synthetic Textiles : 496 607 396 457.645 545460Wool & Woolen Textiles : 207 200 193 265.460 290250

Total Textiles : 5648 5793 5095 5924.3346232 6273

Total All Exports : 8261 8538 7718 8568.599 92029134

Textiles as %age of Total Export: 68% 68% 66% 69% 68%68%

Pakistan¶s textile industry is a major contributor to the national economy interms of exports and employment. Pakistan holds the distinction of being theworld¶s 4th largest producer of cotton as well as being the 3rd largestconsumer of the same. In the period July 2007 - June 2008, textile exportswere US$ 10.62 Billion and accounted for 55% of the total exports.

The top buyers of Pakistani textile goods are: USA, EU, Gulf region, UK,Hong Kong, Japan, Korea, Saudi Arabia, Italy, Turkey, Germany, Norway,France, Canada, Sweden, Australia, etc.

GOVERNMENT POLICY FOR TEXTILE IDUSTRY

Government vision 2005-2010

To overcome global competition, the Pakistani government in 2006 approved

a ³Technology-based Industrial vision and strategy for socio-economic´ which called for technology up-gradation, human resource development, andestablishment of a fully integrated chemical industry in the country.

Investment Policy & Incentives for Vision 2005-2010:

Whole of textile sector is included in list of value added industries. 5% custom duty on imported machinery if not manufactured locally.



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Tax relief: Initial Depreciation allowance (IDA) at 50% of machinery &

equipment cost.

Export plan 2006-13 seeks to increase textile and garment¶s sector exportsto $24.36 billion.

There is a need to engage young qualified generation as roving ambassadorsof marketing caliber, diplomacy and professional approach. Pakistancommerce intelligence may chalk out plans to reach every region bloc within-depth study of regional trade bloc.

2008-09 Performance

According to data by Federal Bureau of Statistics, Textile exports during thefirst eight months of current financial registered negative growth of 5.6% asagainst the exports recorded corresponding period of the last financial year.Exports during July-February (2008-09) totaled $ 6.47 billion against theexports of $6.85 billion recorded during July-February (2007-08).

During the time under review, the highest negative growth of 51.24 percentwas recorded in the exports of yarn (other than cotton yarn) while exports of art, silk and synthetic textile were decreased by 23.45 percent.

Similarly, exports of cotton yarn declined by 15.28 percent, cotton (cardedor combed) by 13.81 percent, knitwear by 2.66 percent, bed wear by 10.44percent, tents, canvas and tarpaulin by 21.18 percent, readymade garmentsby 12.43 percent, made up articles by 0.3 percent while the exports of othertextile materials declined by 15.28 percent during the period.



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However, the exports of raw cotton witnessed increase of 154.5 percentduring the time under review while exports of cotton cloth increase by 5.57percent and towels by 10.02 percent.

INDUSTRIAL POLICY.

Pakistan has shown appreciable progress in policy frame work. It has

embarked on a bold experiment in market liberalization. It has committed

itself to a more outward oriented development strategy. Appreciating the

importance of Textile Industry and its contribution to the economy the

Government announced Textile Packages and then launched its Economic

Revival Programme backed by radical reforms in Textile Regime-Incentives

for exports ± Trade Policy Investment. Policy and Revival of Sick Mills with

the sole objective to accelerate the production and exports. Efforts are in

progress to pursue further structural changes in line with resources. The new

µIndustrial Policy¶ lays emphasis on µForeign Investment¶ in µValue AddedTextiles¶ especially from developed countries who had been the major textile

players and still hold larger market share in international market. Despite

the changes in the operating environment, both in the manufacturing and

demand stages, the strategy motivating the industry for adoption to the new

era has become most important. Evidence shows that a sustainable textile

industry base can exist, but through private, for-profit initiatives and

investment based on economic self interest and genuine competitive

advantages. So while subsidies might attract or jump-start an industry, it is

the premise of profit and apportioning to be able to compete on internationalscale, that policies must be based upon.

The situation demands a change in strategic approach to Industrial Policy

with emphasis to higher value addition as well as consolidation of

competitiveness. The Government Policy should set the appropriate goal ±

³PRODUCTIVITY´ which underpins prosperity. It must strive for its true

determinants, such as incentives, efforts and competition not the tempting

but usually counterproductive choices such as subsidy, extensivecollaboration and temporary protection that are often proposed. The

Industrial Policy should stimulate dynamism and upgrading. Its aim should

be to create an environment in which firms can upgrade competitive

advantages by introducing more sophisticated technology and production

processes and penetrate more advanced segments, Government Policy



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should however, support the ability to innovate and move into higher

productivity areas. Innovation results from organizational learning as much

as

From formal research and development. It involves investment in developing

skill and knowledge. The strategic objective is to upgrade Product Quality ±

Skill Levels ± Productivity ± Market Image ± obtaining access to specific

product market ± developing µTechnical Tie-ups¶ and µFinancing Links¶ with

major retailing groups.

Long Term Textile Policy.

The Government of Pakistan wanted to mobilize all its resources so as to

establish a solid export base. Textile Sector being the major foreign

exchange earner can serve as a launch pad. Realizing the importance of Textile Industry the Government constituted a working group headed by a

leading industrialist in the private sector in Jan-2000. A unanimously

accepted and approved vision statement was devised to serve as beacon

light for the working group. Textile Vision-2005 is an open market driven,

innovative & dynamic document.

Textile Vision ± 2005.

An open market driven, innovative & dynamic Textile Sector which is:-

y Internationally Integrated.y Globally Competitivey Fully equipped to exploit the opportunities created by the MFA Phase out

and this enables Pakistan to be amongst the Top Five Textile ExportingCountries in Asia.

Three Scenario

The vision statement highlights the key drivers of the textile sector growth

and also sets a target for the textile industry. However, the framework that

could facilitate the industry in materializing the vision was cast in the shape

of various scenarios representing simulation models.



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a) Low Ro ad Scenario represented a situatio n w here o nly the histo ric expo rtgrow th rates in textile sub-secto rs w ere maintained. The o verall averageexpo rt grow th f o r the textile secto r after analysis w as finalized at 6% perannum.

b) D o -Able Scenario envisaged increase in unit price realization o f yarn ,

fabric, textile made-ups an d garmen ts with an attempt to main tain themarket share in each in dividual market. It also suggested pene tration in the non -quo ta marke ts alon g with incre ase d share o f syn the tic an dblen de d yarn s, fabric s an d gar men ts. The o ver all e xpor t gro wth in thi sscen ario was e sti mate d at 12% per ann um.

c ) Hi gh Ro ad Scen ario the mo st ambi tio us o f the scen ario s that no t onl yado pte d the apparel sec tor as the en gine o f te xtile e xpor t gro wth but al so reco mmen de d di ver si f ic ation in pro duc ts that hol d gre ate st po ten ti al butun f or tun atel y have been ne glec te d e .g. wo ven gar men ts, spor ts we ar ,speci ali ze d in dustri al gar men ts, an d wo men we ar . Be si de s bro adenin g o f e xpor t pro duc t por tf olio wi th e xtr a push in syn the tic an d man -made f iber s, fabric s an d gar men ts, i t was b ase d on ac hie vin g hi gher mar ke tshare o f une xplore d, non -tr adi tion al te xtile mar ke ts. The e xpor t gro wth in thi s c ase was e sti mate d at 16% per ann um wi th the assumption o f 20%an d 21% gro wth in gar men ts an d made -ups se gmen ts re spec ti vel y in val ue ter ms¶;

Three di ff eren t scen ario s vi z, Lo w Ro ad-D o -able , Hi gh Ro ad scen ario s have

been pro po se d f or the str ate gic de velo pmen t o f the Te xtile In dustr y to gi ve a quan tum jump in the e xpor t o f te xtile pro duc ts. An in ve stmen t o f appro xi matel y 5.00 Billion D oll ar s has

been pro po se d f or the ne xt f o ur ye ar s ti me to ac hie ve a mini mum gro wthr ate o f 12% on pre sen t e xpor t b ase .

Fe der al Te xtile Bo ar d

In or der to i mple men t the reco mmen dation s o f ³Te xtile Vi sion 2005´ the

Go vern men t has se t up a hi gh le vel ³Fe der al Te xtile Bo ar d´ un der the

Chair man shi p o f Mini ster f or Co mmerce & In dustrie s wi th re pre sen tation

f ro m Go vern men t an d Pri vate Sec tor . Te xtile Co mmi ssioner ¶s Or gani zation

has been assi gne d to wor k as Secre tari at o f the Bo ar d. Be si de s Te xtile

Co mmi ssioner ¶s Or gani zation ± Te xtile Bo ar d ± Expor t Pro mo tion Bure au an d

Bo ar d o f In ve stmen t, the Te xtile In dustr y i s ge ttin g Go vern men t suppor t

f ro m Mini str y o f In dustrie s ± Co mmerce & Fin ance . The Bo ar d has taken

f ollo win g deci sion f or the Te xtile In dustr y:-



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TEXTILE VISION ±2005 ± KEY POLICY DECISIONS

The Board reviews the production and export performance of the textilesector and also deliberates upon the policy interventions to facilitateexport growth

Removal of all regulatory controls on cotton trade to ensure freeavailability of inputs to the textile sector at international parity prices

Campaign to produce contamination free cotton in the country to promotevalue addition. As a result of which cotton prices now being quoted onPSCI grade standards. Work is also under progress on Cotton StandardsOrdinance that is expected to be finalized soon.

The provincial Cotton Control Act was amended in Punjab and Sindh to

incorporate anti contamination and quality clauses The Government initiated work on the possibilities of establishing cotton

hedge markets in Pakistan that has now materialized in the formation of forward trading agency on the Karachi Cotton Exchange.

With the view to improve the quality of domestic cotton, SMEDA initiateda program for technology up-gradation of ginning in Pakistan

In order to up-grade weaving sector in Pakistan SMEDA initiated aprogram to up-grade power loom sector that produces majority of thefabric in the country

With the view to provide due protection to the textile industry of Pakistan,the Government promulgated the Anti Dumping Ordinance

To ensure duty free availability of inputs for the textile exporters theGovernment formulated Duty & Tax Remission for Exports (DTRE) rules.(although it did not receive a welcoming response from the exporters asthe utilization remained very low. During 2001-2002 only 317 exportersbenefited from the scheme). In order to rationalize the rules theGovernment has formulated a stakeholder committee.

With the objective to increase the consumption of manmade andsynthetic fibers in the country the Government announced adequateexport rebate for synthetic textiles

To provide incentives for value addition Export Refinance on yarn was

withdrawn. To enhance the competitive advantage of the textile sectorthe Export Refinance rates were also rationalized by the State Bank of Pakistan



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The Government successfully negotiated enhanced market access withboth the EU and the USA resulting in lowering of import duties andincrease in quota limits. The

EU increased Pakistan¶s quota by 15% for all categories and alsoextended zero rate of customs duty on Pakistani products under GSP,

except for textile yarn and fabric.

EXPORT PERFORMANCE:

Pakistan¶s textile sector remained heavily dependent upon the quotamarkets i.e. the USA and the EU. The Textile Vision 2005 alsoemphasized the need to diversify towards vital non-quota marketsincluding Japan, Hong Kong and the Middle East. The proposeddiversification did not materialize.

The fibre consumption remained entrenched to cotton. The share of

manmade fibers in total mill consumption did not increase as envisaged inthe Textile Vision 2005.

The unit price realization in all the major markets and major productcategories experienced negative growth. Unit prices of yarn, fabric,made-ups and garments declined since 1998-99. The export growth inthe textile sector, as envisioned in the Textile Vision 2005, was driven byincrease in unit price realization in each product category. In retrospect itis evident that the negative trends of unit value prices in global markets

was not incorporated in Textile Vision benchmarks. The primary focus of the garments sector remained on men garments,

whereas the Textile Vision 2005 explicitly highlighted the importance of diversification towards women garments. This shift was not achieved.

INVESTMENT IN THE TEXTILE SECTOR

The Textile Vision 2005 besides providing a road map to enhance the

exports of textile products also estimated the investment requirements forcreation of new capacity and up-gradation of the existing production base.

All the investment estimates were linked with the overall export performance

of the textile sector. The basic objective was to project total investment

layout in order to achieve a specific level of exports. For the year 2001 a

total of Rs 24 billion was estimated as the investment requirement. Although



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the total disbursements exceeded the requirement by almost 21% but the

direction of the investment was not in alignment with the one envisaged in

the Textile Vision 2005.

The Textile Vision 2005 clearly mentioned that in the initial years heavyinvestment will be needed to create additional capacity in the apparelindustry however, total disbursement to this sector was only 36% of thetarget. Also processing was suggested to be developed on war footings inorder to support the garment manufacturing but unfortunately the totaldisbursement in processing was only 49% of the targeted amount. Fromwithin the traditional sectors bulk of the investment has gone to the spinning

industry, in-fact 56% of the total investment in the textile sector during2001 has been directed towards the spinning industry. The disbursement to

spinning was three times higher than the amount estimated in the TextileVision. Although heavy investment were forecast in the spinning sector so asto create a processing capacity of 13 million bales but these were to takeplace from the year 2003 onwards.

The bright side of the investments in textile industry is the high investment

in the Air Jet weaving segment, the actual disbursement for which exceeded

the target by almost 55%. Such investments are likely to fuel value addition

in garments manufacturing by indigenously providing a diverse range of

fabrics. However, the Textile Vision also mentioned the importance of state

of the art synthetic fabric weaving technology. This can play an instrumental

role in providing high quality synthetic fabrics to the apparel sector which

can penetrate the global woven women-wear markets. The investments in

Water Jet weaving sector are not at all in line with the recommendations of

the Textile Vision 2005.

The disbursements in the first quarter of 2002 also indicate that the focus of

investment will remain in the spinning industry. It would be premature to

comment on the overall investments in the textile sector but there exist

some positive signs of up-gradation and modernization in the processing and

Air Jet weaving sector, which in the long run will definitely be helpful to the

apparel sector in further value addition by product diversification.

Investments in Textile Industry of Pakistan (Rs Billion)



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Target

for 2001

Amount

Disbursed

%of

Target

Targe

t

2002

Amount

Disburs

ed

Jan-

Sept.

2002

Total

2001-

2002

Priority Sec tors

Apparel (Stitc hing) 6.4 2.282 36% 7.3 (-0.097) 2.086

Knitting 1.8 1.289 72% 2.6 0.999 2.288

Proc essing & Finishing 4.1 1.989 49% 5.6 2.878 4.152

Total 12.3 5.56 45% 15.5 3.780 9.362

Traditional Sec tors.

Weaving 0.325 0.509 0.834

Air Jet 2.4 3.726 155% 3.7 2.028 5.754

Water Jet 2.4 0.582 24% 3.6 (0.622) (0.04

0

Spinning 5.2 16.344 314% 7.8 8.954 25.297

Polyester Fiber 1.8 2.703 150% 2.6 2.288 6.591

Total 11.8 23.68 201% 17.7 13.757 37.43

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Grand Total 24.1 29.24 121% 33.2 17.537 46.79

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Th e above numbers denote t h at w h ile t h e aggreg ate imp act of Government policy

initi atives yield growt h in investments, it f ailed to stimul ate diversific ation of

products and investments t h at w as t h e fund ament al essence of t h e proposed

vision . Addition ally, t h e l arge growt h in investments in spinning sector w as driven

by a troug h in t h e intern ation al cotton prices over t h e p ast t h ree ye ars,

allowing t h e spinners to import h ig h qu ality, cont amin ation free r aw cotton freely

and reduce t h eir input costs on domestic cotton lint .

MARKET ACCESS:

Pakist an h as recently st arted negoti ating bil ater al agreements wit h

import ant tr ading p artners for m ar ket access bot h in t h e specific country as

well as wit h in t h e domestic m ar ket . It h as successfully concluded

agreement wit h E.U. ± Sir Lan ka ± Bangl ades h . Th e reluct ance of Was h ington to gr ant t h e Pakist ani e xporters a privileged access to its te xtile

and clot h ing m ar ket inspite of t h e d am age t h at US w ar on terrorism did to

t h is industry reflect t h e trends in Americ an t h in king w h ic h are not

encour aging . Th e US seems inclined to negoti ate bil ater al de als wit h t h e

countries in w h ic h it h as strong str ategic interest . Pakist an s h ould also

develop a str ategic appro ac h aimed at concluding bil ater al tr ades wit h t h e

countries w h ic h are import ant m ar kets for its products . It s h ould conclude

arr angements wit h t h e countries t h at will become serious competitors wit h it

once t h e tr ade in te xtiles opens up furt h er in 2005.

Th e incre ase in tr ade wit h in developing countries h as given a new loo k in t h e

intern ation al tr ade scen ario, t h e industry h as to develop itself strong enoug h

to meet t h e rising competition from t h e te xtile goods being imported from

countries of simil ar comp ar ative adv ant age to keep its s h are in t h e loc al

m ar ket .

Current Situ ation :

Presently t h e industry consists of a l arge sc ale org ani zed sector and a h ig h ly fr agmented cott age/sm all sc ale sector . Th e org ani zed sector is essenti ally t h e integr ated T e xtile Mills ± l arge No of spinning units and a very sm all No .of s h uttleless looms units . Th e downstre am industry (We aving ± Finis h ing _Garment ± T owels & Hosiery ) w h ic h h as a gre at e xport potenti al is all in t h e un -org ani zed sector . Th ere are 504 T e xtile Mills (52 Composite Units, 420Spinning Units & 32 Waste Units wit h 9.06 million spindles and 142312



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Rotors installed in the Country of which 7.50 million spindles and 65683rotors have worked (June-02). Capacity utilization had been 83% in spindlesand 46% in rotors. The Spinning Sector had grown with export demand & growth in cotton production. Weaving & Processing Sector followed. Themajor concentration of industry is in Karachi, Hyderabad, Multan, Lahore and

Faisalabad. Unlike Spinning Sector the Weaving Sector is comprising of largenumber of small units of power looms mainly clustering in Faisalabad ±Hafizabad ± Kasur and Multan. Recent trend is to set up Air-Jet loom unitseither as independent units are integrating it with spinning orprocessing units. Some of the clothing units are in process of backwordintegration while on the other spinning units are in the process of developingweaving finishing and making up facilities to complete the chain. Howeverboth clothing and textile sector are complementing each other andhorizontally integrated either under same management or business wise tie-ups. The clothing sector both woven and knits are mainly clustering inKarachi ± Lahore and Faisalabad where sufficient ladies labour is available.Unlike woven garment units the knitwear units are integrated (knitting +processing + making up facilities).

Although Pakistan is blessed with abundant raw cotton and cheap labour, theindustry has not been able to exploit the potentials in real terms and hasfailed to make real progress in the international markets and is under threatof being overtaken by its competitors and new entrants. The export havebeen stagnating during the last three years as detailed below:-

Organisations in the industry

All Pakistan Textile Mills Association is the chief organization that determinesthe rules and regulations in the Pakistan textile industry.

CONCLUSION

During 2008-9, the export of Textiles, which account for around 54% of

Pakistan¶s total exports, dropped from US$ 10.6 billion to US$ 9.6 billion.

The major losers in this regard were Readymade Garments, which dropped

by21.7%, Cotton Yarn, which dropped by 15%, Bed linen, which dropped by

10.2%, Art Silk & Synthetic Textiles, which dropped by 22.1% and CottonFabric by 4.0%. The exports of finished leather and leather manufacturers

dropped from US$ 1.1 billion to US$ 0.8 billion registering a drop 24.5%.

The Rice exports have registered an impressive growth from US$ 1.84 billion

to US$ 1.99 with an increase of 8.2%. Engineering goods also registered an

increase of 26.1% from US$ 211.3 to US$ 266.4 million. In this regard, the

major contributors have been the specialized machinery, transport



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equipment, electric fans etc. The export of Jewelry also rose from US$ 213.4

million to US$ 288.4 million, registering an increase of 35%.

The detail which present above the aim of data is to show the history, role

and importance of textile industry in our country«now I am going to show

crises their solution and suggestion and actions«..

Crises of industry are:

1) Infrastructure deficit, particularly in energy

2) Poor innovation and technological infrastructure

3) Low labour productivity

4) Low levels of manufacturing value addition5) Little Foreign Direct Investment in Manufacturing

and exportable sectors.

6) Anti-export bias in taxation

7) Increasing costs of exports as compared to imports

8) Lack of product and geographical diversification in

exports

9) Absence of economies of scale in the production

processes, especially in the Small and Medium

Enterprise sector which accounts for a vast majority

of the enterprises in the country.

suggestion

Infrastructure deficit, particularly in energy :In our coutry the main cause of crises in textile industry is poor

infrastructure particularly energy like natural gas electricity load shading and

other energy crises.



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P oor innov ation and tec h nologic al infr astructure :

Here is big need of innov ation li ke so me wh at c h ange in production process

and need of ne w tec h nolog y and l atest tec h ni ques

Lo w l abour productivit y:

Due to energ y and less s kill person t h e productivit y per l abour is lo w. So

need of s kill full person l abour .

Lo w levels of manuf acturing v alue addition:

Th ere are also Lo w levels of manuf acturing v alue addition .

Little Foreign Direct Invest ment in Manuf acturing and

e xport able sectors

Due to energ y, politic al inst abilit y and terroris m t h e foreign invest ment is

not av ail able

Anti -e xport bi as in t axation

Wit h anti -e xport bi as in t axation t h e industri al person not afford too muc h

lo ad of t axes ..

Incre asing costs of e xports as co mpared to i mports :

Wit h h ig h t axes t h e e xport cost is more co mpared to i mport fro m ot h er

countr y t h e question arise h ere wh y t h is h appen bec ause of our in put cost is

h ig h due to electricit y g as too muc h l abour and ot h er in put ..

L ac k of product and geogr aph ic al diversific ation in

e xports:

Due to so me li mit ation in e xport t h at is also c ause of decline te xtile industr y.

Absence of econo mies of sc ale in t h e production

processes , es peci all y in t h e Small and Mediu m Enter prise



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sector w h ic h accounts for a v ast m ajority of t h e

enterprises in t h e country:

Th is is also bi g issue Absence of economies of sc ale in t h e pro duction

processes , especi ally in t h e Sm all an d Me dium Enterprise sector w h ic h accounts for a v ast m ajority of t h e enterprises in t h e country .

Recommen dation

Th e su ggestions are:

First , overcome t h e most pressin g supp ly -si de constr aints suc h as t h e

s h ort age of ener gy , cost of c apit al an d difficu lties lin ke d wit h adverse tr ave l

advisories .

Secon d, en h ance competitiveness of te xti le an d c lot h in g, wit h t h e h e lp of

Te xti le Po licy due to be announce d s h ort ly w h ic h focuses on new

investments , mo derni zation of m ac h inery an d incre asin g tot al f actor

pro ductivity .

Th ir d, deepen an d diversify e xport m ar kets p articu lar ly our m ajor tr adin g

p artners US an d EU as we ll as countries wit h w h ic h Pakist an h as si gne d a

free tr ade agreement suc h as Ch in a, Malaysi a an d Sri Lan ka.

Fourt h , promote tr ade in services w

h ic h

glo bally h ave a more st able dem an d

p attern an d are less prone to detriment al e xtern al s h oc ks seen for t h e c ase

of commo dity tr adin g.

Fift h , em bar k on domestic commerce reform an d deve lopment w h ere key

are as suc h as w h o les ale an d ret ai l tr ade , stor age an d w are h ousin g,

tr ansport , re gu latory environment , promotion of mo dern business an d

t axation pr actices re quire imme di ate attention .

SOME SPECIFIC RECOMMENDATIONS

1- Remedy though FDI As the result of measures taken under vision 2005, the fiscal year 2002-03 witnessed tremendous inflow of investment in value added expansion and BMR. FDI intextile sector during last four years has reached to US$4 billion which has led to improvement in productivity, both in terms of quality and quantity, in yarn, fabrics, home textiles and garments, besides generating more than 300,000 new jobs. However, the investment volume is notsatisfactory as compared with the potential available in our Textile Sector. There is also an



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urgent need to set benchmark investment requirements for the creation of new capacity and up-gradation of the existing production base.

2- Image Building of Pakistan to Attract FDI The Ministry of Commerce, Ministry of ForeignAffairs and The Board of Investment should launch Joint Campaign to build positive image of

Pakistan as a quality textile product supplier and to facilitate the international buyers in Pakistan

3- Focus on Value Addition Pakistan is a leading exporting nation in raw yarn, cotton, andfabrics. If we emphasis on the value added products like garments, Hosiery, knitwear and other textile made-ups, the export volume of textiles can be increased by manifolds. In this respect top priority should be given to stitching industry that leads to highest value addition and employmentgeneration.

4- Creation of Ministry of Textiles instead of Textile Board The Government of Pakistan hasestablished a high powered Textile Board for the promotion of Textile Industry as envisaged inTextile Vision 2005 but its performance is not up to the mark. It will be quite productive if the

long-awaited demand of Private Sector regarding the creation of a Ministry of Textile is met on priority basis.

5- Technology Up-gradation & capacity building The establishment of Textile Cities in major Cities of the country is an appreciable move. Government should either set up joint ventures intextile related areas or should provide subsidized credit to textile manufacturers to upgrade their technology and capacity building through 'Technology Upgradation Fund'. (TUF). It is alsosuggested that smaller units of power looms (up to 50 looms) should be upgraded to auto loomsand power loom units larger than 50 looms into air jet looms.

6- Human Resources Development The Textile Board should establish a separate training wing

as a Center of Human Resource Development where training courses should be conducted for thecapacity building of labour. There is also urgent need to increase the number of such VocationalInstitutions where modern technical education is provided.

7- Accreditation and Certification We are fast approaching an era of Free Trade Regime, whichrequires standadization complied with WTO regulations. At present due to non-availability of testing laboratories, Pakistani exporters have to spend huge money to get certification fromabroad. If WTO recommended Labs were established in Pakistan a lot of valuable foreignexchange could be saved. Ministry of Commerce and BOI should set up such laboratories so thatthe exporters can get these standards at comparatively competitive prices.

8- Reducing the cost of doing Business in Pakistan At present cost of doing business in Pakistanis higher as compared to the regional countries, which has resulted in bitter competitiveness toPakistani Products in Foreign Markets. China and India are the bigger competitors of Pakistan.We fear if cost of doing business in Pakistan is not brought at par with other Asian countries, our products would find no place in Market both in terms of quality and price. In the context of future trade, there is an urgent need to bring all the utility charges and levy of taxes down to theminimum level.



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9- Need For Improving Textile Production There is an urgent need to bring improvement intextile production, especially in blended sector. Blended products made from a combination of natural and man-made fabrics, are preferred in clothing the world over. In Pakistan 20% protective duty on the import of Polyester Fibre is levied on account of which 25% polyester fabrics is blended with man-made fabrics, while a country like Bangladesh blend 35% Polyester.

This scarcity has resulted the poor contribution by Pakistan in this sector.

PLAN OF ACTIONS

The strong performance stemmed from two factors:

A. Increase in import quotas especially by U.S.A, EU and TURKEYB. Textile industry has invested over US$1.5billions in new technologies

and modernization in the last 3 years.

Efficiency and the innovation in textile is the only hope to get the country

out of economic problems.

Present status of PakistanTextile engineering sector

The Pakistan Textile Engineering Sector is underdeveloped and underutilized. Mostly it caters in the form of spares, components for modernizationand machines used in cottage or small scale industries.A cursory look at the structure of Pakistan Textile Industry shows that mostof them are cottage industry, small /medium industrial units and few largeintegrated state of art units. The number of units which fall under eachcategory varies from sub-sector to sub-sector. Similarly the TextileEngineering Units also vary from small, medium and large in size. TheTextile Engineering Industry comprises approximately 80% small workshops, 15% medium engineering Units and 5% large Engineering Units. It

will not be out place to mention that the large engineering units are in PublicSector. The small and medium Engineering Units work on reverseEngineering principles, only few work according to Engineering Drawings and

still fewer have Testing or Quality Control facilities.

On the basis of initial survey of Textile Engineering Units (Not complete yet),approximately 500 units are engaged all over Pakistan, employingapproximately 50000 work force which is mostly skilled. Even under the



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present conditions and without any support, Pakistan Textile EngineeringIndustry is providing import substitution worth around one billion US dollars.This sector also exports to small and medium Textile Units in Bangladesh,Iran, Sri Lanka, etc.The Textile Engineering Sector is throttled through taxes

on raw material, import of components, electronic and electrical parts.

Competition

The present Textile Engineering Industry is up against competition fromsmuggled, under invoiced, and mis-declared components, parts andaccessories. For example, in case of second hand machinery, there is little orno check and the competition mainly rests on lower price. Machinessmuggled especially from China, India, Taiwan are not better in quality butare selling cheaper. A bold initiative is needed which can boost theproduction as capacity and markets are there, only change in environment isneed.

Finishing look and control components

The products manufactured locally, when displayed against foreign goods -offer a poor look ± primarily because of the unsightly finishing of weldingseams, electroplating, painting and other surface treatments. In addition,

the adoption of wrong design parameters, or the attempt to reduce the costof production, lead to the incorporation of under-sized electrical motors andelectric / electronic control panels.

Quality control

There are very few units which have their own material testing facilities, orhave an access to any such service from out side. Although reverseengineering is practiced, yet this copying is done without adequate materialtesting. This results in poor quality or in many cases in an undue over -

engineering. A great stress on quality control is being laid by all the majorimporting countries, especially in the wake of ISO 9000 series. There is,therefore, a need of assisting the local textile engineering the relevant

institutions, such as PSI, NPC, CTL, etc.

Assistance of present institutions



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To encourage the local textile industry an access to the modern practices inthe specialized areas of manufacturing processes, productivity enhancementand quality control, an institutional mechanism should be set up whichprovides the industry an adequate and industry-friendly assistance from

such organizations as MIRDC, PITAC, CTL

and PSI, etc. In addition such institutions as Pak-Swiss Training Centre andPak-German Training Centre, as well as the Small Scale Industrial Estatesshould be encouraged to provide the industry necessary technical assistanceand production aids such as tools, jigs, fixtures, gauges, etc. for productivity

improvement and quality control.

Employment opportunities

Keeping in view the linkage of the Engineering Sector to other sectors of economy, it can be safely assumed that every one person employed inEngineering will add at least 2 more persons in the over all economy. Thereis ample scope for qualified engineers in mechanical, electric and electronics

disciplines to boost this sector.

Need for training institutions

Diploma Level Courses on the pattern of Pak-Swiss Training Centre in

Karachi should also be opened in the Textile Institutions in Faisalabad andKarachi and more such courses should be introduced in the Polytechnics inareas like Multan, Hyderabad, Lahore and Gujranwala.

Exhibitions

Most of these small workshops are shy or afraid of getting registered ordisplaying their products, mainly from the fear of the revenue collection,labor controlling and other government regulating agencies. This fear keepsthem away from the mainstream Industry. This also leads to the lack of

interaction among the small scale, medium scale and higher level industryfor a purposeful vendor development.

National Exhibitions held annually can be very helpful in bringing out theskills, the range of products and opportunities of group collaboration. It willhelp the planners and large scale engineering industry in defining the wayfor developing skills in order to make this sector strong and viable. This will

A REPORT ON CRISES OF TEXTILE INDUSTRY IN PAKISTAN DURING 2008 TO 2010 (Autosaved)

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