Textile industry is the backbone of the economy and generates the highest export earnings. It has failed to meet the new challenges that appeared in the global textile and fashion industry in recent years. Pakistan is the fourth largest producer of cotton in the world and holds the largest spinning capacity in Asia after China and India. It failed to attract investors to its textile industry. Bangladesh has come out as an attractive destination of readymade garment manufacturers.
Pakistan’s textile sector contributes around 50-55 percent ($12-13 billion) in the country’s exports which totaled $25.13 billion in the year that ended June, 30, 2014. The government is targeting to increase the textile exports to $25 billion in the next five years through various incentives.
Many Indian businesses have set up units in Bangladesh simply because the country offers ease of doing business. Bangladesh does not produce cotton. But it has successfully adopted the latest technology and machines.
LOANS TO TEXTILE INDUSTRY INCREASED DESPITE FALLING EXPORTS
A recent report issued by the State Bank of Pakistan (SBP) reveals that year-on-year growth in textile sector advances has been Rs90 billion in 2016 in contrast to the net retirement of Rs30 billion in 2015.
New incentive package for textile sector: Recently, the government announced a package of Rs180 billion that gives several incentives to the textile sector to boost exports. The current export finance rate of 3.5 percent is the lowest in a decade, especially for the textile sector.
Worst performance: Another report by the SBP indicates that the textile sector’s performance on the export front was worse than the preceding year when it retired debt instead of borrowing.
Exports in the first half of 2016-17 fell to $6.151 billion compared to $6.545 billion a year ago.
GLOBAL INDUSTRY PERFORMANCE
The industry could not adapt to technological changes in the global textile industry. This was in contrast with Bangladesh and Taiwan, which succeeded in making inroads into the global market in a short period of time.
For 2015, garment exports from Bangladesh to the United States grew 12 percent to $5.4 billion. Vietnam did even better by growing its exports 14percent to $10.6 billion. India’s apparel exports to the United States in 2015 grew just 8 percent to $3.4 billion.
VIETNAM A NEW CHALLENGE
Pakistan is going to face new challenge from Vietnam after dealing with similar challenges from China, India and Bangladesh. According to an estimate, Vietnam’s textile exports will double to $55 billion between 2015 and 2025.
Vietnam is emerging as a world production centre for textile products as major global apparel makers expand their production operations in the country.
TEXTILE INDUSTRY DISSATISFIED
The textile industry has asked the government for the third generation investment policy for not only plug and play facilities, but also with an aim to increase its competitiveness not only in the region but also on the international market.
There is no relief ensured in terms of trimming down the cost of doing business.
On account of hike in cost of doing business, the textile Industry had lost the potential of $3.46 billion for export as 30-35 percent production capacity of textile industry had virtually closed down.
In case if it was revived then Pakistan will be able to regain the lost potential of $3.46 billion and after that textile industry needs more investment which is possible only if the third generation investment policy is announced on war footing basis.
Pakistan is in dire need of integrated investment parks where foreign and domestic investors will be provided with a level playing field and every kind of incentives.
THIRD GENERATION INVESTMENT POLICY DEMANDED
Under the third generation investment policy, the textile industry needs to first bring down the cost of doing business to make its products competitive on the international markets.
As many as 70 textile units in Punjab alone have so far shut down just in the wake of high cost of doing business. It is feared that half of the industry will close down in the next summer season. This will activate a new surge in unemployment and social unrest in the country if the energy prices for the industry are not contained at an affordable level.
The cost of re-gasified LNG is too much at higher side, and this issue has not been addressed in the package.
The textile sector in Punjab was being provided with RLNG which was 50 percent higher than the system gas being provided to investors in Sindh.
The RLNG is linked with the price of Brent on the international market and the price of Brent on the global market was on the rise.
It is strongly feared that Pakistan’s textile industry will not be able to compete with Chinese textiles given the robust textile package given by Xinjiang.
It is therefore essential that Pakistan’s textile industry be rejuvenated through a textile revival package.
The major reason for competitive disadvantage and dismal performance is the much higher energy prices for Pakistani exporters and especially Punjab whereas 70 percent of capacity is located in Punjab.
This has resulted in a loss of 1.2 million jobs of workers who were directly employed and another 3 million who were indirectly engaged on the supply side of the textile business.
Punjab which accounts for 70 percent of installed export based textile industry capacity the regional disparity is most acute. 80 percent of is connected to gas and 20 percent to grid electricity only. Both gas and electricity rates need to be regionally aligned for resuscitation of exports.
The disparity in energy pricing both within Pakistan and regionally is seriously retarding Pakistan’s bid to accelerate economic development as a major exporting sector of the economy is crashing.
The textile industry wants Government of Pakistan to exempt it from all surcharges in electricity bills pertaining to cross subsidization and inefficiencies.
The textile industry argues that 80 percent of the export based textile industry is connected to the gas system and generates electricity from the gas.
The textile industries of Pakistan have been using every government forum to influence. Prime Minister Nawaz Sharif to announce Rs200 billion grants for the upgrading of the textile industries. The industry already enjoys uninterrupted electricity and gas supply.
The textile industry enjoys these benefits on their claims to be the biggest export and job creating industry of Pakistan, but in reality Pakistan’s exports are going down.
Pakistan importing more textile products than exporting. The textile industry is also the worst taxpaying sector.
Pakistan has announced the much-awaited Textile Policy 2014-19 which seeks to double the textile exports to $25 billion, increase share of value addition and improve product mix, especially in garment sector, from 28 percent to 45 percent.
The duty exemption on the import of textile plant and machinery has been extended for another two years to attract additional investment of $5 billion in the textile sector, which employs 40 percent of the industrial labor force, consume more than 40 percent banking credit and accounts for more than 8 percent of the country’s gross domestic product.
The policy also includes reduction in export refinance rate (EFS) and long-term financing facility (LTFF), 64 billion rupees ($63.13 million) subsidy on long-term loans and development subsidies and special duty drawbacks.
Drawback of Local Taxes and Levies (DLTL) scheme would continue under the new policy.
Under it, if any textile exporter achieves incremental textile exports beyond 10 percent over the previous year, he will be given DLTL at the rate of 4 percent for garments, 2 percent for made-ups and 1 percent on processed fabrics.
Duty drawback for garment sector has been increased from 3 percent to 4 percent to encourage textile companies to go for value-addition.
Notwithstanding the incentives, energy shortages remain one of the major issues facing the textile sector in Pakistan.
Frequent gas and power cuts, lasting for several hours a day, have hampered companies’ ability to fully reap the benefits of Generalized System of Preference (GPS) Plus facility granted by the European Union last year.
Another issue is the level of protection provided to the local players. Recently, spinning segment of textile sector raised its concern against the ‘dumping’ of Indian yarn in the local market.
Unfortunately, this new policy doesn’t provide any solution on the energy front. It is believed that composite units having captive power plants and uninterrupted supply of electricity will get some benefits because the government is focused to enhance value-added products.