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Standstill textile industry need remedial measures

Pakistan is the world’s fourth largest cotton producing country but power and gas cuts have stopped exporters from producing their orders on time. Pakistan is the eighth largest exporter of textile products in Asia and employs 30 percent of the working population. This sector contributes 9.5 percent to the GDP and shares around 57 percent of total exports.

The textile industry used to be the backbone of Pakistan’s exports and our country’s name as a textile brand was known around the world a few years ago. Leading cloth brands used to outsource their raw material and finished products from Pakistan. These days, textile factories stand vacant, opposite of the hustle and bustle which was a prominent feature a few years ago. Recent years have seen hundreds of small and medium sized textile factories shut down, contributing further to already declining exports.

The textile industry is believed to be the backbone of Pakistan’s economy as it is the biggest buyer of locally produced cotton. It provides direct and indirect employment of 42 percent workforce in the country. The once thriving textile sector is finding it difficult to revive this sector due to high energy costs. A third of the production capacity of the sector has vanished. Factories have closed, and most of the others are running below full capacity. The workers get only paid if there is power and if there is no power, there is no wage.

Total exports, 60 percent of which are made up by textiles, declined in this year compared to last, a sign that the industry’s recovery is yet to begin. The volume of investment in the industry has risen substantially in recent months, but exports of the sector are showing an opposite trend.

Recently, the State Bank of Pakistan (SBP) governor says that the money borrowed by the textile industry might be going to other profitable sectors like real estate or stock market. Borrowings of the textile industry are continuously growing, but textile exports are on the decline.

Former prime minister Nawaz Sharif has announced Rs180 billion package for five major export-oriented sectors, including textile, to give a boost to the country’s exports. Leading textile exporters were hopeful that the package would help increase their exports, but in fact it did not bear any fruit. Those that are associated with garment manufacturing, say the textile sector can provide maximum number of jobs to the unemployed youth because it is a highly labor-intensive industry. Textile industrialists have warned the government that it is only the textile sector that can solve Pakistan’s economic problems.

Garment industry as it utilizes minimum electricity, generates maximum number of jobs and earns highest profit margins in comparison to exports of unfinished products. The government is not releasing sales tax refunds of exporters as well as rebates due to which textile exporters are facing a severe liquidity crunch. Energy crisis is still very much here and the textile industry is not getting enough electricity to meet export orders. The Nawaz-led government came to power in mid-2013, it vowed to eliminate energy crisis by the end of its tenure in 2018. But the governments have been different from the ground realities. The government must arrange immediate payment of all refund claims to harvest the benefits of exempting 5 major export sectors including textile and textile package of Rs180 billion.

Despite of the fact that European Union had granted GSP-Plus status to Pakistan from 2014, Pakistan has failed to give any support to our declining exports. The government has also ensured uninterrupted power and gas supply to industrial sectors but still the declining trend in export is continuing. The government should announce a clear policy to finally clear all the pending refund claims so that the declining trend in the export could be checked. The decline in export will continue if immediate remedial steps are not taken.

 

Momentum in Bangladesh, Vietnam, power outages impeding exporters to meet their order deadlines, scant government support are all contributing to Pakistan’s textile crisis. Textile manufacturers who account for more than half of all overseas shipments, say buyers have shifted to countries including Bangladesh and Vietnam as continual power outages impede their ability to meet order deadlines, while complaining that the government has provided deficient support.

Factories have shut down and at least 500,000 people have lost jobs in the past two years. Most factories shutting down are small or mid-sized plants unable to bear the extra cost of prolonged power outages. Larger factories have invested in their own power, including diesel generators, to cope with the nation’s electricity deficit of about 3,000 megawatts.

About half of the Pakistan’s exports are shipped to six countries, while 40 percent of total textile exports are primary commodities, including cotton yarn sent to China. The liquidity crisis is the fundamental cause of decline in textile export and government must arrange immediate payment of all refund claims to harvest the benefits of exempting 5 major export sectors including textile and textile package of Rs180 billion. The continuous decline in national exports will foment unemployment in addition to further widening the import export deficit. Despite of the fact that European Union had granted GSP-Plus status to Pakistan from 2014, Pakistan failed to give any support to declining exports.

The government has also ensured uninterrupted power and gas supply to industrial sectors but still the declining trend in export is continuing. Textile is the main stay of national economy and despite of worst situation, it has successfully maintained its position as leading export sectors of the country. Textile industry has been left at the mercy of Federal Board of Revenue (FBR). The refund claims of exporters are piling up with the FBR and they have to get fresh loans at high mark up rate to fulfill the needs of working capital.

The chambers of commerce and industry and textile associations have been pointing these issues since long. Government has also given assurance to clear all pending claims but the factual position is that more and more refund claims are piling up with the payment of just a small number of claims.

Textile industry in Punjab is in difficulties because of power shortages, government inaction and a flood of imports from China and India. The industry is underperforming and energy crisis is the mother of all issues. Depreciation of the Pakistani rupee has significantly raised the cost of imported inputs followed by persistent rise in inflation and high borrowing cost as compared to rivals India and China have dealt serious blows to the textile as well as garment industries. It is also spending more on production than industrial sectors in other three provinces and industrialists are mulling closing down their businesses. After the passage of 18th Amendment in 2009, which gives the right to a province to use its natural resources according to demand before passing the surplus to other provinces, the situation started deteriorating for the Punjab textile industry. That was the time when energy crises hit the country and electricity shortfall was at its peak. Since several textile industries were using natural gas for their Captive Power Plants (CPPs) to generate cheap electricity for commercial use, scarcity of gas became a serious concern for them.

The new textile policy for Pakistan for the period of 2014-19 outlays only Rs64 billion ($640 million). The government has to facilitate the sector within the limits, as it cannot give benefits to the textile sector as India gives to their textile industry, as it has limited resources. The government is now in a position to take up textile industry issues seriously and will facilitate the sector through incentives, market access to other countries, and zero taxation on exports to increase the overall investment.

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