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An effort to revamp Pakistan's textile industry

By SHABBIR H. KAZMI
Oct 23 - 29, 2000

While going through the draft summary report on Textile Vision 2005, the first and immediate response is that after a long time a sincere effort has been made to revamp textile industry in Pakistan. The enabling backdrop was termed a vital pre-requisite to the viability of the strategy. Some of these factors are not controllable and there is still very heavy reliance on the GoP support/incentives. Unless the industry is able to stand on its own feet firmly, without the crutches of incentives/protection, it will be very difficult to compete in the global markets.

The draft of Textile Vision 2005 was circulated after the stakeholders of the textile sector attended the presentation of the strategy on April 14, 2000. This formed the basis of the final deliberation. However, the document, in no way, represents the final policy proposals to the GoP by the Textile Sub-committee chaired by Tariq Sayeed Saigol. Three different scenarios have been suggested for the strategy.

* Low road

* Exports will maintain the historic growth rates

* There will be no change in the product or the market mix

* Do-able

* Exports growth rate will match each importing country's growth rate of unit imports

* Unit exports of garments to Middle East market will grow at 3 per cent annually

* Pakistan will capture 0.5 per cent share in the Japan and Hong Kong markets

* Unit price of cotton yarn will grow at 3 per cent and that of fabrics will grow at 4 per cent annually

* Share of 100 per cent synthetic garments in the garments exports will increase from current 3 per cent to 30 per cent, in line with the world trend

* 13 million bales of cotton will be consumed

* High road

* Value added products (garments and made-ups) will be the engine of export growth (20% annually)

* Export product mix will be balanced by giving extra push in the women and woven garments

* Fabrics exported will contain 55 per cent processed fabrics

* Total cotton production will be 16 million bales of which 13 million will be consumed

Based upon the above assumptions, textile exports have been estimated.

EXPORTS IN THREE SCENARIOS

Category

1998

Low Road

Do-able

High Road

Garments

1,224

1,413

3,010

4,309

Made-ups

1,099

1,739

2,032

4,063

Fabrics

1,547

2,542

3,390

3,443

Yarn

1,027

1,746

2,132

2,000

Total

4,897

7,440

10,564

13,815

 


 

GROWTH RATES IN THREE SCENARIOS
(Per cent)

Category

Low Road

Do-able

High Road

Garments

2

14

20

Made-ups

7

9

21

Fabrics

7

12

12

Yarn

8

11

10

Total

6

12

16

Growth rates in three scenario indicates that highest growth rate will be in yarn (8%) followed by fabrics and made-ups growing at 7 per cent each. Garments will grow at 2 per cent which is the lowest among all the categories. Garments is the most value-added category and Pakistan has the lowest growth rate in this scenario. The export growth rates of Pakistan are highest for the low value-added categories and lowest for the highest value-added categories. Together, garments and made-ups contribute 42 per cent of the total exports of which 23 per cent comes from made-ups and only 19 per cent from garments.

In the Do-able scenario Pakistan will reach an export figure of US$ 10,564 million. It means that historic growth rates of Pakistan are less than the growth rate of the importing markets. This implies that Pakistan will be losing its market share in its importing markets and some competitor will be capturing its share.

In the High Road scenario emphasis has been placed upon the high value-added products i.e. garments and made-ups. The growth rates taken at 20 per cent and 21 per cent for the two categories will help in boosting Pakistan's exports to US$ 13.8 billion. In this scenario, the share of garments and made-ups in the total textile exports will be 60 per cent, with 31 per cent coming from garments and 29 per cent from made-ups.

INVESTMENT REQUIREMENT
(Rs in Billion)

Sector

Low Road

Do-able

High Road

Stitching Machines

0

11

39

Processing (Woven)

52

73

62

Processing (Knit)

2

5

7

Knitting Machines

1

14

29

Air Jet Looms

49

54

40

Weaving Water Jet

22

22

40

Spinning

25

87

87

Polyester Fibre

3

14

29

Total

151

280

333

In spinning, investment in low road is proposed at Rs 25 billion, in do-able and high road at Rs 87 billion each. This investment is aimed at achieving cotton consumption at 13 million bales. The existing capacity has been considered equal to the current working capacity. To attain 13 million bales consumption over 2 million spindles have to be added in low road scenario and 4 million spindles in do-able and high road scenarios each.

The Textile Sub-committee has proposed this and the same has been supported in general. According to Mohsin Aziz, Chairman, All Pakistan Textile Mills Association, there is an urgent need for BMR and expansion in spinning capacity. The country would not be able to achieve higher value addition without producing fine and super fine counts, to be able to produce fine quality fabrics. This is also a pre-requisite for improving the quality of garments and made-ups produced in the country.

According to Mohsin, a critical factor in achieving such a mega size investment in spinning is the support from the lenders. While it may be true that some financial institutions may not be keen in lending to spinning units, it is imperative on their part (financial institutions) to come up with their own funding criteria. During the worst time some textile units have been able to get funds, only because the proposals were economically viable. In his views, no generic policy can be followed by lenders and they should decide each case on merit.

He suggested some key factors which may be used by the lenders to identify the prospective borrowers. These are, historical data regarding debt servicing, dividend pay out, business growth (volume and diversification), proposed expansion plan based on least support by the GoP. To ensure least non-performing loans all the financial institutions should join their hand and come up with a strategy. They should estimate the quantum of funding in each year, monitor performance rigorously and consider each application for financing purely on economic fundamentals.

However, some analysts belonging to the other school of thought say that the proposed vision is heavily tilted towards spinning sector. Efforts have been made to portray a scenario that spinners are the main foreign exchange earners. They say that there is no doubt that spinning is the backbone of textile industry but also question the contribution made of spinners, barring a few. Bulk of the yarn produced in the country consist of coarse counts. Spinners have always demanded more and more incentives but failed in increasing production of fine and super fine counts. Even if one accept the proposal of adding 2 million or 4 million spindles, is there a guarantee that spinners would not, once again, indulge in producing coarse counts.

Some other analysts strongly suggest the contrary proposal of following the policy of Bangladesh. Since the availability of cotton, yarn production and processed fabrics is limited, Pakistan should also allow duty free import of fabrics for use in export-oriented garment manufacturing units. Initially, the number of beneficiaries of this policy may be low as the rules governing such imports are outdated. However, if the rules are made simpler the benefits could be befitting.

They also suggest that instead of going for the establishment of new stand-alone spinning units the GoP should only allow expansion in existing units, upwards integration and move towards composite mills. Following this policy would automatically weed-out the inefficient mills, encourage change in management through takeover and save foreign exchange. They say that establishment of spinning units in duty free areas has only propagated inefficiency and uneven playing field. This type of mistake should not be repeated at all.

Textile sector experts even go to the extent by saying that the biggest irritant redarding the growth of textile industry is the ever changing cotton policy. The recent intervention by the TCP has become questionable. It was given a mandate to intervene only if cotton prices go below a benchmark but the Corporation has become an active player.

The other impediment is inconsistency in the GoP policies. Even the best policy document becomes redundant if it is not implemented in letter and spirit. They say that for more than five years Pakistan's economy has been facing recession, but many textile mills were able to expand only because they implemented economically viable projects. Even financial institutions supported them. If the policies are clear, not tilted in favour of any pressure group or groups and implemented properly mills will become less and less dependent on support from the GoP.

The proposed strategy has suggested certain fundamental macro level decisions to form the basis of Textile Vision 2005. These are: free trade,

higher technological orbit, human resource development, rewarding value addition and eliminating procedural and human level impediments. The critical success factors of the proposed strategy are: international standard cotton, producer subsidy equivalents to be neutral, shift to value addition and shift to man-made fibres.

Textile Vision 2005 was to be announced in August this year. Sector analysts believe that the GoP has taken more than desired time and it should announce it without further delay.

GENERAL INTERVENTIONS

Establishment of a Textile Board

Textile City in Karachi and Lahore

Revival of Federal Export Promotion Board

Foreign Exchange Regime

Incentives Encashment

Incentives for BMR and Value Addition

Anti Dumping and Countervailing Duties

International Exhibitions

Role of Commercial Officers

International Standards Companies

REGULATORY INTERVENTIONS

Import-Export Regime

Input-Output Co-efficient

Quota Allocation

Technology Import Policy

Cash Awards for Exporters

Labour Levies

Policy Information Dissemination