.



THE TEXTILE INDUSTRY

Prepared for a global economic slowdown?

By SHABBIR H. KAZMI
Jan 15 - 21, 2001

At this juncture, on the international front, the biggest threat faced by Pakistan is to retain its share in textiles and clothing trade in the post year 2004 era. Pakistan is a single crop country and its economy and exports are heavily dependent on raw cotton. It may not be wrong to say that textile quota regime has been a blessing in disguise for the country. Keeping in view the existing status of textile industry, it is feared that the country may not be able to retain its share in global trade of textiles and clothing in the free trade era, unless a very comprehensive revamping programme is undertaken on top priority.

At the domestic level, the economic managers face three key issues: 1) putting the economy on faster track of development, 2) reducing the trade deficit and 3) containing the budget deficit. In one sentence, "They have to accelerate the GDP growth rate." While efforts are being made to achieve higher GDP growth rate, the challenge has become all the more pressing due to the various conditions stipulated in the stand-by assistance agreement with the IMF and to qualify for long-term funding under PRGF.

It may be true that the performance of local textile industry in last five decades, has been a little disappointing, the industry still has the highest potential to play a vital role in overcoming the key issues facing the country. To a large extent, the GoP policies are responsible for the pathetic performance of textile industry, but the players are equally responsible for the imbalance growth, production of coarse counts and grey fabrics and low unit price realization. The result is, despite being the fourth largest cotton producing country, Pakistan's share in global textiles and clothing trade is less than 3 per cent.

The present economic managers are making efforts to identify the key issues faced by various industries for taking immediate remedial steps and formulating medium and long term policies. Textile Vision 2005 draft circulated in April 2000 was an attempt to identify problems faced by textile industry and to suggest economically viable and sustainable plan. This document was expected to be the basis for a comprehensive textile policy. However, the inordinate delay in announcing the Policy and the measures to achieve the objective of enhancing textile export leads to apprehensions that Pakistan may once again miss the train.

After going through Textile Vision 2005 many industry experts say that it is heavily tilted towards spinning sector. Although, they believe that a strong and efficient spinning base is the backbone of textile industry, Pakistan does not need to increase production of coarse counts of yarn. The fresh investment should only be made to create facilities for the production of fine and super fine counts, add modern weaving and processing facilities. Some of the investment advisors even question the rationale for investment in spinning in the first phase. Keeping in view the pressing situation, Pakistan should follow the strategy of Bangladesh, Sri Lanka, Indonesia and Thailand. Instead of investing in spinning, the country should invest in made-ups manufacturing and demand for superior quality fabrics should be met by imports till the country is able to upgrade and enhance weaving and processing facilities.

The justification against investment in spinning is based on two factors: 1) establishment of a 14,400 spindles units costs more than US$ 20 million and creates employment for around 100 people only. Whereas an investment of the same magnitude in made-ups manufacturing creates direct jobs ranging from 2000 to 5000 persons. On top of this, made-ups manufacturers add the highest value. The suggestion is also based on the saying of spinners that indigenous cotton is not suitable for manufacturing of above 30 counts yarn and addition of new spindles capable of producing finer counts would necessitate import of fine quality cotton.

INDUSTRY SCENARIO

However, before going into further details, it is necessary to have a dispassionate and closer look at existing status of each of the sub-sectors of textile industry. These are spinning, weaving and knitting, processing and made-ups manufacturing. The analysis should begin with taking into account production and quality of indigenous raw cotton.

As regards demand and supply of raw cotton, it is necessary to keep in mind a few points. 1) Pakistan can get an output of over 20 million cotton bales from the area presently under cotton cultivation, but actual production is around 10 million bales. 2) Locally produced cotton is sufficient to meet the demand of spinners — estimated around 9 million bales. 3) The GoP has allowed free trade of cotton paving way for import of superior quality cotton. 4) The local spinners use superior quality cotton for the production of yarn of coarse counts. 5) The glut of coarse counts is mainly due to obsolescence of spinning facility over the years— spinners have not undertaken timely BMR. 6) Weaving is mostly confined to un-organized sector using obsolete/outdated looms which is not capable of utilizing fine and super fine counts.

In the spinning sector, at present there are about 9 million spindles and over 150,000 rotors installed. However, the average capacity utilization has always been around 75 per cent. The low capacity is mainly due to intermittent closure of mills because of inadequate cashflow rather than scarcity of cotton. The spinning capacity has increased mainly due to area and industry specific incentives. This proliferation has resulted in inefficiency and uneven playing field. Most of the units, established since early nineties are economically unviable and have survived only due to the incentives. The bulk of the percentage of yarn produced by these mills fall in the coarse counts category.

Weaving at mills level has experienced constant decline. At present less than 3 per cent of total fabrics is produced at mills and remaining quantity is produced on powerlooms. The fabrics produced on powerlooms is much inferior in quality compared to the cloth produced on shuttleless and air jet looms. This handicap does not allow the made-up manufacturers to produce superior quality garments. Therefore, despite enjoying the highest ceilings in certain categories, export proceeds have remained low. In case of Pakistan, the average unit price realization is below the world average. Like weaving, knitting is also mostly confined to smaller units operating in the unorganized units. This has been due to high duty applicable on shuttleless/air jet looms — although these looms are not manufactured in the country.

According to some analysts, the GoP policies coupled with the bad lending framework of financial institutions are responsible for exponential growth of spinning. While highest quantum of funds was dished out to spinners, there was hardly any financing of down-stream industries. On top of every thing, the entry of politicians and businessmen enjoying political clout in spinning business has resulted in lending to unviable projects. The concessional financing of and over invoicing has been the main reason for huge accumulation of non-performing loans pertaining to textile industry. The highest percentage of non-performing loans belongs to state owned financial institutions which have recklessly, as well as under pressure, lent money to such sponsors. According to some financial analysts the average cost per spindle for units in nineties was as high as US$ 110. Whereas it should have not been more than US$ 60 per spindle.

TEXTILE MINISTRY

Many industry experts believe that creation of a fully autonomous Textile Ministry is the only solution to ensure sustainable growth of the industry. The policy planners have used other alternatives to avoid creation of the ministry. While the resistance may have served the purpose of a few, Pakistan has emerged to be the biggest losers. In India, our next door neighbour, Textile Ministry was created in sixties. Countries like Bangladesh and Sri Lanka, which do not produce cotton, have Textile Ministry. Despite being the fourth largest cotton producing country, where economy and exports are largely dependent on textiles, Pakistan does not have a Textile Ministry.

The demand for Textile Ministry is the unified voice of APTMA and most of the associations working under the umbrella of Council of Textile Associations (CTA). While the proposal for Textile Ministry was first made in sixties, the idea has met the highest resistance from the Ministry of Commerce. Even the present Commerce Minister, Razzak Dawood, has emerged to be the vehement opponent of the idea. He has been expressing, without being asked, his dislike and rejecting the demand for Textile Ministry.

TEXTILE VISION 2005

Although, one may not fully agree with the suggested strategy in the draft, it was a good attempt. For lack of any support for the downstream industries, the blame should only go to the respective trade associations who have failed in making their point. However, the delay in announcement of final policy is unpardonable. The economic managers should keep in mind that buyers would identify the sources of supply by middle 2003 and start placing orders by early 2004. Therefore, Pakistan has to revamp its textile industry at the earliest and without waste of further time. Many of Pakistan's traditional competitors are way ahead of Pakistan. The initiative taken by some of the key players to revamp their units should be an eye-opener for those who want to live on the GoP support. Gone are the days and if the industry, as a whole, has to grow it must depend the least on the government.

TRADE PROMOTION

The least one should talk about the role played by Export Promotion Bureau the better it is. It has failed miserably in discharging its responsibilities in three key areas, i.e. trade promotion, participation in exhibitions and arranging visit of delegates. This is mainly due to the fact that in more than last 10 years its Vice Chairman was never picked-up from Trade and Commerce service group. One fails to understand why Ministry of Commerce never realized that trade promotion is a different ball game.

OUTLOOK

The first priority of the GoP should be to change country's image. Pakistan is considered to be a source of supply for low quality and low price products. Export Promotion Bureau has outlived it life. Therefore it should be given a new name — Trade Development Authority — a new mandate and a different team to manage the affairs.

At the same time, exporters should participate more in international fairs. They should also create their own websites to promote their products. At present a large number of buying houses are operating in the country and exporters should increase interaction with them. These buying houses are not only the potential buyers but can also help in producing new products and improving quality standards of products already being manufactured.

The performance of textiles and clothing industry is directly related to supply of raw cotton in reasonable quantity and at moderate price. The GoP has allowed free trade of cotton with no payment of custom and excise duty. The GoP has withdrawn the 15 per cent excise duty on import of cotton below 28mm staple on the demand of APTMA. However, some analysts consider this very myopic move. The APTMA should have asked for no excise duty on longer staple cotton to facilitate production of fine and super fine counts yarn.

The textile and clothing export figures for the first half of current financial year should be an eye-opener for the economic managers. There has been fall in the contribution of textile manufactures and a slight increase in the share of primary commodities. Textile manufactures accounted for 62.94 per cent of total exports. In absolute terms, the textile manufactures exports amounted US$ 2.79 billion. Within this group, the share of cotton yarn declined. An analysis of figures points to a disturbing trend of continuous drop in unit price realization. While there was an increase of 9.66 per cent in the quantity of cotton yarn exported, there was less than 1.5 per cent increase in value. This indicates that exporters are trying to sell more by reducing price and not by improving quality standards.

According to some international trade experts, Pakistan's balance of trade gap is expected to widen further. Import bill is expected to remain high due to higher crude oil prices, enhanced imports of plant and machinery and raw materials. Export proceeds will come under pressure due to the worldwide economic slow down and particularly in those countries who are biggest buyers of made in Pakistan products.

According to Trade Policy 2000-2001 import of machinery more than five-years old has been allowed. Previously the duty free import of ring frames was not allowed and was subjected to 10 per cent custom duty which has been withdrawn. To further facilitate establishment of spinning facilities, the GoP has also allowed duty free import of plant and machinery for expansion and BMR. While APTMA considers the conditions stipulated in the SRO very harsh and cumbersome, industry experts term these appropriate. They say all the industries should be treated at par and there should not be any more favour for textile industry which has failed to reciprocate.

The central bank has also announced appropriate export refinancing facilities for textiles and clothing. These policies are aimed at curbing export of products with low value addition. However, APTMA feels that the lending policies of financial institutions for BMR and shortage of available funds does not allow the players to undertake BMR activities.

According to Mohsin Aziz, the outgoing chairman of APTMA, "The critical factor in achieving a mega size investment for the textile industry is the support from the lenders. It is true that some financial institutions are not keen to increase their exposure in the industry due to past experience. It is also imperative on their part (financial institutions) to come up with their own funding criteria as the industry emerges, once gain, as the biggest contender for funds. No generic policy should be followed by the lenders. They should decide each case on merit. Even during the worst period some textile units were able to get funds, only because the proposals were economically viable."

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

Contrary to APTMA's expression, it has been observed that a very substantial investment has been in the sector in the recent months. Even APTMA sources are proud to claim that over 50 members of the Association have undertaken BMR by investing about US$ 400 million. Bulk of this has been self-financed. Therefore, it may not be wrong to say that only those mills are unable to solicit funds which suffer from poor financial health or expansion programme is not viable. The lenders may be right when they say, "Why does APTMA members consider it is their inherent right to borrow money at their own terms?

Pakistan was prompt to respond to nuclear tests by India to create effective deterrence. The country also meets requirement of certain products by import from India. However, it is beyond comprehension why Pakistan has failed in establishing Textile Ministry. Apparently, Ministry of Commerce seems to be the biggest hurdle in the formation of the Ministry and has been influencing the Minister to oppose the idea. But, the country needs a centralized body to tackle the issues of the industry which has been earning the largest chunk of foreign exchange and which also has the largest potential to change Pakistan's destination.

TEXTILE INDUSTRY'S ECONOMIC CONTRIBUTION

EXPORTS

60% OF TOTAL EXPORTS ( US$ 5.1 BILLION )

MANUFACTURING

46% OF TOTAL MANUFACTURING

EMPLOYMENT

38% OF TOTAL EMPLOYMENT

G D P

8.5% OF TOTAL GDP

INVESTMENT

31% OF TOTAL INVESTMENT

 


GROWTH OF COTTON TEXTILE INDUSTRY IN PAKISTAN

Installed capacity (in 000) Working capacity (in 000)

Year

Units

Spindles

Rotors

Looms

Spindles

Rotors

Looms

1990-91

277

5,568

75

15

4,827

67

8

1991-92

307

6,216

81

15

5,333

67

8

1992-93

334

6,860

95

14

5,520

79

6

1993-94

471

8,419

138

14

6,105

84

6

1994-95

494

8,610

132

14

6,262

74

5

1995-96

503

8,717

143

13

6,548

80

5

1996-97

440

8,230

143

10

6,538

87

5

1997-98

442

8,368

150

10

6,631

80

4

1998-99

442

8,392

166

10

6,671

66

5

1999-00

443

8,477

150

10

6,825

66

4

Source: T.C.O.

 


CONSUMPTION OF RAW MATERIAL

Year

Cotton

Man-made fibre

Total

1990-91

1,128,978

85,560

1,214,538

1991-92

1,257,399

105,775

1,363,174

1992-93

1,318,892

125,525

1,444,417

1993-94

1,511,610

182,077

1,693,687

1994-95

1,412,732

192,152

1,604,884

1995-96

1,509,955

192,691

1,702,646

1996-97

1,444,368

236,692

1,681,060

1997-98

1,471,169

318,923

1,790,092

1998-99

1,441,923

407,686

1,849,609

1999-00

1,566,348

404,008

1,970,356

Source: T.C.O.

 


UPLAND AREA, PRODUCTION & YIELD OF COTTON

Year

Area (000) hectare

Production (000) bales

Yield Kgs/hectare

1990-91

2,575

9,527

629

1991-92

2,743

12,699

787

1992-93

2,758

8,966

553

1993-94

2,725

7,949

496

1994-95

2,571

8,585

568

1995-96

2,922

10,500

611

1996-97

3,074

9,271

513

1997-98

2,879

9,071

536

1998-99

2,845

8,688

519

1999-00

2,963

10,574

607

Source: P.C.C.C.

 


STAPLE-WISE PRODUCTION OF COTTON

Year

Short
Under
13/16"
(20.64mm)

Medium
13/16"-
1"
(20.64 To
25.40mm)

Medium Long
1
1/32"To
1 3/32"
(26.19 To
27.78mm)

Long
1 1/8" To
1 5/16"
(28.57 To
33.34mm)

 

Total

Production

1995-96

96

5,669

4,809

21

10,595

1996-97

103

3,481

5,521

269

9,374

1997-98

113

1,288

6,608

1,175

9,184

1998-99

102

3,267

5,187

234

8,790

1999-00

124

3,976

6,313

285

10,698

Source: P.C.C.C.

 


PRODUCTION OF YARN COUNT-WISE

Years

1990-91

1991-92

1992-93

1993-94

1994-95

Mills

277

307

334

429

446

Coarse-
Count

424,727

464,660

521,475

588,603

620,691

Medium
Count

435,278

482,050

451,557

424,127

443,762

Fine
Count

17,160

31,912

30,081

32,773

49,549

S. Fine
Count

9,137

14,755

20,949

16,068

19,498

Poly/
Cotton

109,850

109,973

81,621

120,107

135,314

 

Years

1995-96

1996-97

1997-98

1998-99

1999-00

Mills

461

440

442

442

443

Coarse-
Count

684,913

699,893

686,718

707,723

806,556

Medium
Count

451,646

425,165

413,294

368,424

382,330

Fine
Count

60,177

58,165

60,140

35,969

36,014

S. Fine
 Count

22,827

23,043

17,591

18,437

19,126

Poly/
Cotton

134,784

192,960

242,589

277,149

273,212

Source: T.C.O.

 


PRODUCTION, EXPORTS AND DOMESTIC REQUIREMENT OF YARN

Year

Production

Consumed in Mill Sector

Export

Available For Local Market

1990-91

1,055,228

40,215

501,072

513,941

1991-92

1,188,270

36,022

505,863

646,385

1992-93

1,234,539

35,101

555,294

644,144

1993-94

1,498,948

36,846

578,648

883,454

1994-95

1,413,648

29,111

522,091

862,446

1995-96

1,505,244

30,164

535,889

939,191

1996-97

1,530,855

46,962

508,188

975,705

1997-98

1,540,720

53,445

461,919

1,025,356

1998-99

1,547,632

55,947

421,481

1,070,204

1999-00

1,678,536

65,481

512,971

1,100,084

Source: TCO/CSO

 


PRODUCTION OF CLOTH: CATEGORY-WISE

Period

Blended

Grey

Bleached

Dyed & Printed

Total

1990-91

57,534

160,935

16,613

57,829

292,911

1991-92

66,256

158,790

18,345

64,542

307,933

1992-93

67,344

163,213

20,363

74,476

325,396

1993-94

59,835

170,032

15,482

69,565

314,914

1994-95

51,907

180,810

12,008

77,116

321,841

1995-96

61,293

191,492

13,110

61,086

326,981

1996-97

57,198

194,420

11,935

69,942

333,495

1997-98

56,478

206254

13,032

64,516

340,280

1998-99

64,799

195,687

25,722

98,353

384,561

1999-00

60,607

263,593

11,064

101,926

437,190

Source: T.C.O.

 


PRODUCTION OF CLOTH: VARIETY-WISE

Year

Blended

Coarse

Medium

Fine & S. Fine

Total

1990-91

57,534

60,079

147,235

28,063

292,911

1991-92

66,256

84,640

131,609

25,428

307,933

1992-93

67,344

86,846

144,828

26,378

325,396

1993-94

59,835

84,080

144,867

26,132

314,914

1994-95

51,907

82,596

130,694

56,644

321,841

1995-96

61,293

83,966

109,737

71,985

326,981

1996-97

57,198

81,428

102,920

91,949

333,495

1997-98

56,478

88,551

79,119

116,132

340,280

1998-99

64,799

95,375

117,329

107,058

384,561

1999-00

60,607

92,096

210,710

73,777

437.190

Source: T.C.O.

 


PRODUCTION EXPORTS & DOMESTIC REQUIREMENT OF CLOTH

Period

Mill Sector

Non-Mill Sector

Total Production

Exports Quantity

Available for Local Market

1990-91

292.91

2561.09

2854.00

1056.53

1797.47

1991-92

307.93

2931.06

3238.99

1196.12

2042.87

1992-93

325.40

3034.60

3360.00

1127.58

2232.42

1993-94

314.91

3063.09

3378.00

1046.79

2331.21

1994-95

321.84

2778.91

3100.75

1160.66

1940.12

1995-96

326.98

3379.02

3706.00

1323.09

2382.91

1996-97

333.50

3447.70

3781.20

1257.43

2523.77

1997-98

340.28

3573.42

3913.70

1271.27

2642.43

1998-99

384.56

4002.23

4386.79

1355.17

3031.62

1999-00

437.19

4549.97

4987.16

1574.88

3412.28

Source: TCO/CSO

 


EXPORT OF COTTON & COTTON MANUFACTURES

Period

Cotton
Yarn

Cotton
Cloth

Bed
Wear

Other
Made-Ups

Garments

Hosiery

1990-91

1183.0

675.8

246.2

108.9

497.1

333.6

1991-92

1172.5

819.4

284.0

113.5

613.5

425.1

1992-93

1121.5

863.1

351.6

125.5

617.7

464.1

1993-94

1259.3

820.6

285.6

129.4

612.2

509.1

1994-9S

1528.1

1081.4

340.2

163.5

641.7

688.5

1995-96

1540.3

1275.9

422.2

179.1

648.5

703.4

1996-97

1411.5

1262.4

456.3

208.7

736.4

688.9

1997-98

1159.5

1250.3

508.8

245.8

746.5

696.7

1998-99

945.2

1115.2

611.0

255.3

651.2

742.1

1999-00

1071.6

1096.2

709.9

307.6

771.7

886.7

Source: CSO/EPB