Over the years, Pakistan is said to be the single
crop economy i.e. cotton and textile that claims the lion's share in
terms of the contribution in the national economy of Pakistan.
Despite efforts to bring in diversification in
country's overall economic get-up the textile sector continues to be the
most important segment of the national economy. Its share in the
economy, in terms of GDP, exports, employment, foreign exchange
earnings, investment and revenue generation altogether placed the
textile industry as the single largest determinant of the economic
growth of the country.
According to Nadeem Maqbool, the outgoing Chairman of
All Pakistan Textile Mills Association (APTMA), despite harsh and hard
international economic conditions, Pakistan's textile industry has
weathered the storm by coming out of the international crisis in a very
positive manner. During the year exports were controlled from falling
and significant investment was made in value-added expansion and in
Balancing-Modernization- Replacement (BMR).
Nadeem Maqbool said that besides fall out of the
events of September 11, the implementation of WTO's agreement, various
bilateral agreements have been signed and implemented. As a result
global scenario has changed. Government and the corporate textile sector
adjusted their policies to achieve maximum benefits of free trade. So,
local structure of the corporate culture, investment pattern and fiscal
and monetary policies were significantly changed.
The textile sector expects that the volume of
investment in different segments of textile industry will exceed $500
million by the year-end. The import of the textile machinery in Pakistan
has increased considerably in the year 2001-2002 to expand spinning and
weaving capacity. The rise in import of textile machinery is due to
higher demand for Pakistani textile items including yarn, fabrics,
bed-wear and garments despite economic slowdown worldwide. The
production of cotton cloth in Pakistan has increased by 15 per cent
while cotton yarn went up by 4.5 per cent. The spinning sector witnesses
boom in the last three years and the industry re-invested its profit for
new equipment. Besides revival of sitck units, 150,000 spindles had also
been added to the working capacity during last three years. An
investment of Rs40 billion had been made by the textile industry last
one and a half year under Textile Vision Program being monitored by the
State Bank of Pakistan. An investment of Rs23 billion in textile
spinning sector, Rs.5 billion in weaving, Rs4 billion in polyester
fiber, Rs3 billion in processing and Rs.4 billion in knitting and
garment sectors have been made.
Actually, the investment in the textile sector was
estimated at Rs40.353 billion in the last one and a half-year against an
investment of $775 million (Rs46.5 billion envisaged in Textile Vision
The textile industry imported $405 million worth of
machinery in 2001-2002 and $370 million 2000-01. The industry spent over
Rs50 billion on the expansion of their units in the last two years.
However, increase in import duty on the textile plant and machinery for
spinning, weaving and finishing industry in the 2002-03 budget by 5 per
cent adversely affected the BMR plans of the textile sector.
After suffering stagnation for the last 5 years, the
textile exports started improving; especially the value-added products
performed well in the export market in spite of lower demand and
depressed prices in the international market.
During the year, the textile industry acquired the
most modern technology to produce quality and competitive products to
meet the global change. Recent installation of two dying plants by
Nishat Textile in Kasur and Kohinoor Weaving on Raiwind Road besides
expansion in a number of other factories in Faisalabad, Sheikhupura and
Lahore where about 1,000 new air jet looms have been installed would
ultimately prove helpful in achieving value-addition in different
categories. The industry has been expanding rapidly to increase the
export and achieve the targets of Textile Vision 2005.
The export target emphasized by the Textile Vision
2005 is to enhance textile exports from current level to at least $13
billion during next three years.
The investment in textile sector is in line with the
market demand; there was a demand for Pakistani yarn in the world market
that prompted spinners to increase capacity. However, no new investment
should be expected in these sectors until the present capacity is
utilized because the spinning mills are running to capacity in Pakistan.
Import of textile machinery and equipment has picked
up since 1997-98 when a bumper cotton crop was harvested and the Textile
Industry reaped massive profits due to lower input cost. In the last
five years more than Rs9 billion have been invested for the import of
spinning machinery. It is expected that an additional Rs10 billion would
be required for Balancing, Modernization and Replacement (BMR) in the
spinning sector during the next three years for producing superior
quality yarn besides several units are in various stages of installation
in Karachi also. These facilities would improve value-addition in
fabrics, besides increasing the volume of fabrics and quality garments
exports from the country.
Textile is the only sector where investment has been
substantial and regular during past three years. The most encouraging
factor of this investment is diversity. The entrepreneurs, who earlier
concentrated on Spinning and Weaving, have now established compact units
adding state-of-the-art finishing units and knitting machines to add
value to their products. The latest addition to this is the setting up
of denim cloth producing units.
At present, the export competitiveness of the textile
industry can be improved by aggressive marketing techniques and quality
improvements which have to be taken care of micro-level that is each
textile unit should make its own independent efforts to sell its
products in different international markets. All the individual textile
units should implement the ISO 9001 program for quality standard and ISO
14000 for environmental standards to counter the threat of
The banks disbursed a sum of Rs29 billion during the
current year to the industry. More than half of the funds disbursed-Rs16
billion — went to the spinning mills and Rs4 billion to weaving mills.
On the other hand, only Rs3 billion and Rs2 billion have been claimed by
polyester fiber and apparel sectors respectively.
The government sees its historically high reserves
built-up and the strengthening of the rupee against the US dollar, as a
measure of success of its economic policies. However, the exporters have
been repeatedly expressing their need for maintaining the dollar at a
level of around Rs60 a dollar. Nevertheless, the Minister for Finance
and the Governor, State Bank of Pakistan have cautioned that the
government will not be able to support the dollar for long as it puts
enormous pressure on the financial resources of the SBP. As such in
months to come the dollar could fall to rupee parity of Rs56-57 dollar.
To expand credit facility for the development of the
Industry, the State Bank has decided to provide relaxation to banks
regarding the credit limit under the Export Finance Scheme so that no
exporter is deprived of financing for exports. The banks are now
eligible to utilize the sanctioned limit under either part without
restriction of any sub ceiling. The banks may now determine
re-allocations of their limit within their overall refinance limit
sanctioned, so that exporter's request for finance is not refused for
want of sufficient limit under any part. The export finance rate has
also reduced up to 8 per cent as the State Bank has told banks that it
would provide them export refinance at 6.5 per cent. As usual banks are
free to charge 1.5 per cent margin while offering export finance to the
The textile industry in the United States, a major
business partner of Pakistan, is currently passing through a phase of
economic recession due to various reasons.
Although the US textile sector is pressing the
government for an increased market accesses to Pakistan textile products
yet the share of Pakistan textiles and other textile producing countries
would increase manifold in the days to come as the US is now getting out
of the textiles industry.
According to APTMA, the US is the biggest trading
partner of Pakistan and in the last year the volume of two-way trade
stood at $2.43 billion, followed by EU states with annual trade volume
of around $2.4 billion. Pakistan currently exports a total of $1.9
billion worth of apparel and textiles annually to the United States and
is the fourth largest supplier of these goods. The US government has
been working on several propositions for providing economic assistance
to Pakistan. The textile sector in Pakistan is still looking for the
expected incentives including enhanced market accessibility for Pakistan
Textile products in the US market. However, the industry is pinning
hopes that the promised concessions are expected to be approved by the
new US senate to be elected in the first week of the current month.
It may be mentioned that the Federal Minister for
Finance Shaukat Aziz in a recent meeting with Richard Hass, Director for
Policy Planning for the United States has urged the US authorities to
increase market access for Pakistan textile exports.
Pakistan looking forward to high market accesses for
the country's textiles as higher quotas would generate economic activity
and create jobs, which will reduce deprivation. Pakistan has a very
competitive textile industry producing world-class textile goods, which
have an attractive market in the US, provided the quota facility is
Responding to the suggestion, Richard Hass assured
Pakistan that the US government would endorse $1 billion write off and
consider greater market accessibility for Pakistan textile products.
The US Senate elections are due on November 5 and the
new senate would most likely approve the bill for the write off as well
as enhanced accessibility for Pakistan textiles in the US market.
During the year, about 200 textile mills have been
closed down in the US which is emerging as a big source of supply of the
reconditioned textile machinery and equipment. It is estimated that
about $100 billion export opportunity will be created in the US for the
counties like Pakistan, when Americans quit textile business in next few
years. Pakistan can get benefit through this opportunity.
Pakistan's textile exports, which mainly depend on
the gray fabrics and yarn, can also fetch a higher per unit price
through having an interface with the latest technology.
The Minister for Industries and Commerce, Abdul Razak
Dawood, has said that Pakistan's textile sector has now grown up to the
stage where it would be in a position to face the challenges of 2005
when quotas would be abolished.
Textile Vision 2005 is aimed at capturing 10 per cent
of world textile market, which amounted to $20 billion exports.
Similarly, through Engineering Vision, the industry
was gearing to capture its due share in the $6 trillion total global
trade of engineering goods and chemicals which is presently only $274 in
Ginners in Pakistan have finally been made to realize
the need for quality processing of seed cotton so as to produce quality
and contamination-free lint. The recent drive launched by the government
to produce contamination free lint cotton has forced most progressive
among the ginners to opt for the new ginning techniques to add value to
their final products.
In order to achieve this goal, Small and Medium
Enterprise Development Authority (SMEDA) with the assistance of French
Experts have undertaken the task of up-gradation of ginning industry.
Currently, each pound of Pakistan's cotton loses 5
cents which meant that on 10 million bales the net loss came to half
Initially, two ginning units each in Khanpur and
Bhawalpur have been selected as pilot project for the up-gradation and
modification, but all the ginning factories had to be modified by the
year 2003, because under the time frame the federal government would
promulgate amended Cotton Control Act by the year 2004.
Once the Act is promulgated, the provincial
governments would have to ensure that ginning factories were meeting the
technical standards and conditions lay down under the Act.
Besides producing quality clean cotton the objective
of up-gradation of ginning units, having 40 to 50 years old technology
and machinery, was to make them visible and efficient.
At present the total number of the ginning units is
1,221, however out of them 900 ginning units are operative in the
country. One of the important objectives of the upgradation of the
ginning sector is to revive the maximum number of the ginning units.
Otherwise the scraping of these units may cost about Rs12 billion to the
Before going to up-gradation process of the ginning
units, another US company was consulted but the advice given by that
company that all the installations, machinery and equipment should be
thrown and new machinery costing $150,000 each units be installed. For
replacement of the machinery in 1221 units means draining huge size of
foreign exchange out of the country.
Under the on-going up-gradation process of the
ginning factories, the Balancing, Modernization and Replacement (BMR) of
each unit would cost around Rs1.5 million and once pilot projects were
successful the cost may be further lowered by placing large scale order
with any reputed engineering company to manufacture the components of
up-gradation based on proto-type machinery.
Similarly, under the financial plan several banks had
already shown keen interest and the Asian Development Bank had already
allocated technology up-gradation fund, which might be released next
Ginning industry was the weakest link in the entire
cotton textile economy and needed urgent improvement if quality and
clean cotton had to be produced to meet the textile industry's
The ginners will be financing the up-gradation
program and Pakistan Cotton Ginning Association is cooperating with
SEMDA in achieving the desired results.
The benchmark set for achieving quality cotton
through up-gradation was at energy consumption or cost would come down
from 26kwh to 18kwh per bale per hour. Similarly trash will reduce from
8 per cent to 4 per cent and floating fibre from 20 per cent to below 15
The Central Board of Revenue (CBR) has finalized
comprehensive changes in ginning industry rules 1996, replacing them
with the new rules 2002. The rules cover vigilant measures to check tax
evasion/false declaration through harsh penalties and prompt recovery
under the Sales Tax Act. For the first time, the supply of ginned cotton
will be made under Duty and Tax Remission for Exports (DTRE) scheme.
These rules would be notified soon after consultation
with the All Pakistan Textile Mills Association. CBR has framed two new
forms pertaining to the details of supplies of ginned cotton and
supplies under the DTRE scheme.
As per new procedure, the ginners would be required
to pay sales tax, additional tax and penalties in case of supplies of
ginned cotton on the basis of any fake, bogus or fabricated documents
under DTRE scheme.
Forthcoming rules envisage if the ginning unit
supplies ginned cotton to any spinning unit or export without issuing
the delivery note or gate pass or the tax invoice, the unit would be
liable to penalty under the relevant clauses. Where a spinner or
exporter claims input tax adjustment or refund prior to the payment of
sales tax on purchase of ginned cotton, besides any other action which
may be taken against him under the Act, that unit would be liable to the
penalty. A spinning unit or exporter fails to pay tax on the cotton
purchased by him, the concerned assistant collector may initiate
recovery of such unpaid or short paid amount of tax in accordance with
the provision of the Act.
Despite sluggish trends in the international markets,
exports of textile manufactures increased from $5.75 billion in
2000-2001 to $5.8 billion in 2001-02. The encouraging factor was the
increase in the exports of value-added items. The share of value-added
products in total textile exports from Pakistan this year was 57.13 per
cent as compared to 54 per cent last year. Cotton cloth export also
increased to $1.13 billion during this period as compared to $1.03
billion in 2000-01, indicating an increase of 9.7 per cent. The exports
of bed-wear fetched $918 million against $745 million, showing growth of
23 per cent, while towels exports increased by 12 per cent to $270
million against 242 million. Readymade Garments improved by 7 per cent
to $882 million from$827 million, whereas Made-up articles increased by
6 per cent to $351 million as compared to $331 million.
The exports of five sub-groups i.e. Cotton Yarn,
knitwear, Tents, Canvas/Tarpaulin, Art, Silk/ Synthetic Textile and
other manufactures declined during the period. Cotton yarn, which earned
$1.1 billion during 2000-2001, earned $ $911 million. The exports of
Art, Silk and Synthetic textile declined by 25 per cent to $409 million
from $545 million.
The textile quota exports to the United States,
European Union, Canada and Turkey grew by over 18 per cent with nominal
increase in value during the first seven months of the calendar year
2002 compared to the same period last year. The highest amount of
increase of 55 per cent in quota exports followed by US 29 per cent and
EU 12 per cent. Exports to Canada declined by 21 per cent in quantity.
In terms of value, exports grew by 30 per cent to
Turkey and 13 per cent to the EU. Exports declined in case of Canada by
29 per cent and 9 per for the US. The total exports to the US were 420
million square meters worth $481 million; European Union imported
1058-million square meter worth $509 million. Canada imported 16 million
square meters worth $18 million and Turkey, 101 million square meters
worth $28 million.
The average unit price of Pakistan's textile quota
exports dropped considerably i.e. 30 per cent in case of US, 9.6 per
cent for the EU and 16 per cent in case of Turkey. The only increase
0.21 per cent was recorded in average unit price of exports to EU. The
WTO agreement provides for making textile trade completely free from
The textile export figures for the first ten months
of the current year released by the Export Promotion Bureau revealed
that the textile quota exports to the US improved by 24 per cent while
the increase in exports to EU countries at the end of October 2002
registered an increase of 16.6 per cent in terms of value and 13 per
cent in terms of quantity.
To get maximum benefit from quota free regime, all
out efforts are needed to boost textile exports and increase access to
the international markets. To boost the exports, the State Bank of
Pakistan has introduced three facilitating schemes for the exporters
namely, Foreign Currency Export Financing Scheme (FCEFS), Political Risk
Guarantee Scheme (PRGS) and the Export Guarantee Scheme (EGS). The bank
would provide 210 days credit facility to exporters for South America as
compared to 120 days credit facility to other markets.
PROBLEMS IN TRADE WITH USA
Although the US officials at every stage appreciated
Pakistan's stand and extended verbal cooperation against terrorism, but
there was a general message from the US officials that at this juncture,
when US economy itself had slowed down, it was difficult to offer
significant concessions to Pakistan exports. The US textile industry
urged the Bush administration to refrain from granting Pakistan
additional access to the US textile market, as it would cripple domestic
industry already hit by widespread plant closings and layoffs. The US
administration pointed out that the US textile industry itself was at a
decline. There were also pressures from the textile lobby on the US
TRADE WITH EU
The European Union (EU) has repeatedly offered
complete removal of quota restrictions on Pakistan's textiles, subject
to reciprocal relaxation in tariff restrictions on imports of textiles
from the EU countries.
Pakistan has, however, asked for special preferred
tariff regime for its products as provided to Bangladesh, Egypt and
turkey, besides a two-year moratorium on anti-dumping duties. After
several meetings at government level, late last year, the federal
cabinet approved a Memorandum of Understanding between Pakistan and the
European Community (EC) for enhancing by 15 per cent textile and
clothing products' quota from January 2001 which would be further
increased to 60 per cent by 2004. Pakistan-EC textile trade is regulated
through a bilateral agreement under which export of certain textile
categories to the EU are under quota restrictions.
Under the said agreement, the EU removed duty on many
Pakistani value-added products, besides allowing 15 per cent increase in
quota with effect from January 2002. While EU duty on yarn, clothe (gray
and printed) remained, duty on finished clothe, garments, knitwear
became zero-rated. Basic reason for not reducing duty on yarn and
fabrics is that Pakistan already has a significant market share in the
EU market. The government is adjusting its export strategy for the
member countries of the EU. The Textile Associations in Pakistan have
decided to establish a textile export-zone. The objective of the zone is
to avail maximum advantage of 15 per cent reduction in the duty by the
EU. The EU has added Pakistan to the list of counties eligible for
special trade preferences, praising its efforts to curb drug production
and trafficking. Under the new arrangement, the EU has eliminated a 7
per cent duty on import of clothing from Pakistan which means scrapping
150 million Euro duties a year. To reciprocate the gesture, Pakistan
also reduced duties on EU textile and clothing imports.
Lifting of curbs by EU of textile goods from Pakistan
by removing duty and increase of quota was an encouraging development
which provided Pakistan textile exports greater access to the EU market
and an edge over competitors. Pakistan's textile exports to EU thus rose
to $1.2 billion are expected to increase by $400 million per annum.
After China joined the WTO, Chinese business showed
keen interest in joint ventures with private sector in Pakistan,
particularly in the textile industry. The geographic and political
linkage between the two counties is an apparent advantage. Exim Bank of
China has agreed to extent $200 million credit to the textile industry
of Pakistan for import of Chinese textile machinery.
The Finance Ministry is working on a development
package for the textile industry for import of Chinese machinery. This
loans particularly focus on the large-scale manufacturing sector. It is
expected that Chinese loan would be utilized for the import of textile
machinery from China. The government of China is also willing to extend
its support to initiate joint venture with Pakistan entrepreneurs in the
textile sector. APTMA members were also advised to take advantage of
Chinese offer for joint ventures for export of relevant textile
categories to EU in which Pakistan has exhausted its quota while the
other had underutilized quota. The Chinese textile companies have shown
interest in linkage with their Pakistani counter parts to jointly
explore the potential of world textile market that has risen to 1.8
trillion dollars per annum.