May 22 - 28, 2000

There may not be any export refinancing for yarn and unbleached fabrics

The textile policy is expected to be announced before the budget for the financial year 2000-2001. The policy is expected to aim at achieving higher value addition and to bring the textile sector at par with the international standard before the complete phase out of the textile quota regime at the end of the year 2004.

There seems to be entirely different philosophy driving the forthcoming textile policy. Previously, all the efforts to boost textile exports were full of incentives but this time there are clear indications that export refinancing may not be allowed to exporters of yarn and unbleached fabrics. The new policy will be aimed at abolishing trading of quota, creating level playing field, ensuring competitiveness of the local textile manufacturers and encouraging greater value addition.

This objective may seem difficult to achieve as textile industry in Pakistan has flourished mainly due to the best possible incentives available and under the highest protection. The biggest hurdle in achieving the desired objective is, changing the mind-set of local entrepreneurs. Availability of incentives has only resulted in easy-going, sluggishness and promoting inefficiency in the textile sector.

According to some textile sector experts, Pakistan has the potential to boost exports of textiles and clothing to US$ 14 billion within five years if right policies are implemented. The target may look a little outrageous if one looks at the current level of US$ 5 billion exports of textiles and clothing. However, this can be achieved by enhancing cotton production and consumption, improving capacity utilization in spinning and weaving sectors and achieving higher quality standards of made-ups produced in the country.

Potential features of the policy are likely to be:

* providing easy access to capital investment.

* developing a hedge/futures market for cotton and yarn in order to avoid volatile fluctuations

* allowing import of textile machinery (specially processing equipment) at minimum or no duty.

* stressing development of brands in the made-ups sector

* awarding cash incentives for exporters

* withdrawing export refinancing facility on low count yarn and unbleached fabrics, etc.

* permitting international companies, supplying accessories for textile products, to set up offices and manufacturing plants in the country to ensure their availability to the local manufacturers of textiles and clothing .

Commerce Minister, Razzak Dawood, has indicated a well conceived three tier plan to boost the textile exports to US$ 14 billion. However, to achieve this target about US$ 6 billion or Rs 333 billion has to be invested in the textile sector.

One may wonder if the country can afford to allocate such a colossal amount for a sector which has been termed sick for a long time. Whatever, investment has been made by the local sponsors is mainly due to specific allocations by the financial sector and under the highest protection.

Some of the analysts believe that, availability of indigenous cotton is not the factor to depend on. Cotton prices in Pakistan are, more or less, at the level of its international prices and the country has lost the comparative advantage. On top of this the inefficiency and mismanagement at the spinning level have resulted in production of coarse counts of yarn. Over the years most of the spinning mills have failed to undertake BMR. Therefore, there was a need to withdraw export refinancing available to the exporters of yarn and unbleached fabrics.

The country does not require establishment of new spinning units but certainly needs revamping and upgrading of the existing units. As such the capacity utilization in spinning mills is around 75 per cent — mostly used to produce coarse counts. Same is the case with number of rotors operating in the country. The people who need a change in mind-set are the spinners who have been misusing the cotton produced locally as well as imported. This has also resulted in production of coarse cloth and inferior quality of made-ups.

Duty free import of weaving and processing equipment is a long and outstanding demand of the textile sector. Since most of the equipment is not produced in Pakistan, the government should not charge any duty on their import. This announcement must come in the forthcoming policy. Unless Pakistan improves quality of fabrics produced there cannot be any value-addition by the made-ups sector.

At the same time there is a need to rationalize electricity tariff for the industrial consumers. Some of the mills which have established captive power plants are better off only because the electricity charges are low and uninterrupted supply is also guaranteed. Alternatively, the government should allow machinery for captive power plants duty free as was in the recent past.