Need to change the way business is done at present

Sep 22 - 28 , 2003 


The investment made by the textile industry over the last couple of years has started yielding results exhibited by enhanced exports and improved unit price realization. However, a lot more has to be done, at a faster pace, to retain Pakistan's share in the global textiles and clothing trade. Some of the textile tycoons still do not believe that textile quota regime will be completely phased out at the end of year 2004. Once the quota regime is over, the importing countries will no longer be obliged to buy textiles and clothing from Pakistan. If the local exporters want to retain their share, they will have to compete with other countries on the basis of their ability to deliver what the buyers need, meet the quality standards and make timely shipment. Are they really ready to meet the challenge?

The first and most important factor for achieving competitiveness is cost optimization. The prime factor for attaining greater competitiveness is the cost of cotton. This does not necessarily mean availability of cotton at lower price. Cost optimization has to be achieved through best use of available cotton, improving production and productivity at each stage of conversion from spinning to ultimate production of finished products. Ideally, the spinners should get locally produced cotton but if there is a shortfall in supply, they should make timely arrangements for import of cotton.

The cotton consumption has definitely increased after the addition of new spinning capacity as well as balancing, modernization and replacement (BMR). According to industry experts the spinners need around 12 million bales about 11.5 million bales of locally produced cotton and another half a million imported long staple cotton. It was estimated that the country would be able to produce above 11.5 million bales. However, after the heavy rains, flood in certain areas and pest attack, the quantum of expected production has been reduced to around 11 million bales.

Not only that the expected domestic supply has been reduced, there are apprehensions of shortfall in global supply of cotton. Therefore, the prices of cotton are expected to be higher during this year as compared to last year. However, a positive factor is that the country has ample supply of polyester staple fibre (PSF), The average capacity utilization of local PSF manufacturers is around 70%. They are in a position to meet the additional demand. The improvement in capacity utilization may help in keeping the prices of locally produced PSF below its international prices.

The prices of locally produced PSF is directly related to price of crude oil as two of the basic raw materials PTA and MEG are oil based. The overall consensus is that crude oil prices have stabilized to a large extent and may witness further reduction.

The movement of crude oil prices would largely be dependent on accumulation of reserves before the commencement of winter and uninterrupted oil supply from Iraq. However, analysts are confident that OPEC will keep on adjusting the production quota to maintain crude oil prices within its promised band. Ranging from US$ 20-25 per barrel.

Historically Pakistan has been exporting nearly half of the locally produced yarn. However, the quantity of yarn exported as a percentage of total yarn produced has been on constant decline. The obvious reason for this has been the higher offtake of yarn by local weaving and knitting units. There is also a change in the product mix gradual shift to finer counts and higher production of blended yarn.

However, the growing concern is that the country has not been able to increase the number of shuttle-less and air-jet looms. Weaving is still largely confined to narrow-gauge power looms mostly operating in the unorganized sector. Another factor inhibiting production of superior quality fabrics is inadequate processing (bleaching, dying and printing) facilities. Though, some of the larger groups have made their units fully upward integrated but the number can be counted on the five fingers of a hand.

The GoP needs to address two issues on priority. These are import of fabrics and arrangement of funds for the manufacturers of made-ups, both woven and knitted. The policy planners must follow the policy of Bangladesh. Despite no local production of cotton, Bangladesh has succeeded in increasing its export of made-ups by allowing import of fabrics and utilization its manpower for the production of made-ups.

Globally, production of made-ups is done at smaller units and Pakistan is no exception. However, making the specialized financial institutions i.e., SME Bank and Khsuhhali Bank to play a more active role can only increase availability of funds to these smaller units. It should also be made mandatory for commercial banks to lend a specified percentage of their total advances to SMEs without insisting on collateral.