NEW OPPORTUNITIES & CHALLENGES
By SHABBIR H. KAZMI
Sep 19 - 25, 2005
Contrary to the general perception textiles and clothing exports from Pakistan have grown, both in terms of quantity and value, in the post textile quota regime. However, many analysts are of the opinion that the country still has a very small share in the global textiles and clothing trade. They are also of the view that the country can double its textiles and clothing export by achieving higher value addition. This is not day dreaming but a conveniently achievable target provided all the stakeholders work together and play their due role. Providing incentives is not the solution but creation of an even playing field and removal of the irritants are certainly legitimate demands of the industry.
Pakistan is often termed 'Cotton Country' because its economy and exports are heavily dependent on the silver fibre. For decades textiles and clothing export continue to account for nearly 60% of total exports. However, bulk of the volume still consists of either semi finished products (yarn, unprocessed or processed cloth) or low value-added items. The situation may have improved during the last couple of years but it will not be wrong to say that the entrepreneurs have not been able to exploit the real potential. Export of textiles and clothing of some of the countries, which do not produce even a kilogram of cotton, are far higher than what Pakistani exporters often boast to have achieved.
To understand the real potential of the country each major step of value addition has to be analysed. Cotton is the basic raw material for the industry. Pakistan is among the top five cotton producing countries of the world. However, crop size varies from year to year. It may be true that being an agricultural product the output is dependent on availability of water, favourable weather conditions and intensity of pest attack. During last five years cotton output has ranged from 10.5 million bales to recently achieved record production of 15 million bales. However, many agronomists are of the view that the country is capable of achieving double the present output without increasing area under cotton cultivation. The average cotton yield in Pakistan is very low compared to the yield achieved by other leading cotton producing countries.
They also say that the quality of locally produced cotton is reasonably good, but improper storage, contamination and damage of fibre during ginning makes it much inferior and unsuitable for producing even yarn of medium counts. Though, a lot has been said about producing contamination-free cotton, the ground realities remain the same. Unless the country is able to produce contamination-free cotton and also save the fibre from getting damaged during ginning the unit price realization of made-ups cannot be improved. Interestingly billions of rupees have been invested in spinning, weaving and processing but ginning factories are still the same, devoid of modern technology.
Lately, the largest investment has been made in the spinning sector. Some of the critics are of the view that once all the planned spindles and rotors become operational there will be glut of yarn in the country. Others say that glut situation can arise only if the capacity utilization is at optimal level. However, this may not be possible due to mismatch in locally produced cotton and its demand. If cotton production is not increased, mills will be forced to import cotton to keep these spindles and rotors operational. Therefore, the most important thing is to increase cotton production in the country to meet the enhanced demand for cotton.
Many sponsors of spinning units say that they have not based their investment on locally produced cotton alone. They aimed at using indigenous cotton for producing coarse and medium counts and using superior quality imported cotton for producing fine and super fine counts of yarn. As such the producers of fine and super fine counts yarn import cotton and the quantity will increase once the additional capacity becomes operational. They also intend to use large quantity of polyester staple fibre (PSF) for producing larger quantity of blended yarn. A positive point is that the local producers of PSF are also busy in expanding the capacity to meet the enhanced demand.
Previously PSF was considered a substitute for cotton. However, now PSF complements cotton in achieving higher production of blended yarn. With the unprecedented rise in crude oil prices, PTA and MEG prices have also gone up. This has resulted in higher cost of production of PSF. Spinning industry around the globe is facing the same situation and Pakistan is not an exception. However, local industry is of the opinion that certain government policies result in higher cost of both locally made and imported PSF. On top of this there are complaints that manufacturers have formed a cartel, which decides the sale price of locally produced PSF. At times prices of indigenous PSF is higher than the cost of imported fibre. Many sector experts are of the view that PSF production in the country has grown substantially due to full support of the government. PSF manufacturers have also been playing their due role by increasing the supply as well as maintaining superior quality standards. There are complaints that product diversity is still limited but unless the demand for the required specifications attains economically viable quantity, production of specifications with low demand will not be possible.
Many sector analysts are also of the view that manufacturers should produce only those specifications, which enjoy the highest demand. They also advise the manufacturers to concentrate on domestic market rather than trying to sell their output in the global markets. However, some analysts are of the view that manufacturers must try to compete in the global markets, as it will help them in improving the quality and provide the impetus to attain greater competitiveness. It would also be beneficial for the local textile industry, enabling them to produce better quality fabrics and made-ups.
Spinning is the backbone of textile industry. A review of the spinning sector shows that huge investment has already been made and more money is being invested. Some critics are a little sceptical about the rationale behind making such huge investment. However, some industry experts say, "Despite tall claims spinning sector has been lagging behind, both in terms of product diversification and quality (fineness of count)". Saying this they also say, "We see a complete change in the mindset. With the entry of younger generation there has been a paradigm shift. The forward-looking entrepreneurs are not opposed to opening up of Pakistani market for other countries. However, they are right in demanding level playing field and removal of the irritants."
If one can recollect, in the past textile industry was always complaining about high electricity tariff and frequent disruption in supply. These complaints may still be a ritual. Instead of complaining they are taking corrective steps by opting in-house power generation. They are also willing to buy local cotton at its international price but demand no restriction on import and export of cotton. Some of the people still say that Pakistani mills have the first right on the indigenous cotton but others are of the view that if the indigenous cotton is of inferior quality as well as contaminated, it is not advisable to use it.
Weaving is still concentrated in unorganised sector. This is because at one stage sponsors preferred to establish standalone spinning units. On top of this high tariff on imported looms proliferated use of locally produced narrow gauge power looms. Lately, sponsors have once gain shown interest in establishing composite units, but this is common only in export-oriented entities. Bulk of the fabrics being sold in the domestic market is weaved on power looms. This fabric is inferior to the one produced on shuttleless and power jet looms. However, exporters of lower value-added products use it and the result is lower unit price realization.
Lately, some of the enterprising sponsors have started establishing upward integrated units. These units comprise spinning, weaving, processing and made-ups manufacturing facilities. The sole purpose of establishing such units is to have strict quality check at each level. However, the number of such units is still too small. Companies drawing bulk of their revenue from exports are mostly establishing these units.
Made-ups units, both woven and knitted, are fragmented and most of them fall in the category of cottage industry. They contribute bulk of the made-ups being exported. However, their own exports are limited because large exporters outsource their jobs to these entities. They mostly suffer from liquidity crunch as their payments are often delayed. With the passage of time, opening up of micro finance institution and phasing out of textile regime, some of these have also started exporting at their own.
While the quantum of foreign direct investment and number of joint ventures is on the rise in the country, textiles and clothing sector has not been able to attract any significant foreign investment. The government as well as textile industry must try to find the reason for this lack of interest of foreign investors.
According to a textile sector expert, "About quarter of a century back most of the developed countries had decided to pull out of textiles and clothing manufacturing business and started outsourcing. However, during seventies, eighties and nineties the country suffered from some peculiar problems, which kept foreign investors away from Pakistan. However, neither the government nor the industry has succeeded in projecting Pakistan's correct image. A lot of direct foreign investment has come into telecom, oil and gas and other sectors, but textile sector has been failing in attracting any significant investment."
According to another analyst, "Most of the developed countries have decided against making any investment in spinning, weaving and processing. However, they are most willing to outsource production of made-ups to developing countries but Pakistan has not been able to get such contracts." Two key factors are said to be responsible for this import regime and low level of skill of workers of made-up manufacturing units.
Made-ups manufacturing requires a lot of imported accessories. However, the import regime was biased against such import. The government policies discouraged the local manufacturers to enter into outsourcing contracts. However, the government policies have become a lot more conducive lately and it is an appropriate time to solicit such contracts.
As regards availability of skilled manpower the situation has not improved a lot, particularly regarding designing. A number of designing institutes, some sponsored by the government and textile associations, have been established in the country but they have been failing in training the required number. It is also said that per hour wages are low in Pakistan, but is also true that output of these workers is also low.
A visit to garment manufacturing units operating in Karachi shows vast disparity in quality of facilities as well as skill level of workers. Some of the units have created state-of-the-art facilities but a large number of units suffer from lack of basic amenities. Therefore, there is a lot of difference in output of workers. If the speed of machine is slow and there are frequent interruptions in electricity supply workers should not be held responsible for poor efficiency. The difference in level of skill of workers is also due to remuneration. Skilled workers would never be interested in working for units paying dismal remuneration. Therefore, units paying dismal remuneration have to hire semi skilled or unskilled manpower and the ultimate result is inferior quality of output and poor efficiency.
In the past it was often said that textiles and clothing sector suffers due to absence of Textile Ministry in Pakistan. With the establishment of Textile Ministry it has become imperative for all the stakeholders to work jointly to achieve a target of US$ 20 billion export of textiles and clothing. However, this requires comprehensive study of the textiles and clothing sector to find out strengths and weaknesses of the sector and impediments affecting performance.
This should not be too cumbersome because more than two dozen textile associations and Council of Textile Associations is present in the country. Cotton growers also have more than one forum. Textile Ministry should assign the responsibility to each association to come up with recommendations. On the basis of these recommendations a new Textile Vision has to be developed. Textile Vision 2005 could not help in achieving the target only because it over played the role of spinning and grossly ignored the made-up sector. The new policy should assign the top priority to made-ups manufacturing and then come up with measures to enable all other sub-sectors to meet its requirements.
The key areas needing immediate attention are 1) increasing cotton production, 2) ensuring contamination-free cotton, and 3) avoiding damage of fibre during ginning. All these will help in improving quality of yarn produced in the country and result in production of superior quality fabrics. Weaving and processing sectors also need complete transformation, through induction of latest technology. Customs and tariff regime has to be modified completely for ensuring duty free import of fabrics and accessories for the made-ups.
There is also an urgent need to change the perceived image of Pakistan. The ground realities are not as harsh as being portrayed. Image cannot be changed by holding investment conferences. Export Promotion Bureau has to ensure participation of local exporters in all the leading fairs and exhibitions. Exporters also have to play their role by supplying superior quality products at competitive rates.
Last but not the least, the number of proceedings for imposition of antidumping and countervailing duties will be on the rise. Therefore, exporters have to be fully aware of their rights and responsibilities. Pakistan grossly lacks expertise to respond to call notices. Till today the country has to depend on foreign attorneys. Why is topping from developing the expertise locally?