The export figures could have declined even more had the country not explored more avenues and markets in the EU countries

KHALID BUTT, Bureau Chief, Lahore

July 24 - 30, 2006

The country's garments export target of $3.252 billion fell short by $228 million as the exports reached only $2.753 billion mark during the first 11 months of the last fiscal owing to higher cost of production and aggressive strategy of international competitors.

The country's garments export target of $3.252 billion was next-to-impossible to achieve as it could reach to $2753 million mark in the first 11 months of the last fiscal (July05-May06) and the final figures portrayed a decline of almost $228 million. Rough estimates showed that the average exports of the country were around $250 million per month during the last fiscal, however, it should have been around $271 million every month. The first 11 months figures of the last fiscal should have been nearly $2981 million instead of $2753 million.

Since the garment sector could be divided into two segments - readymade and knitwear - its targets were also set separately last year. The aggregate $3.252 billion target, the major chunk of the exports, was of knitwear garments worth $1938 million, while the readymade garment exports target was set at $1314 million," an exporter said.

In the past 11 months of FY06, readymade garments exports were recorded at $1189 million, showing that the country's exports would have to fill the remaining gap of $125 million in just one month (June06), which seems quite unlikely. On the contrary, the knitwear exports had reached $1565 million during the period and it had to achieve $373 million more in just one month to meet the set target of $1938 million. "The set targets were quite ambitious as the authorities should have realized that the exporters could face afflictions in attaining it amid higher input costs and rising competition in the international market," said a Karachi-based garments exporter who wished not to be identified.

Some of the exporters were of the view that the export figures could have declined even more, if the country did not explore more avenues and markets in the EU countries. "We (Pakistani exporters) have recently explored new markets in Poland and Romania," said the Karachi-based exporter, terming it a 'good omen' for the country's readymade garment exports. He said that since the EU countries are considered among the biggest markets of the world, Pakistan's exporters have been concentrating meticulously on that region and have been striving to get further trade access in that region. Besides that, some 800 members of Pakistan Readymade Garments Manufacturers and Exporters Association (Prgmea) across the country are engaged in exporting locally manufactured garments mainly to European Union (EU) countries followed by United States, Canada, United Arab Emirates (UAE) and Japan.

Pakistan's performance in apparel trade had been the worst in the region despite having competitive advantage as apparel exports from China, India, Bangladesh and Sri Lanka remained higher than Pakistan though the last two countries do not have basic textile units nor they produce cotton.

The World Bank data shows that global trade in textiles and apparel has set off to sixty-fold during the past four decades, from under $6 billion in 1962 to $342 billion in 2004. The textile and apparel trade represents nearly 6 per cent of total world exports. The more labour-intensive apparel export sector has grown more rapidly than textile exports, which has increased 128-fold, textiles 36-fold, whereas apparel accounts for more than half (57 per cent) of the total.

Currently Pakistan has a depressing share of 1.5 per cent in world apparel trade conducted by developing economies. In comparison other countries of the region have larger share in apparel exports. Sri Lanka has 2 per cent share, Bangladesh 3.1 per cent that is double than Pakistan's share. Indian exports are 4.7 per cent of the total $108.1 billion apparel exports by all countries excluding EU, Canada and US. China including Hong Kong has loin's share of 43 per cent of world apparel trade.

The main impact of quota free trade after December 31, 2004, added highest value to textile showing on global apparel trade. Pakistan being the third largest consumer of cotton in the world and fourth largest producer has not made corresponding in-roads in the world apparel markets during the past 14 years. The exporters would have to perform extraordinarily to face the challenges in quota free era. The most disturbing aspect in this regard is that even those countries that do not have a solid textile base have outperformed Pakistan. While Pakistan's apparel exports during the decade increased by 111.6 per cent, China excluding Hong Kong recorded an increase of 273 per cent. Bangladesh increased its apparel exports during the same period by whooping 560 per cent and Sri Lanka showed a healthy growth of 360 per cent in its apparel exports. Both Bangladesh and Sri Lanka were far behind Pakistan in apparel exports. Bangladesh apparel exports are twice than that of Pakistan and Sri Lanka exports 30 per cent more apparel than Pakistan. Indian apparel exports have increased by 138.4 per cent during the same period. Pakistan has advantage of having the cheapest apparel labour in the world with average wage of apparel worker according to ILO was $0.23 per hour. The wages in Sri Lanka are more than two times higher at $0.57 per hour. The Indian and Chinese apparel workers get three times higher wages per hour i.e. $0.71 and $0.86 per hour, respectively.

Despite having state of the art apparel machines, experts pointed out to be better than India, which is fast catching up its own cotton and basic textile units and lowest wages the apparel exporters are most worried about China factor. A latest study shows that the "World Textile and Apparel Trade and Production Trends" discovers that US output fell in 2003 as clothing exports declined, textile exports slowed and imports, especially from China, continued to rise.

EU output fell as retail sales slowed, import volumes rose and export values fell for the first time in years. China alone supplied 96 per cent of the volume rise but Bangladesh, Turkey, Pakistan, India, Egypt and Romania also contributed.

Mediterranean Rim exports stagnated from all countries except Turkey. 2003 was a bad year for South Africa as the hike of the rand hit exports, sucked in imports and depressed output. Japanese output fell across all sub-sectors as exports and retail sales declined, and imports took an even greater share of demand. China continued to progress with output value up 21 per cent as the domestic market stayed buoyant and exports rose by 28 per cent.

But raw material shortages are leading to price rises. In Hong Kong garments did better than textiles as rising exports to Europe offset falling sales to China. Exporters are looking to gain from the Closer Economic Partnership Arrangement (CEPA), China's first WTO-compliant free trade agreement. South Korea's industry declined for a third year but poor quality Chinese goods could persuade buyers to return. Taiwan's exports continued to disappoint and many firms are moving to China. Indonesia still suffers from rising energy and labour costs, poor productivity and unfavorable exchange rates, and some Malaysian firms are moving to China. But Thailand bucked the trend with output up and exports to China especially strong. Vietnam's exports to the USA continued to soar despite new quotas, and interest from US buyers is growing. The increase in credit costs, which consequently increased the financial charges of the mills, has now forced the industry to stop further investment.

On the other hand Pakistan's textile products have become less competitive in the international market owing to tough competition from India, China and Bangladesh. A study carried out by the Lahore Chamber of Commerce and Industry (LCCI) Committee on the WTO has mentioned that the world textile trade is set to increase from the existing $350 billion to $800 billion by 2014 and Pakistan's share in it is 2.7%. India has 4% and China 26% share. According to some estimates, Asia's share in the world textile trade would increase from the current level of 54% to about 75% by 2014.

This scenario provides an opportunity to Pakistan to excel further and its share could reach to the level of 4 to 5 percent, provided that fresh investment continues to take place in the sector. Pakistan textile sector is by far the most important sector of the economy contributing 67 percent to export earnings and engaging 35 percent of the labour force. The entire value chain represents the production of cotton, ginning, spinning, weaving, dying, printing and finally garments manufacturing.

Pakistan has emerged as one of the major textile product suppliers in the world with a market share of about 30% in world yarn trade and 8% in cotton cloth. The value addition in the sector accounts for over 9% of GDP and its weightage in the quantum index of large-scale manufacturing are estimated at one-fifth. Pakistan's policy of free trade in cotton, the liberal import policy for textile machinery and other inputs, and the gradual deregulation of investment approval procedures, all resulted in substantial investment in modernization of the country's textile and clothing sector over the past few years and an investment of $5.5 billion since 1999.

Notwithstanding the increase in the country's textile and clothing exports, Pakistan's share in the EU, the largest market for the country's textile exports, declined by 0.6% to 3% in 2005. Its share in the United States market, which is the second largest market for the country's textile and clothing exports, increased only marginally by 0.2%. In international trade in textiles and clothing while delivery time, reliability, consistency, service, product differentiation, brands and marketing are all very important, price still remains the most critical selling point. Some cost comparisons on garments (2002 Gherzi Report) reveal that Pakistan ranks amongst the high cost producers within the SAARC region. Whereas it is only marginally higher in cost of production and lower in labour productivity vis-a-vis India, it is significantly more expensive and less labour productive when compared to Bangladesh and Sri Lanka. In case of its comparison with China, though the wage levels measure out to be quite similar, the Chinese labour productivity rate enjoys a distinctive edge. The above-mentioned report, using the same or similar types of sewing technologies, compared all the developing countries. European labour productivity was gauged as much greater due to advanced and automated technologies, but this difference then gets far outweighed by hourly labour costs, which are about 40 to 50 times higher. The industry needs to focus on managing quality standards by adhering to ISO 9000 certification in its true letter and spirit and has to ensure that environment friendliness and social accountability concepts are properly maintained throughout the production chain.

WTO rules and regulations place very strong emphasis on social aspects pertaining to the workers in particular and the society in general, and are extremely sensitive to use banned substances (chemicals, dyes, etc) in the manufacturing process. In the next few years, for the Pakistani textile industry to consolidate and for related exports to thrive, a careful government support policy will have to be evolved, which not only enables this sector to ride this critical phase of changing business mechanisms but also at the same time encourages it to be more imaginative and sensitive to the new global requirements.

Modern technology in production will have to be adopted and to cope with this modernization the stock of existing human resource will need to be enhanced and improved. If implemented properly, the improvement in technical efficiency, greater economies of scale coupled with government support measures with regard to interest rates, operating overheads, better physical infrastructure provisions and policy facilitation can go a long way in decreasing the cost of production.

Textile sector experts are of the view that the country needs an investment of $1.2 billion annually if it has to touch the level of $32 billion exports by 2014 from the existing level of around $9 billion. Textile industry experts predict that by 2014, textile-manufacturing facilities in the West will cease totally, forcing them to outsource from efficient areas of the world. If the current share of Pakistan is maintained in the larger pie, there is a potential of textile exports worth $24 billion per annum.

But the way investment in capital formation has reversed in the recent past, particularly owing to the high mark-up rate and non-availability of any thing like India's Technology Up-gradation Fund Scheme (TUFS), experts fear that the country would not be able to meet the target. The Indian textiles and clothing exports are set to touch $15 billion in 2005-06 fiscal year, after fetching $13.04 billion last fiscal, with encouraging trends in the post-quota regime governing global trade in textiles and clothing, particularly from the US and the 25-member EU, the two main markets for India.






Bed wear




Cotton Yarn




Readymade Garments




Over all Tex. Exp




Rice Exports




Petroleum Exports








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It is no surprise that with the TUFS or TUFS-like schemes the Indian textile industry is looking forward to an investment of around Rs 1,400 billion by 2010 and aiming to touch exports figure of $50 billion by 2010. The Indian textile sector is set to double its share in the world textile trade from the present 4% to 8% by 2008.