RIGHT POLICIES FOR THE VALUE ADDING SECTOR
Voice of made-up manufacturers remains weak
SHABBIR H. KAZMI, Special Correspondent
June 18 - 24, 2007
Textiles and clothing has contributed and will continue to contribute a major share to Pakistan's total exports. Though efforts have been made in the past to reduce dependence on this sector, it continues to be the major foreign exchange earner for Pakistan. In the past, the country used to earn the bulk of its export proceeds from the export of raw material or intermediate products and now bulk of the foreign exchange is earned through export of value added products.
The exports of textile and clothing grew by 6.2% during the July-April period. The most prominent among these were export of knitwear (13.9%), readymade garments ( 6.8%), made-ups (8.9%), cotton yarn (4.6%), and towels (2.6%). The exports of other textile products registered a high double digit growth of 17.2 percent. However, export of raw cotton, cotton cloth and bed linen registered a decline.
Pakistan's exports are highly concentrated in a few items namely, cotton, leather, rice, synthetic textiles and sports goods. These five categories of exports account for 77.2 percent of total exports during the first nine months of 2006-07 with cotton manufacturers alone contributing 61.5 percent, followed by rice (6.6%), leather (4.5%), synthetic textiles (3.0%) and sports goods (1.6%). The degree of concentration has changed little from last fiscal year.
Pakistan's exports are highly concentrated in few countries i.e. the USA, UK, Germany, Japan, Hong Kong, Dubai and Saudi Arabia. These countries account for one-half of Pakistan's exports, while the US alone contributes about 28 per cent. Pakistan needs to diversify its exports not only in terms of commodities but also in terms of markets. Heavy concentration of exports in few commodities and few markets can lead to export instability.
During first ten months of the current financial year, the highest increase of 13.9% was registered in exports of knitwear, going up from US$ 1,407.5million to US$ 1, 603.6 million. Along with this 6.8% increase was registered in export of ready-made garments, going up from US$ 1,072.2 million to US$ 1,145.2million. Keeping in view the potential of these sub-sectors the growth in exports has been nominal.
Many experts are of the view that while textile quota regime was in force, exporters used to say that it was a constraint and they would be able to boost export volumes once the system would be phased out. However, empirical data tells the opposite story. Growth has not been exceptional in categories where quota utilization was at the maximum. According to some analysts while China and India have invested heavily in upgrading the existing facilities, Pakistani manufacturers lagged behind. Initially, they did not have faith that the quota regime would be completely phased out. By the time they understood this harsh reality it was too late.
Ironically the government policy has also not been supporting the growth of value-addition industries. In the past, maximum incentives were offered to the spinners and all other value-addition sectors were ignored. It was in thanks to the leasing companies and micro finance institutions that made-up units were able to avail some credit facilities. In the past, banks and DFIs were willing to extend credit of any amount to spinners and weavers but were least interested in lending even small amounts to the manufacturers of made-up garments.
With the creation of Textile Ministry, hopes were high that problems being faced by the value addition sector would be resolved. However, the policies are still tilted in favor of spinners, partly because spinners have are better lobbyists but the highly fragmented made-ups manufacturers have yet to have a unanimous voice.
Another long outstanding demand of made-ups manufacturers is that they should have the first right on locally produced yarn and un-processed cloth. Their complaint is that whenever there is a shortage of cotton, spinners prefer to export yarn rather than selling it locally. In the past, the GoP policies had encouraged the export of yarn and un-processed through export refinance and rebates. However, it is time that some quantitative restrictions should be imposed to contain export of yarn.
Another observation is that most of the spinners still prefer to produce coarse and medium counts of yarn, which in turn keep the quality of locally produced garments low. The perceived need of the hour is that spinners should be producing fine and super fine counts of yarn. The Spinners' plea is that fine and super fine cannot be produced from indigenous cotton. However, many experts do not subscribe to this opinion and state that Spinners have hardly made any effort to upgrade their manufacturing facilities. That most of them are content with obsolete technology. Spinners constitute largest group of bank borrowers and a majority of them have invested borrowings in other higher profit yielding business, ranging from commercial banks to cement companies. Some of the forward looking entrepreneurs have also been investing in upstream industries.
There was a suggestion to create clusters of the ready made garments manufacturers. However, the policy could not be implemented because of more than two dozen trade associations, each claiming to be the sole representative of value-addition sector. Trade associations have grown like mushrooms in the past mainly due to being the manager of one or a few categories under textile quota regime. Though, the incentive is no longer there, these associations continue to offer a platform to the office bearers for 'self projection'.
The issues faced by the value addition sector cannot be resolved unless they form their unified voice. First they have to dissolve various trade associations and then constitute another association where voice of all the stakeholders is heard to come up with unanimous recommendations.