Pakistan has to retain its competitive advantage

SHABBIR H. KAZMI, Special Correspondent
Feb 12 - 18, 2007

Textile industry is once again trying to convince the policy planners that it has invested millions of dollars but the fast changing global scenario is shattering its dreams. One of the reasons rendering Pakistan's textile industry incompetitive is said to be the rising cost of doing business. However, many analysts are of the view that the myopic vision of the industry is responsible for the worsening situation. They say that the industry has invested mainly in spinning and grossly ignored other value adding sub-sectors, particularly made-ups. Another factor impacting the industry is the availability of cotton and its prices.

A review of the export data for the first half of current financial year shows that while imports are growing at 10%, exports are growing at less than half of this rate. This is widening trade deficit and also causing current account deficit, which in turn is putting pressure on exchange rate. However, the data released by the State Bank of Pakistan shows that the country's liquid foreign exchange reserves have once again surpassed US$ 13 billion mark. According to details the reserves amounted to US$ 13.253 billion on 3rd of this month. Out of this US$ 10.845 billion were held by the central bank and US$ 2.408 billion by the banks. This improvement in reserves may ease pressure on exchange rate but mounting trade deficit demands taking immediate steps to accelerate export growth.

One of the factors affecting Pakistan's export of textiles and clothing is price of cotton, which is dependent on demand and supply. With additional spinning capacity coming online cotton demand is on the rise. Therefore, the industry has to import superior quality cotton for achieving higher value addition. The revised cotton production target has been fixed at 12.5 million bales. However, actual production may range from 11.8 million bales to a maximum of 12.3 million bales. Analysts are of the view that the country may not witness exceptional cotton inflow experience of last year. They believe cotton availability figures provide no reason for prices to shoot up. It is estimated that the mills carried 2.7 million bales last year and also imported about 2.5 million bales, which should be sufficient to meet enhanced demand of 15.5 million bales for the full year.

According to a report textile exports during first quarter were a bit dismal but second quarter must have been a pleasant surprise. After a poor performance during July-October, textile exports rebounded in a big way registering 27% YoY increase in November followed by another 14% increase in December. However, exports during July-December 2006 registered 4.3% YoY growth. The improved export performance is attributed to government's subsidy package offered to the industry. It also sets off a flurry of conspiracy theories ranging from misstatement of export figures and grey channel receipt of export revenue to deliberately hoarding receipts until the government actually caved in by offering a subsidy package. Certainly, there is plenty to talk about. While Pakistan bemoaned the decline in exports, the US recorded 10.5% increase in textile imports from Pakistan and the EU recorded 4 to 4.5% growth in imports from Pakistan. Similarly, Large Scale Manufacturing data showed a pretty healthy increase in textile production (yarn +13% YoY and fabric +14 YoY).

Setting aside controversy, there are more practical reasons behind the sudden pick up in textile exports. One tend to look at the base effect in first quarter where China, as a result of mishandled quota allocation, ran out of quota in the corresponding period last year to Pakistan's benefit. This explains the dip in the quarterly exports as China reclaimed its rightful share of orders. At the same time, political unrest in Bangladesh in the last couple of months hit the country's productivity as well as order flow. The benefit to Pakistan has been in the garments and knitwear sectors where November and December exports recorded 15% and 39% increase, respectively, after declining by 7% and 2% over the first four months of the current fiscal year.

According to Chairman KATI Masood Naqi, unless the issue of rising cost of production is resolved Pakistani exporters would not be able to compete in the global markets. Even countries like Bangladesh and Sri Lanka are eroding Pakistan's market share. On top of this arrangements under GSP-Plus are rendering 'Made in Pakistan' products incompetitive in the European markets. Some of the countries from Eastern Europe, now part of European Union, are given preference due to proximity and above all being the member of the union.

According to Shabbir Ahmed, a leading exporter of towels, the government has to come up with multi-tier strategy to retain Pakistan's share in the global markets. In the first phase the strategy should be to consolidate Pakistan's share and in the second phase enhance it on solid footing. Pakistan has to attain greater market access in the US and the EU. Pakistan also has to seek some incentives to avoid adverse impact of GSP-Plus. Having said this Shabbir is of the view that real benefits cannot be achieved without ensuring competitiveness of the locally produced goods.

Newly elected Chairman of SITE Association Imran Shaukat believes that unless electricity and gas tariffs are made realistic and import duties fixed properly to facilitate local industries, Pakistani exporters would not be able to compete in the global markets. He went to the extent of saying, "We are not demanding incentives but the basic facilities and a regime to protect Pakistan from becoming a dumping ground."

(Million US$)


JUL-DEC 2006

JUL-DEC 2005


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