TEXTILE SECTOR'S WOES
SHAMSUL GHANI (email@example.com)
May 12 - 18, 2008
Our textile sector's woes are multi dimensional. From globalization threats to lack of modernization, from high cotton prices to low product quality, from crop uncertainties to entrepreneurial short-sightedness, every thing seems to fit in to have a derailing influence on the ailing sector.
With a capacity to spin more than 1,500 million kg of yarn, finish 4,350 million square meter of fabric and produce 670 million unit of garment, 400 million unit of knit-wear in addition to more than 50 million kg of towels, the textile sector eyes an export target of $1.3 billion for the current fiscal year. Given the rising prices of cotton, and economic slowdown triggered more by the political upheaval than anything else, the export target may not see the light of the day.
The cotton and energy crises have substantially increased the input cost rendering the end product uncompetitive in the highly competitive international market. Lack of modernization profoundly reflects in the poor product quality. Fresh investment of $ 4 billion during the last few years has not been able to set the textile wheel in motion. The recently held Megatex, 2008 exhibition in Karachi has amply demonstrated textile sector's potential to deliver. The proposed creation of five industrial zones in Karachi exclusively for setting up textile units is a big step in the right direction. What is needed is the entrepreneurial will to work for the uplift of the sector.
COTTON AS RAW MATERIAL
The textile sector's decades-long dependence on the size of cotton crop warrants economic and technological reforms to follow in the footsteps of the modern producers. Leaving this all important crop at the mercy of changing climatic conditions in a passive manner is an economic crime. The use of latest farm technology, phased enhancement of cultivable area, utilization of good quality seed and pesticides combined with the modern farming techniques can take care of the uncertainty factor and the crop size can be estimated in advance to a reasonable accuracy. The existing acreage of 8.03 million acres and the per acre yield of 740 pounds are far away from the world standards.
Cotton's contribution to the GDP is 1.8 per cent. Its conversion first to different grades of yarn and then to the fabric makes it a raw material of high value-addition. During the financial year 2005, Pakistan produced a record 14.3 million bales. We saw a drastic fall in the crop size during the last two financial years when annual import averaged at 2.25 million bales. The decline in cotton production during the current year is, as usual, attributed to pest attack. India, farming under the same climatic conditions is estimated to produce 31 million bales during the current financial year as against its domestic requirement of 25 million bales, thereby having an export surplus of 6 million bales.
Pakistan is the 4th leading cotton producer after China, India and United States, with an almost constant cultivable area and a markedly low per acre yield.
United States and EU countries allow heavy subsidies on cotton to keep in check its prices and to provide sustenance to their farm sector. On the other hand, the loaning agencies put pressure on developing borrower countries, like Pakistan, to reduce dependence of agriculture on subsidies. Under the cover of high subsidies, the cotton prices moved up quite slowly as against other world commodity prices. The prevailing cotton prices of Rs.3,500 to Rs.3,600 per 40 kg coupled with the skyrocketing oil prices have put a big question mark on the already dubious viability of our textile sector.
Cotton Textile export which accounts for 60 per cent of the total export, has been showing a declining trend with an average annual decline of 4 to 5 per cent during the last two years. For a consistent growth, our textile sector requires 15 to 16 million bales every year. The present estimated production of 11.5 million bales falls terribly short of the said target. The shortfall has to be met through import. The value addition on imported stuff produces little or no profit margin for the spinners making their survival a difficult proposition.
USE OF IMPORTED TEXTILE MACHINERY
Almost all textile machinery is procured through import from European and developed Asian countries. Government's efforts to go for import substitution in a phased manner have been blocked by the textile industry. A number of private and public sector companies set up to produce basic components of textile machinery have been closed down. Textile Machinery Company set up at Karachi, to produce automatic cone winders, Spinning Machinery Company set up at Lahore to produce spinning frames, the nationalized Pakistan Engineering Company Limited (PECO) that was producing power looms, are few examples. These companies, to start with, were producing and marketing basic components of comparable quality at competitive prices. The big wigs of the industry never looked interested in supporting the domestic textile engineering companies with the result that a lobby was created in almost all the governments. This lobby, besides denying any tariff protection to the local engineering industry, resorted to policies that encouraged import of all types of textile machinery.
FINANCING FACILITIES TO THE SECTOR
How unfortunate it is that we lack the basic entrepreneurial qualities that decree money-making through the established route of value addition. We have become a herd of traders-turned-industrialists, ready to pounce at any opportunity to make money from money putting aside our core business priorities. The textile sector blames the State Bank of Pakistan for blocking financing facilities to them. The SBP governor retorts that the textile sector has been the biggest beneficiary of SBP subsidized loaning having availed, during the period from 2003 to 2007, low rate refinance to the tune of Rs.900 billion. She further said that out of a total export refinance of Rs.273 billion extended by SBP and commercial banks during the first three quarters of FY 2008, the textile sector alone utilized Rs.176 billion. One may note with interest that the export refinance rate is 7.5% as against the normal commercial lending rate of 4 to 5 (or even more) percent over and above the six month KIBOR ask rate of 10.4 percent.
We all know how the money meant for productive activities was diverted to speculative sectors during the last 5 years. Both corporate and financial sectors were involved in this dirty business. The same SBP governor hinted last year that a possible misuse of the low cost export refinance facilities could not be ruled out as this money did not appear to boost country's export.