TEXTILE INDUSTRY FINDS ITSELF DIFFICULT TO CONSOLIDATE, MAINTAIN ITS COMPETITIVE ADVANTAGE
INTERVIEW WITH A YOUNG ENTREPRENEUR
Sep 15 - 21, 2008
S. M. Naveed is a Director of Din Group of Companies, manufacturers and exporters of quality yarn and leather products. He did his graduation from Boston University USA, with Finance and Economics, as his majors in 1995.
Din Textile Mills Limited founded in 1987 is one of the leading textile spinning mills in Pakistan, with a total of 61,728 spindles and 2400 employees, today, the company has emerged as one of the leaders in value added yarn production in Pakistan.
Din Textile Mills Limited is the largest producers of cotton Mélange yarn and has three modern spinning units. The first two spinning units manufacture and export 100% cotton yarn, 100% cotton Mélange yarn, Cone dyed yarn, Slub yarn and Core Spun Lycra yarn of the highest quality. Din Textile Mills has now started production of 100% Compact yarn at its latest (3rd) unit. There are 26,208 spindles on 26 Rieter K44 compact.
"Our yarn dyeing unit was established in 1999 to dye cotton yarn for creating multitude of shades for producing high quality value added mélange yarn meant for fashion industry. We are an ISO 9002 and ISO 14001 certified company. I am proud to mention that Din Dyeing was the first dyeing unit in Pakistan to obtain the ISO 14001 certification in Pakistan. We are committed to take all necessary measures to minimize adverse environmental impact of our production and prevention of pollution through proper environmental management", S. M. Naveed said.
He said Din produces top quality knitting as well as weaving yarn, known as Nabeel and Din, respectively. The Nabeel brand is exported to Korea, Hong Kong, China, Taiwan and Turkey. At the same time Din Mélange, known for its 100% cotton and poly cotton shades is approved by leading buyers such as Levis, Chaps, Nike, Tommy Hilfiger, Timberland, Colby and Gap. These mélange yarns are available in more than 1000 shades. Din Textile Mills have recently developed a complete variety of cone dyed colors in Cone Dyed Yarn. Din Komfort is the brand of Lycra core spun yarn marketed by Din Textile Mills Limited.
With a history of over 50 years in business, we are now trying to increase our share in the International Textile market. We are already exporting our products to well known Buyers in Europe & Far East, he added.
Following are details of his interview:
PAGE: What are present issues being faced by textile sector in Pakistan?
S.M. Naveed: Presently, most significant issues to be highlighted are, mark-up, power crisis, financial costs which have increased by 300 percent since 2004. Gas prices for captive power generation have been increased 53 percent from Rs 172 to Rs 268 per MMBTU since 2004. Electricity rates have increased by 50 percent with the recent hike of 31%. If WAPDA wants to increase the rate they have to insure consistence supply to the industries. Our industry is run on backup power plants which cost us combine average with WAPDA rate around Rs 7.5 whereas Indian mills are getting consistent supply at Rs 6. Because of further increase in tariff of 31%, it will be difficult to compete in the international market. No doubt, the Textile Industry of Pakistan is indeed passing through a very crucial period due to the prevailing socio-economic and political climate. Over the last few years the textile sector has invested about US$ 6.0 billion in modernization and higher value addition, but due to continuous rise in utility bills, inflation and bank financing rate, the textile industry is loosing share in the international market. The non-guaranteed supply of power by WAPDA (Water and Power Development Authority) is another problem that negatively affects the textile industry. Although, some textile units have built their own energy generating plants to cut cost (these units run on gas), small units production depends entirely on the electricity supply of WAPDA. The textile industry suffered heavy financial losses in Dec, Jan and Feb quarter, because of the inconsistent gas supplies. India has given 4 to 10 percent duty draw back on export of yarn, fabric and made ups, duty-free import of textiles and garments machinery at the rate of 50 percent concession on interest rate for capital investment.
PAGE: What are the solutions to help stabilize the country's textile sector?
S.M. Naveed: There is a fierce competition amongst the low cost producers mostly in Asia to take up the share being lost by high cost European Manufactures. While it was time to increase its share in International Textile Trade, our Textile industry today finds itself difficult to consolidate and maintain its competitive advantage. A crisis worst of its nature in the history is blocking the industrial performance of Textile sector. This has put the country's textile based economy to high level of risks. While the efficient managements are adopting cost effective approach along with stress on diversification of product to absorb the increase in cost and realize better returns, the industry in general has been making losses over the last two years. Short term measure to stabilize the market and to improve performance following demands of the industry deserve following considerations:
a. Running finance on 6% mark up
b. Long term financing for capital investment on 6% mark up
c. Ensure cultivation of BT cotton
d. Export of cotton should not be allowed unless clear position of exportable surplus is determined.
e. Import duty on cotton substitutes viz Viscose and Acrylic which are presently not produced locally may be further reduced to promote diversification of products.
f. The increase in utilities cost is very drastic every year which should increase but at a reasonable rate.
In order to face the economic challenges, S.M. Naveed said, the government should make proper long-term policy with consultation from the business community so that there no disruption takes place while implementing them. The new Pakistani government has a tough task ahead and needs to urgently implement a suitable long-term strategy that provides a level-playing field against their regional competitors, he added.
PAGE: What is the role of textile sector in National Development?
S.M. Naveed: The textile industry plays a pivotal role as a key driver of Pakistan's national economy. Its predominant presence in the economy is manifested in terms of its significant contribution to the industrial production, employment generation and foreign exchange earnings. Currently, it adds as follows:
* 65% of total exports of Pakistan
* 46% of total manufacturing
* 38% of total employment
It is the only industry that is self-reliant and complete in the entire value chain, i.e. from raw materials to value added products (garments, made ups), as a consequence of the growth and development of the Pakistani economy. The development of the manufacturing sector has been given the highest priority since Pakistan's founding with major stress on agro-based industries. For Pakistan, which is one of the 5th largest producers of cotton in the world, the development of a textile industry making full use of its abundant resources of cotton has been a priority area towards industrialization.
In Asia, Pakistan is the 8th largest exporter of textile products. The contribution of this industry to the total GDP is 8.5 percent.
PAGE: What is your opinion about cost of doing business in Pakistan, especially in textile?
S.M. Naveed: Currently, Pakistan's economy is facing four major obstacles such as, rising inflation, deceleration in growth, fiscal deficit and widening of trade and current account deficits.
With the recent decline in textile sector and a record-setting trade deficit, Pakistan's textile industry currently is confronting new economic challenges. The textile industry ó including the spinning, weaving, value-added apparel and made-up and home textile sectors ó had begun to downsize its workforce. A hike in interest rates led to increases in export refinancing, long-term commercial and industrial credit, fuel and power crises in the country, ultimately rising production costs. Pakistani businesses are at a comparative disadvantage in respect of operating costs. For an average textile spinning unit, energy costs have gone up by Rs. 4 million a month and wages by Rs. 1 million a month. Two out of every three spinning units are no longer able to achieve breakeven. Over the past seven years, when lending rates were as low as 3 per cent to 4 per cent, Pakistan's textile industry had invested some $5 billion into expansion and modernization. Interest rates have since shot up to 13 per cent increasing interest costs of an average textile unit by Rs. 100 million a year. For instance, Bangladesh, India and China enjoy comparatively low interest rates than Pakistan. The prevailing rates are as following, 8.5 to 9.0 per cent in Bangladesh, 5.25 per cent in India (market rate is 10.25 per cent, however exemption of 5 percent is provided to the textile industry) and 5.58 per cent in China. Meanwhile, in Pakistan, the last three to four years has seen the interest rates to have risen more than 150 percent, to 13.25 percent. The increase has essentially crippled the small time textiles owner, while seriously hindering growth of the large textile groups. It is now universally acknowledged that global movement of capital and goods, termed as 'globalization', offers immense opportunities as well as serious threats to businesses around the world. Certain elements of operational costs are within the control of a business enterprise, while others are beyond its control.
PAGE: How do you see future of country's textile sector?
S.M. Naveed: World textile market is $450 billion and we are exporting $10 billion which is less than 3% of the world market. Pakistan ranks fifth among world cotton producers and is the 3rd largest consumer of cotton. Therefore, the room for improvement in textile is huge and I see that we hold a very good future in textile. The epic center of the world economy is shifting to Asia and we are very hopeful that the once we have political stability we will again grow at a good rate. It is believed that the volume of textile exports would reach $50 billion by 2016, and those exports could help develop Pakistan's economy.
Naveed said the Textile Sector is considered the backbone of Pakistan's economy. With the recent decline in textile exports and a trade deficit of more than $723 million, Pakistan's textile industry currently is confronting new economic challenges. Pakistani textile exporters are facing steep price competition from manufacturers in China, India and Bangladesh. The industry has potential to perform better. There is a need that both Government and industry should realize that sincere and appropriate approach has to be made to meet the challenges of the present day competitive environment and future where quality of product would be the major aspect to customers' satisfaction besides price and after sales service. Investment in knowledge of markets, training of workers, improvement in labour productivity and product development would be immediate areas for every industry to concentrate. Despite these challenges, there is still hope that the textile industry can rise above current and future challenges and plays an important role in Pakistan's economy.