GLOBAL RECESSION TO HIT PAKISTAN'S TEXTILE EXPORTS

ISMAT SABIR
Dec 01 - 07, 2008

The exporters fear that declining demand of clothing and textiles in western world would directly hit the textiles industry of Pakistan, whose 55 to 60 percent exports are textile based.

The textile sector the largest foreign exchange earner is fighting hard to remain competitive, which has been dented by soaring prices of cotton in the local market. The share of cotton is 75 percent in total cost of textile products.

The burden of high utility prices also made it difficult to maintain its share in the international market. The growth in textile exports is likely to slow down further during FY09 due to decline in cotton production in rain-affected areas of Punjab and Sindh.

The local cotton production is likely to be 12.5 million bales for the season 2007-08 as against an official target of 14 million bales owing to bug attack on crop harvestings yields.

The entire cotton economy is gradually slowing down. Phutti stocks with the ginners are piling up; the spinners are forced to sell their yarn at much lower prices. The slow off-take of yarn eroded prices by Rs30 to 40 per bundle. This indicates that there is lesser off-take of fabrics by the value-added apparel and home textile sectors.

The economic recession of US is likely to scale down the textile imports from Pakistan at least by 30 percent this year. Pakistan is one of the major exporters of textile items to the USA. The items that are likely to post a possible decline would be home textile, towels, readymade garments and knitwear and such a huge setback will severely impact Pakistan's economy.

The textile exports have received dual blows, on the one hand the US economy shrank and on the other the cost of production has increased in Pakistan due to increase in utilities tariffs and raw material.

The present scenario shows that despite of enjoying subsidies the share of textile exports in the total exports has decreased to 50.4 percent from 62.6 percent, during the July-August 2008. It is to be noted that the textile tycoons have again successful to burden Rs12 billion on national exchequers under the head of R&D support to bailout their sector.

The industry has not been able to reap the benefits arising out of the depreciation of the rupee by 25 percent and textile exports have registered a negative growth of 4.2 percent in this period while without any government support the share of non-textile exports has increased to 49.6 percent from 37.4 percent-12.2 percent increase during the two months.

The total textile sector exports during July-August amounted to $1.759 billion as against $1.836 billion in the same period of previous year, depicting a reduction of $77.2 million.

The reliance of the local textile sector on textile quotas, duty drawback, refund and rebate culture has made the industry inefficient that has been exposed its capability in the post-quota era.

Normally, depreciation of the currency helps boosting exports in any country, except that dependant on imported raw materials reaps little benefit from it.

In Pakistan, the textile sector commonly uses the locally produced cotton, yarn and other raw materials, i.e., relies less on imports even then it has not increased its exports at par with the last fiscal year. The government argued that utility prices like gas, electricity and petroleum products have increased but are impacting all export-oriented industries, and exports of non-textile sector are growing by 12.2 percent while textile exports showed a decline of 4.2 percent in July-Aug.

The textile industry stakeholders said, spinning, weaving and composite sector are facing problems for the last few years owing to soaring cotton prices, power failure and continuous increase in tariff, shortages of funds and rising interest rates. All these factors increased the cost of doing business, besides the suspension in the R&D fund and support facility has made industry helpless that would ultimately result into a sharp decline in textile exports.

The net losses of spinning sector were Rs474 million compared to profits of Rs249 million in the corresponding period of previous year, while net sales improved by 20 percent.

Weaving sector too remained in losses in the first quarter as net loss of the segment stood at Rs24 million versus loss of Rs5 million in the same period of last year.

Presently, the smaller units are finding it hard to survive in the high cost of business era, as the growing cost of production is hampering the growth as well as the investment prospects in the sector.

The composite sector managed to earn the profits due to export proceeds because of a decline in the rupee value against the dollar. The spinning and weaving sectors had no other option but to incur the losses in present worsening scenario.

The rupee has lost its value over 12 percent against the dollar in August alone, in addition to an 8 percent fall in July. It is currently trading at Rs79 to a dollar against its early July value of Rs62.

Advisor to the Prime Minister on Textile Ministry, Dr. Mirza Ikhtiar Baig prepared his vision for the revival and boosting of textile industry. He emphasised on reduction of cost of doing business in textile sector by enhancing productivity, human resources and skill development.

He suggested that to broaden the export base to non-traditional new markets and to make export of textile products at zero rated in true sense the country needs more market access to sign Free Trade Agreements, Preferential Trade Agreements, Regional Trade Agreements and ROZs. The ROZs have been planned for FATA, Waziristan and other areas bordering Afghanistan.

Exporters criticised government for not announcing an industrial policy despite the forecast that the country's economy is going down. In particular, the future of textile industry is dim enough in the present economic scenario.

Textile exporters demanded that the government should follow the precedents of India and Bangladesh, which are giving maximum concession to their respective textile and other industries. India gives 50 percent concession on duty drawback on garment exports.

The world and regional markets are changing fast while the government policies not yet in line with the trend of these markets are likely to pull the country's exports further down. Widening trade deficit is reaching an alarming level that is depressing textile manufacturers-cum-exporters. They said that the economy is an inch away from collapse.

According to reports, around 0.3 million spindles have gone idle in China and about 0.5 million people lost their jobs in India. Therefore, the looming crisis would have its toll in Pakistan's economy and textile sector in particular.

EXPORTS OF TEXTILE GROUP

(Thousand rupees)

  2002-03 2003-04 2004-05 2005-06 2006-07
Textile yarn and thread 57157159 66895217 64652278 85039423 90772814
(Cotton fabrics woven including narrow of special fabrics) 78665429 98542194 110578735 126195387 122863235
Textile fabrics woven (not including narrow and special fabrics) other than cotton fabrics 37103591 30464303 33232298 16066092 30352052
Tulle, lace embroidery, ribbons trimmings and other small wares 656064 654489 727816 489346 637919
Special textile fabrics and related products 2936617 3305949 2893158 2845321 2005543
Made-up articles wholly or chiefly of textile materials, n.e.s. 128010194 134998151 153573848 188173044 195973426
Source: FBS