TEXTILE SECTOR IN THE CLUTCHES OF ECONOMIC DOWNTURN
FOZIA ISHAQUE (Fozia.email@example.com)
Mar 9 - 15, 2009
Textile sector is backbone of the country's export and mainstay of the economy. Out of the total annual export of $18 billion, contribution of this sector stands at $10 billion, which is 60% of the total exports. Not only this sector is the major source of livelihood of nearly 39% of the total population of Pakistan, but its share in country's total GDP stands at 10% manifesting its vital significance. It comprises of 1221 ginning units, 442 spinning units, 124 large and 425 small weaving units and 20,600 power looms operating in the country while there are 50 large manufacturing units of garments and 2,500 small units are working.
Today our textile sector has been confronted with innumerable problems, including high cost of production, energy shortage, high mark-up, and cutthroat competition from other regional players. Global financial crisis has taken its toll on the already vulnerable textile industry and worsened the situation. Economic meltdown in US, UK and other countries has resulted in curtailed export orders leading to lower demands of our textile products in the international market.
The US and EU are major buyers of Pakistani textile products. India and China are also faced with similar crisis because they also mostly export their textile goods to western countries. After the onset of this financial turmoil around 0.3 million spindles have gone idle in China and about 0.5 million people lost their jobs in India. This looming crisis if lasts will devastate Pakistan's economy and textile sector as well. As our textile sector is designed to cater almost 80% of its products to export market mostly to the USA and EU, it is hard pressed after recent economic meltdown in the west, where erosion in per capita income is believed to have drastically brought down consumption level, resulting in closure and shrinkage of giant retail store chains.
As regards Bangladesh, the recent global economic turmoil has emerged as a blessing in disguise for its garment industry, which is growing rapidly despite recession in some other countries with a massive diversion of orders from China. Bangladesh's garment sector has been more than compensated for the initial setback, which impelled the country's 5,000 apparel makers to seek government help when US and European buyers postponed and cut orders in the wake of the global financial crisis. But, a massive diversion of orders from China ñ the world's largest producer of apparel, has compensated Bangladesh for the earlier losses.
Bangladesh has succeeded in creating a niche in the international markets by exporting quality products, augmenting textile exports, and earning rich dividends due to surge in the export of cotton products. According to the United Nations Development Program, Pakistan fared badly in Asia-Pacific region's textile exports compared to non-cotton producing Bangladesh.
In Pakistan, dwindling demand of clothing and textiles in the developed countries has restrained spinning industry from fast off take of raw cotton from the domestic market and is keeping prices under immense pressure. As a matter of fact, the entire cotton economy is gradually slumping and stocks with the ginners are piling up.
Spinners are compelled to sell yarn inventory at much lower prices. This indicates that there is lesser off-take of fabrics by the value-added apparel and home textile sectors. The slow off-take of yarn has eroded prices drastically. Sluggishness in western economies is likely to impart a direct impact on Pakistan's economy where textile is the major contributor in all respects. If the western economies run into deep recession for a longer term, Pakistan would have the impact because most of the textile products are exported to these countries.
The country could witness a severe economic recession if the government does not pay immediate attention to the problems faced by the textile industry. Traders associated with textile sector have complained that the government has not been giving due attention to the textile sector which brings maximum amount of foreign exchange to the country. The new government even though completed a year in office has so far failed to fulfill its promises regarding provision of uninterrupted supply of electricity and gas besides reducing the interest rate.
Persisting power and gas shortages imply that the textile industry has to cut its production by up to 50% over the last several months and has to layoff thousands of employees. The increase in credit cost and withdrawal of energy and fuel subsidies means that textile exports have been rendered uncompetitive in the global markets. Exporters are losing foreign buyers and that has created a plethora of problems for the industrialists, the masses and even the government. It takes years to convince and attract foreign buyers, but the ties are snapped in a moment because of infrastructure issues.
Due to variable mark up rates and slumping exports, textile industry (consuming a fifth of bank credit) has accumulated bad loans of over Rs320 billion. Beside the worsening energy shortages (raising production costs), global recession (reducing exports), and recent crash of the over-valued rupee, fundamentally it is the fruit of lending on floating rates to borrowers lacking financial literacy - another regulation-inflicted misery.
Pakistan is facing fierce competition in the textile sector from Bangladesh, China and India and the government has decided to provide an enabling environment to the textile sector by means of provision of Rs 4 billion research and development fund, already released to the State Bank while remaining Rs 6 billion would also be released soon.
Textile ministry says that induction of modern machinery and technology is essential for the Pakistani manufacturers to maintain a competitive edge in the current economic turmoil. In spite of adverse predictions by economists, it is probable that economic chaos will begin to fade away after 2010; historic realities support this anticipation. There have been incidences at the end of WW-II when practically the whole of Europe and Japan resembled heaps of rubble. They had to start virtually from zero; they were back on their feet by early 1960s. Today's economic mess is hardly parallel to that confidence shattering scenario.
We should also keep in mind that the production and lay out of goods in accordance with the buyers' specifications and at competitive prices remain the prime factor making the products globally acceptable. A country's image also plays a vital role in the buyer's preference and decision to make business ties with the other partner from any particular country.
However, unfortunately in the prevailing climate in Pakistan where genuine democracy, effective institutions, adherence to law and order, transparency in decision-making and higher literacy rate are virtually missing global image is bleak. These factors are also to be reshaped and improved as customers in the international arena choose to buy goods from countries with top rankings based on these parameters.