TEXTILE SECTOR CRISIS
SHAMSUL GHANI (firstname.lastname@example.org)
Dec 28, 2009 - Jan 03, 2010
The current textile crisis has its roots in a number of destabilizing factors. From globalization effects to the international financial debacle; from lack of modernization to hindered domestic supply of pricey cotton; from ever-worsening law and order situation to uncertain gas and power supply; from scarcely available expensive credit to cotton crop uncertainties; from entrepreneurial short-sightedness to low value-addition; from government policy deficit to willful misuse of credit by the sector bosses; from unmanageable input cost to loan defaults every thing seems to give a distorted shape to our all important textile industry.
Textile sector accounting for more than 50 percent of our exports has a total installed capacity of 9,661,366 spindles, 61,608 rotors, 10,452 shuttle-less / air-jet looms and 1,897 conventional looms. This capacity can 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 knitwear, and more than 50 million kg of towels.
Textile sector being the mainstay of our economy engages 10 million farming people and accounts for 40 percent of the industrial labor. We are the fourth largest producer and third largest user of cotton. But, we have relegated ourselves to the 12th position in the international textile trade. We are able to convert one cotton bale to just $1000 against our competitors who are able to eke out up to $4000 from the same quantity of cotton.
The sector, during FY-10 has witnessed intra-sector controversies that emanated from hiking cotton prices. The value-added segment is blaming the spinning segment for excessive yarn exports thereby putting the value-added segment in a straitjacket.
Exports recorded a 30 percent increase during Jul-Sep 2009 vis-‡-vis the same period the previous year. This increase was recorded in the face of a 35 percent drop in cloth export, 15.4 percent drop in bed wear export and 12.8 percent drop in knitwear export.
Government's intention to resolve the issue appears to have taken an ugly turn as APTMA, first time in its history, has threatened to take out a rally in case government places any restrictions on yarn exports. The government is said to have made its mind to impose some sort of restrictions that may range from a regulatory duty to an outright ban of export of cotton yarn. .
The saner circles are of the view that the matter should be left to the demand and supply forces of the market as any regulatory interventions may give rise to international issues. The government measures may be taken as violation of the spirit of free trade agreements.
China, being hit by the crop inconsistency, has been the major importer of cotton yarn during the first half of FY-10. The value-added segment is also being criticized for its kneejerk reaction. Instead of raising hue and cry after the prices shot up, it should have preempted by bolstering its stock positions when the prices had just started to rise in response to changing world's market demand.
The events have come as a fortuitous turn for the spinning sector that has been going through difficult times. If one of the segments of the same sector got a lucky break, the other segment of the same sector should not react in an antagonistic way. Rather it should deal with the change in market conditions in a professional manner. On the other hand, the government would do well to think twice before announcing any damaging policy measures.
The textile sector as a whole has been in the grip of a multifaceted crisis throughout the CY-2009. Ever-worsening law and order situation, restrained power and gas supply, that too at high prices, high interest rate and killing effects of global recession. All have combined together to shatter this sector.
The size of loan defaults triggered by this scenario has given textile sector the dubious distinction of being the single largest defaulting sector. Even greater than the default specter is the prospect of loosing export markets. The Business Recorder reports in its editorial:
"Pakistan's beleaguered textile sector is desperately trying to sustain in foreign markets for one obvious reason: if their presence in foreign markets ends at this point in time, it would be next to impossible to reenter the market at some future date as the gap left by the loss of a market abroad is quickly filled by competitors."
Textile sector's production during the first four months of FY-10 registered drop both in the yarn and fabric segments against a 1.77 percent rise in the Ministry of Industries quantum index of LSM.
PRODUCTION OF COTTON YARN AND COTTON CLOTH
JULY - OCTOBER
. ITEM FY-10 FY-9 PERCENTAGE CHANGE Cotton yarn (Tons) 963,145 984,986 (2.2) Cloth (000 sqm) 338,050 340,442 (0.70)
Announcement of Textile Policy 2009-14 on 13 August 2009 has given this struggling sector fresh hope of survival. How far the announced policy measures will succeed in revitalizing the sector remains to be seen.
Textile sector's performance on stock exchange during CY-09 also remained depressed as it failed to show power to bounce back during stock recovery period. Total market capitalization of the sector increased by just 9.5 percent against a 56.6 percent increase in Kse-100 index.
MARKET CAPITALIZATION OF TEXTILE SECTOR (RS. IN MILLION)
TEXTILE SECTOR SEGMENT
MARKET CAPITALIZATION ON 31 DEC-08 KSE-100 INDEX 5,865
MARKET CAPITALIZATION ON 18 DEC-09 KSE-100 INDEX 9,184
Spinning 20,221 15,491 Weaving 1,240 2,124 Composite 42,702 52,919 Woolen 518 145 Synthetic & Rayon 18,343 20,255 Total 83,024 90,934