RETAINING SHARE IN GLOBAL TEXTILE TRADE
LOST COMPARATIVE ADVANTAGE HAS TO BE RESTORED AT THE EARLIEST
SHABBIR H. KAZMI
Aug 29 - Sep 11, 2011
One of the major reasons for achieving US$25 billion exports during last financial year was quantum jump in Pakistan's export of textiles and clothing, mainly because of hike in international prices of raw cotton.
Lately, cotton prices have come down by about 30 per cent, which raises concerns about: 1) achieving overall export target and maintaining Pakistan's share in the global markets.
The real cause of concern is that extended outages of gas and electricity are marring the prospects. Firstly, capacity utilization of mills has gone down considerably. Secondly, competitiveness of local manufacturers is eroding fast. Added to these are high interest rate and precarious law and order situation in Karachi, the hub of industrial and commercial activities. Therefore, the first step in this direction will be to ensure uninterrupted supply of electricity and gas for the textiles and clothing sector.
The second factor needing immediate attention of the government of Pakistan (GoP) as well as the entrepreneurs is technological obsolescence. In the quota free environment, buyers are free to buy as much quantity as they like from any seller/country. Many of Pakistan's traditional competitors China and India have made huge investment for the deployment of state-of-the-art technologies.
Even Bangladesh, a country which does not produce a gram of cotton, has gone far a head when compared with Pakistan. Local manufacturers have a genuine complaint that if capacity utilization of existing facilities remain far below optimum utilization, how can they think of undertaking balancing and modernization and adding new capacities.
High lending rates have also been a stumbling block. A cursory look at the annual accounts of textiles and clothing companies listed at the local stock exchanges show that they have borrowed to the maximum limited.
Lately, in order to borrow more they issued Sukuk, but most of them have already defaulted or faced delinquency. The problem needs to be explored and require taking immediate corrective step to save textiles and clothing sector from financial shocks. Particularly, spinners have the largest share in non-performing loans.
On the marketing front, local manufacturers suffer from two contentious problems: 1) keen in exporting intermediate/semi finished and 2) failure in achieving higher value addition. Therefore, in the global markets, Pakistan is known as supplier of low quality and low price products.
One of the proofs of this perception is that Pakistan has completely failed in achieving any share of the global outsourcing business. As against this, India has attained the status of preferred destination. Barack Obama, President United States of America, lately visited Indian and termed the country a major trading partner. India also suffered from shortage of electricity and has been blessed by the US to be the recipient of nuclear technology for the civilian use.
As against this, Pakistan faced a disappointing situation when the European Union sought comments from other textiles and clothing exporting countries on granting some concession to Pakistan in the aftermath of devastating floods of August 2010.
It was understood that India would put the highest resistance but Pakistan failed in presenting any convincing argument. In fact, Pakistan's economy has remained under tremendous pressure due to: 1) being the frontline partner in the war against terror and 2) unprecedented deluge breaking record of more than 145 years.
The basic argument followed by Pakistan was based on 'seeking favor' due to distress, whereas it should have taken the pain to prove: 1) enhanced import from Pakistan would not cause 'any material injury' to the domestic industries of the importing countries and 2) the goods being imported from Pakistan are not 'identical' to those being imported from the countries opposing the move.
The old saying proved true 'baggers have no choice'. Therefore, the GoP as well as the exporters have to stand on their own feet without the crutches. Pakistan will have to learn tricks of the trade to operate efficiently and effectively to compete in the global markets, or be ready to face the music.
Previously, many of the issues were swept under the carpet but after the creation of textile ministry and presence of nearly three dozen trade associations, virtually representing even the smallest subsector coming up with a consensus, policy should make the job easier.
The areas of immediate focus should be: 1) improving cotton yield to achieve higher production from the existing area under cotton cultivation, 2) introducing new technologies in ginning for avoiding damaging of fiber during the process, 3) getting rid of producing below 30 counts yarn, 4) replacing power looms with shuttle-less looms, 5) installing modern processing, dyeing and printing plants, 6) extending soft-term loans to small and medium size made-up manufacturers and 7) imparting rigorous training to the operators of different machines being used in the production of made-ups.
It is often said that foreign buyers have stopped coming to Pakistan because precarious law and order situation but does any thing stop the local manufacturers in approaching them?
Those who can afford should participate in leading textiles and clothing exhibitions and fairs. Those who cannot must develop their interactive websites for business to business dealings. However, there is a warning that they should not try to reinvent the wheel but see what others are doing and then add value.
There is also an advice to the government that it should completely ban export of raw cotton, initially for three years and also impose quantitative restrictions on the export of yarn and unprocessed cloth.
Let one point be very clear that exporting cotton, yarn, and unprocessed cloth support Pakistan's competitors, whereas the value adding units have the preemptive right on the locally produced raw material.