WOES OF TEXTILE SECTOR
June 25 - July 1, 2012
The textile industry is the backbone of the economy of Pakistan. It employs 46 per cent of the total labour force of the manufacturing sector. Textile and clothing exports are about 58 per cent of the total exports from Pakistan. However, in recent years, the textile industry of Pakistan is facing crisis such as electricity and gas load shedding, unsatisfactory law and order situation, terrorism and target killing and high cost of doing business. It continues to suffer despite assurances by politicians and bureaucrats.
Furthermore, the effects of unprecedented energy crisis have started appearing on the export horizons of Pakistan. According to a recent figures released by Pakistan Bureau of Statistics, country's textile exports fell by 10 per cent during eleven months (July-May) of the outgoing financial year 2011-12 as they were recorded at $11.273 billion in period under review against $12.472 billion of same period last year.
According to the figures, the product wise details showed that raw cotton exports increased by 31 per cent during eleven months of the outgoing financial year, cotton yarn exports decreased by 19.89 per cent, cotton cloth exports went down by 3.13 per cent, cotton carded exports slid by 61.58 per cent, yarn exports dropped by 18.44 per cent, knitwear export dipped by 13.19 per cent, bed wear 15 per cent and towels 9.51 per cent. Tents export rose by 101.75 per cent, readymade garments exports decreased by 6.45 per cent, art silk and synthetic textile exports decreased by 15.90 per cent, made up articles export (excluding towels and bed wear) was cut by 7.56 per cent and other textile materials exports increased by 4.77 per cent.
The negative effect of the energy shortage and slowdown of global demand are visible in decline in quantity of exports despite increase in the unit values of the majority of items. Due to this phenomenon, the quantum exports of 'high value added' items such as knitwear, bed wear, towels and readymade garments have shown negative growth during the period under review.
Depressing fact is that Pakistan was losing exports in a situation when the regional competitors are growing fast. Bangladesh has almost doubled exports in last two years, and now reached to $23 billion through its readymade garments. Bangladesh's export to EU in 2010 was nearly six billion euro while Pakistan's garment exports less that one billion euro. In 23 garment categories of package, Pakistan had significantly lower average unit price than Bangladesh signifying Pakistani exporters are targeting different market segments than their competitors in Bangladesh.
The readymade garments industry of Pakistan, which was growing at a rapid pace until the recent years, is reported to be continuously nose-diving since 2008-09. The importance of the garment sector in the overall economic perspective is twofold. On one hand, the sector has the potential to be the engine of Pakistan textile export growth, while on the other the sector is the largest source of creating low cost employment in the country at all levels. Time has come that government pays some heed to the garment sector and especially the knit garment sector in future policies.
Along this, the non-performing loans (NPLs) of the industry have reached to more than 30 per cent of its portfolio, which is quite alarming and prime cause of drop in local sales and exports, adversely affecting the viability of industry.
The textile industry in Punjab has also pleaded for immediate resumption of power and gas supply. A confused economic agenda of the central government has pushed textile industry to the wall in Punjab, as it seems that political priorities are dearer to the government than industrial growth. The textile industry is losing fast due to energy shortage.
Despite knowing the fact that Punjab has 54 per cent of the documented weaving industry, 60 per cent textile processing mills, 65 per cent knitwear units and 30 per cent readymade garment producers of the country, the prevailing energy situation is quite awkward. A good number of electricity-fed units are already closed. Cost of doing business has hit through the roof. Meanwhile, the units on gas are under severe threat of disconnection, as the government is mulling to divert gas from textile to IPPs. The textile industry is presently receiving five days a week gas supply. It has already suffered supply disruption for 180 days in first nine months of 2011-12. The gas load shedding to textile industry for one day in a week decreases the production of textile finished products.
Last month, National Assembly Standing Committee on Textile Industry was informed that textile sector would continue facing 500 million cubic feet per day (mmcfd)gas shortfall and face gas load management until September 2012. During the next fiscal year, this shortfall will increase from 500 mmcfd to 700 mmcfd for the textile sector.
The government is diverting gas from textile to feed the thermal generation, as running power plants on imported furnace oil is next to impossible. Resultantly, the industry has little option to grow. Labour is out of job. Bank payments are becoming impossible. Defaults are on the cards and the NPLs are on the alarming rise. The textile mills are unable to carry on 24/7 operations even on expensive electricity against cheap electricity, as the government has withdrawn exemption from load shedding before depriving it from gas supply. Every time, the government vows to remain committed on industrial growth but the monster of energy shortage smiles at government.
This monster is operational in the shape of CNG pump stations. The middle class vehicle owners always look for cheap CNG and the pump owners exploit it very tactfully at the cost of the growth of textile, fertiliser and IPPs industries. The political priorities of the government are stronger than industrial one. But, this is not all. The government has failed to convince the public on industrial growth of country. A communication gap between the two sides has resulted into wrong decision-making followed by inflation, joblessness and dwindling economy. A small effort was recently made by the industry through a print and electronic media campaign. But, an absence of political will to do on the part of government ruined the effort altogether. The industry lost over Rs10 million in a week time on the media campaign, which went down to drain due to inability of the government to cash it.
There are several other internal reasons behind the decline of textile export and more importantly the high financial costs are adding fuel to fire. Frequent price fluctuations create a serious problem for the industry, particularly for those who manufacture garments on orders. As the non-mill sector mostly manufactures cloth against advance payments, frequent price fluctuations make it difficult to comply with the orders. The effect of these fluctuations is, however, less severe for the mill sector as the cloth manufactured therein is usually readily available.
Poor law and order situation also restricted the textile export. Foreign importers of garments are unwilling to visit Karachi to check the quality of garments offered for sale. Instead, they suggest Dubai, Colombo and Dhaka as places for such visits. Due to this situation, industrialists are considering shifting of their production facilities to Bangladesh, Sri Lanka and other countries. Along with this, government increased minimum wage to Rs9000, which increased the fixed cost of the textile finished product. Because of this, the prices of the textile product increased and in this way, the Pakistan textile products lose competitiveness with the neighbouring countries prices. Ultimately, many textile owners shut down their textile mills.
Punjab and Khyber Pakhtunkhwa textile owners cannot compete with Sindh textile owners because the dyes and other finishing material are first transported to Punjab from Karachi port and the finished textile products again are transported to Karachi port for export purposes. Ultimately, double transport costs on the Punjab textile products make them relatively costly.
The railway system in Pakistan is in poor condition because of less availability of locomotive engines, single track and corruption in railways. Railways are not a good option to transport the textile containers to Karachi. Last option to transport the containers is through trailers, which take lot of time in transportation from Punjab to Karachi, and are expensive, increasing prices and shrinking profit margin of textile mill owners.
Earlier, the textile sector enjoyed a pivotal position in the exports of Pakistan. In Asia, Pakistan is the 8th largest exporter of textile products. The contribution of this industry to the total GDP is 8.5 per cent. Textile industry has proved its strength in global market during the last four decades. It has proved its strength even in post quota era by not only sustaining its position but also showing growth during 2005 to 2007, but exports declined to $11.1 billion in 2008 due to financial and economic meltdown globally. For Pakistan, which is the world's 4th largest producer and 3rd largest consumer of cotton, the development of a textile industry making full use of its abundant resources of cotton has been a priority area towards industrialization. However, government failed to address the industrial grievances.
Government should realise that the textile and clothing industry has been the main driver of the economy for the last 50 years in terms of foreign currency earnings and jobs creation. Moreover, it will continue to be an important engine for future growth of the economy. There is no alternative industry or service sector that has the potential to benefit the economy with foreign currency earnings and new job creation, especially if synergy is developed amongst different subsectors and efforts are made to aggressively grow the readymade clothing sector.
Pakistan textile products will have a big potential to capture big share of world trade but there are lots of reasons, which force the industry to step back from using the full capacity of textile machinery to earn more and more foreign exchange for the country. If government does not take immediate steps to counter all these problems, then Pakistan trade deficit will increase further in coming years.
Interestingly, Pakistan is the only regional country where power generation has declined in the last five years, as disclosed by the Pakistan Bureau of Statistics.
According to its report, Pakistan generated only 89.1 terawatt hours of electricity in 2011 against 98.2 terawatt hours in 2007. On the other hand, electricity generation in Bangladesh increased from 31.3 terawatt hours in 2007 to 42.7 terawatt hours in 2011, in China from 3,281.6 terawatt hours to 4,700.1 terawatt hours and in India from 797.8 terawatt hours to 1,006.2 terawatt hours under the same period. Since 2007, India added over 300 terawatt hours, Indonesia 40 terawatt hours and Malaysia 12.5 terawatt hours of electricity, while Pakistan reduced its generation by 9.1 terawatt hours from 2008 to 2011.
After taking oath, one can expect that Prime Minister Raja Pervaiz Ashraf tries to remove the label of "Raja Rental", which is associated with him due to incompetence and corruption found in the rental power projects during his holding portfolio of ministry of water and power in the present government. His incompetent handling of the power sector in the first half of this government's tenure has not been forgotten (despite his successor's lacklustre performance) and for his alleged corruption in the infamous rental power projects, about which the nation was promised that it would end all energy woes, but achieved nothing.
It is urgent that the problems being faced by textiles and other industries as mentioned above are solved by the government on priority basis, so that the industries continue to contribute to the economy.
Already the demonstrations against load shedding are turning violent. Before the situation gets out of control, sincere measures and planning to address the crisis from all ends is the need of the hour. Urgent and immediate steps need to be taken to tap new and sustainable energy sources including coal, wind, solar and even nuclear power to resolve this crisis.