Daily Times

Textile industry contributes 57% percent of total export volumes and 8.5% of the GDP of Pakistan. Annual Export figure closed last fiscal year at$25 Billion out of which $13.53 Billion was from Textiles. According to Textile Policy 2014-2019, Textile exports to increase by double i.e. from $13 Billion to $26 Billion, which could have created some 3 million additional jobs. Government also extended export package and preferential interest rates for working capital exigencies and capital expenditures related to the industry but target never achieved.In this period, Bangladesh and India showed growth trends in export of textile products and the same can be observed to date also. Though textile policy has aggressive targets but it seems that the policy makers failed to address the real problem that eventually resulted failure of achieving it.

One big issue was exchange rate which kept under control by last government artificially due to which Pakistani Exportable Products remained expensive internationally until devaluation started. Secondly, input cost increased considerably related to procurement of cotton and energy whereas this phenomenon seems never ending. Last but not the least, Textile Industry itself hesitates to grow into manufacturing of Value Added products which is evident from percentage of value added output increasing as compared to basic textile product i.e. Yarn. Now, after devaluation of Pak Rupee, exports from this sector at large will be increased in short term but effect of devaluation will be offset by increase of other input costs in longer run. Previous government has controlled Pak Rupee devaluation by injecting foreign loans which resulted influx of imports into Pakistani markets and made our exportable items expensive internationally. They also took heavy loans from local Banks and increased government spending which increased Money Supply. Due to this cosmetic positive scenario of economy where inflation was around 3%, SBP discount rate was too low resulting lower Finance Cost of Businesses.

On the contrary present government aggressively devaluated the local currency by not taking more loans for controlling exchange rate artificially. This resulted Pakistaniexportable products cheaper in international market which attracted future orders in return. But on the other hand interest rates increased almost double which increased finance cost accordingly. Due to massive devaluation, cost of producing energy increased together with cost of spare parts for maintenance and dyeing chemical for value added products. Moreover, cotton price in Pakistan is too high if it may be compared to regional cotton producers like India owing to the fact that Pakistan lags behind cotton producing targets each year.

Recent Trade War between USA and China together with protest against low wages in Bangladesh is blessing in disguise for value added segment of Pakistan, as buyers of Textile products across the world are thinking to diversify their supplier countries

Pakistan needs 15 Million Bales of Cotton for Textile consumption whereasitproduces only 10 Million Bales on average. In next 5 years demand will surge to 20 Million bales which require special attention towards related agriculture sector including but not limited to availability of quality seeds and fertilizers. Energy cost is a major input cost of per spindle work for producing a yarn of any count. Reportedly, subsidized electricity rate of Rs.10-11 per unit is available to Export based Textile Units however this is almost 30-35% of per spindle per month cost of production which is around Rs.30 (This varies with economies of scale). This means that previous government rhetoric of providing electricity doesn’t suits to manufacturing units which require cheaper electricity that could have been produced from increasing renewable energy sources specially from Water, Wind and Solar.

It is not justifiable to put all responsibility on government for the performance of Textile sector. Government is already providing Billions of Rupees through export Package, duty draw backs, relaxation for import for export purpose, tax rebates, special electricity rate and preferential interest rate regime for working capital requirements and to import machinery. Yet the fact is that despite of this support Textile industry is not able to increase its export share which requires some effort from the industry as well. First of all, Textile owners need to inject further equity by raising capital with a mix of using banking credits in high interest rate scenario. It will reduce their finance cost which will result in bottom line to grow.Secondly, Textile managers should focus on value added products which have a larger market with built in high marginsinstead of making basic products and depending on other income through investing activities. Last but not the least, Textile industry can encourage and support farmers to grow high yield cotton together with Government of Pakistan through helping farmer to procure better seed and fertilizers.

Recent Trade War between USA and China together with protest against low wages in Bangladesh is blessing in disguise for value added segment of Pakistan, as buyers of Textile products across the world are thinking to diversify their supplier countries. Though Bangladesh is a major buyer of Yarn from Pakistan and slowdown in their economy can affect export of this basic textile product yet this is a high time for shifting towards value added products to get more share of export with better margins.

Moreover Free Trade Agreement with China is being revised through which additional export of Textile Goods to brotherly country may bemade. In longer run cash subsidies are not sustainable for economy which has huge loans to repay. The government role here should be like a facilitator throughout the value chain while the entrepreneurs should put effort to enter into those segments of this value chain which can bring business with good margins. This value chain starts from production of cotton to final value added textile product where combination of Government Support together with efforts from Entrepreneur to come out of its comfort zone, that is to be heavily dependent on spinning units, can fetch results as stated in Textile Policy.

The writer is an Economist, Columnist and a Chartered Banker UK