Daily Times

Textile industry contributes 57% percent of total export volumes and around 9% of the GDP of Pakistan. It employs almost 40% of industrial labor force both skilled and un-skilled workers. Pakistan Bureau of Statistics (PBS) recently reported a growth of merely 3.94% in First Half of Fiscal Year 2020 (1HFY20) despite of devaluation and incentive packages to textile industry. However, after implementation of second China Pakistan Free Trade Agreement (CPFTA-II) hopes are high for additional exports as out of 313 products added into revised FTA nearly 120 representing this industry. Now when rise in demand side is expected, cotton production for latest season remained devastatingly very low. With high interest rate scenario, increased energy cost and devaluation impact, industries are bound to procure expensive cotton through import which is affecting country’s trade balance as well. To get benefit from CPFTA – II it is important that input cost should be controlled at all levels which is not limited to production of cotton only but borrowing and energy cost as well. As far as cotton production is concerned Prime Minister Imran Khan has taken notice of it however Government and Textile industry should join hands to fund research projects for increased and high yield cotton production. To avoid high cost borrowing other than subsidized Export Re-Finance facility, Textile owners need to inject owner’s equity. It is however a notable fact that energy cost immediately cannot be decreased due to circular debt and expensive electricity available at national grid unless Pakistan may increase mix of renewable energy.

In first six months of fiscal year 2020 (i.e. July to December) Textile exports recorded growth of 3.94% mainly due to orders received from the impact of currency depreciation coming from last fiscal year. According to PBS, the country has exported textile goods of worth $6.91 Billion in 1HFY20 as compared to $6.64 Billion in same period last year. In value added segment, export of knitwear increased by 7.6% followed by 3.2% in bed wear. Export of readymade garments rose by 12.1% however towel segment showed a very little increase i.e. 0.22%. Export of Cotton cloth recorded a decline of 3.7% whereas tents, canvas and tarpaulin witnessed a decrease of 19.7%. As calendar year 2020 is started with implementation of CPFTA – II Pakistan will witness a considerable growth in exports of textile goods to China. In this regard a recent meeting between experts of two countries held in Pakistan where it is agreed to develop a textile cooperation framework under China Pakistan Economic Corridor (CPEC). The Sino-Pak textile cooperation will focus to enhance trade related to value added segment of textile industry i.e. readymade garments. Moreover the framework is established to provide trainings on value added segment, man-made fiber and labor skills. It is further decided that Chinese side will provide technical support along with trainings to accelerate textile sector at large especially through 9 Special Economic Zones (SEZs) under CPEC. Please note thataccording to a report in Deccan Herald, FTA between Pakistan and China has already dented India’s cotton yarn exports after Indian cotton exports declined by a massive 38.8 percent during the first six months of the current fiscal year that ended in September 2019 feeling the heat of conclusion of second phase. There is an import duty ranging from 3.5pc to 5pc on cotton yarns imported from India into major markets like China.

Not only that the yield from Pakistani cotton is not up to the mark. Pakistan needs 15 million bales of cotton to satisfy demand side however it produces 10 million bales on average whereas due to climate change recent outcome further deteriorated to around 8 million bales

Cotton is a basic raw material for textile industry. Pakistan, whose 57% exports are dependent on textiles, does not produce enough cotton to meet the requirement of existing demand. Not only that the yield from Pakistani cotton is not up to the mark. Pakistan needs 15 Million bales of cotton to satisfy demand side however it produces 10 Million Bales on average whereas due to climate change recent outcome further deteriorated to around 8 Million Bales. To meet such huge gap from local supply side Textile industry was compelled to import cotton from other countries on weak Pak Rupee. Here again Pakistan India tensions remained obstacle to import comparatively less expensive cotton from across the border. Therefore government have decided to waive all duties and taxes in import of cotton via the Torkham land border from Afghanistan and Central Asia to meet the demand of the value-added textile sector. The government has in 2014-15 imposed 1% customs duty and 5% sales tax on cotton import. PM Imran Khan showed his concern over low production of cotton despite of his direction to Ministries to increase export no matter what it takes. Therefore he directed an amendment in the Seed Act and urgently re-establishing a cotton committee to boost production in Pakistan. He also asked relevant ministries to give proposals on fixing cotton support price. PM should also look into the matter that previous two textile policies were never implemented in true letter and spirit. It was decided in last textile policy that cotton production will be managed to increase to double whereas Textile industry will create more than 3 Million jobs. It seems that the target was never meant to be met.

World is witnessing new trends in Textile related products. Use of Organic Cotton is increasing by each passing day. Europe, that has given us GSP plus status, is giving huge export orders to countries efficient in Textile for the goods produced from Organic Cotton. Organic cotton promotes healthy soils, healthy ecosystems, healthy people and thriving farming communities and is consequently becoming a key point for fashion brands worldwide. It offers a lower ecological impact, reducing exposure to insecticides, pesticides and other chemicals, than conventional cotton production which involves some of the highest use of pesticides and incurs a heavy water footprint. There is another international platform getting stronger and that is called Better Cotton Initiate (BCI) where more than 1600 countries are registered members including Pakistan. BCI works with members across the cotton supply chain. It works to ensure there is continuous demand and supply of Better Cotton produced by licensed BCI farmers in line with the Better Cotton Principles and Criteria. Present government is very much committed to control trade deficit and to achieve this target it needs to increase exports which mainly comes from Textile sector. If the government wishes to increase textile export it should at least take care of supply side by not only increasing production of cotton but should account for changing trends globally.

The writer is a Corporate Finance Specialist and a Chartered Banker (UK)