History of Pakistan Textile Industry

History of Pakistan Textile Industry

Increase in the cotton production and expansion of textile industry has been impressive
in Pakistan since 1947. Cotton – bales increase from 1.1 million bales in 1947 to ten
million bales by 2000. Number of mills increased from 3 to 600 and spindles from
about 177,000 to 805 million similarly looms and finishing units increased but not in
the same proportion. It employs 50% of industrial labour force and earns 65% foreign
exchange of total exports. Pakistan’s textile industry experts feel that Pakistan has
fairly large size textile industry and 60-70% of machines need replacement for the
economic and quality production of products for a highly competitive market. But
unfortunately it does not have any facility for manufacturing of textile machinery of
balancing modernization and replacement (BMR) in the textile mills which need to
think about joint ventures for the production of complete spinning units with china,
Italy and production of shuttle less looms (Projectile) with Korea, Taiwan and Italy.

Cotton textile industry has been premier industry in Pakistan and a major source of
export earning and employment. It also helps in value addition to the manufacturing
sector of the economy. During the six years between 1993 and 1998, production of
yarn (in quantity terms) registered a steady annual growth rate of 302% in Bangladesh
and 405% in India. On the contrary, Pakistan registered a growth rate of 101% per
annum in yarn production although it ranked third after China and India in the global
yarn production during the same six years. In exports, while Taiwan, India and the
republic of Korea registered an annual increase of 18.1%, 27.7% and 5.4%
respectively during 1993-1998, Pakistan registered a negative growth of 4.8% one
important development was that till 1997, Pakistan was the world’s largest exporter
yarn followed by India. However, in 1998, India gained the NO 1 position, leaving
Pakistan at NO 2 In the case of cotton cloth production, a number of Asian countries
have been emerging in the international market to compete with Pakistan. These
countries are Bangladesh, India, Taiwan, Indonesia, Thailand, Turkey, Sri Lanka and
Iran. The latest available date on overall export performance of Pakistan comported
with some regional countries is given in table 1: The above-mentioned presentation in
the context of international scenario highlights the adverse position of Pakistan’s
textile industry when is likely to continue further following the full implementation of
WTO agreement from 2005 onwards when an era of free trade will start globally.
Notwithstanding the above fact, current stagnation in the local textile industry can be
overcome through efforts, consistent with charges occurring in the international
market. It must be appreciated that all successive governments since the birth of cotton
textile industry in Pakistan have been encouraging the textile exporters to penetrate
into new market and also to broaden the base of exportable commodities by including
value added textile goods so that reliance on exports of cotton, cotton yarn and coarse
fabrics gradually become minimal.

Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchants Association
(PCMA) Chairman, Appreciated government’s efforts to encourage new exports and
finding new markets, which need aggressive export marketing. The steps taken on the
monetary front, such as the frequent devaluation of Pak rupee in terms of dollar could
not improve the cost competitiveness of exportable products due to increase in prices
of the local and imported inputs of the local textile industry, and also due to inelastic
demand for the Pakistan’s exports. It has been rightly mentioned in the latest stage
bank of Pakistan’s annual report (FY01) that, “Over the years Pakistan’s exports
receipts have been vulnerable on account of the narrow base of exportable items,
concentrated markets and low value addition ‘this indicated that the growth in the
country’s overall exports, including textile products which contributed more then 60%
of total export receipts each year, could to be related some cosmetic and ad hoc
measure like devaluation of Pak rupee and concession export credits. The first textile
commission, which was constituted by the first material law government in 1960 had,
inter-alia, recommended that an economic size textile unit should preferably have
25,000 spindles and 500 looms. No new mill with only 12,500 spindles and without
looms should be sanctioned. However, no need was paid to the advice by the
sanctioning authorities with the result that an excess capacity had tented to build up in
the spinning sector.

During the period 1973 to December 1992, some 71 spinning units with 1,136, 835
spindles, 6,600 rotors ands 7,329 looms were closed down. In 1992, a foreign
consultant form was hired by the government to look into the stagnating conditions in
the local textile industry. One of the observations of the foreign consultant was
“Pakistan has failed to make real progress in the international market and is being over
taken by many of the neighboring competitor countries. The spinning sector,
traditionally the core of the industry, is already in the crisis with many spindles lying
idle and mills being forced to close. Worse still, this sector will be hit by the projected
decline of its major markets in Japan and Hong Kong in the coming years.”

Another important strategic recommendation given by the foreign consultant very

much relevant to the current
conditions: “It is vital that companies play very positive role in the markets, which
each one having its own marketing activity, whose job is to understand the need of the
customers and the ever changing competitive dynamics of the markets. In order to
improve exports, Pakistan’s Readymade Garments Manufacturers and Exporters
Association (PRGMEA) has urged the commerce minister Abdul Razzak Dawood to
set up an Apparel Board for the promotion of export of woven and kit garments which
fetch US$ 2.5 billion foreign exchange for the country. The industry experts are of the
opinion that in the order to have a strong industrial base, Pakistan economy need
investment upswing. Pakistan’s economic growth performance during recent years has
been dismal: as against the average growth rate of 6.1% in the 1980s, the half and
4.0% in the 2nd half of the 1990s. The major micro-economic instability factors like
high inflation rate, budgetary deficit, continuous depreciation of rupee, economic
sanctions, etc. could not help the investment process. Such an environment cannot be
conducive to investment and growth. Exporters of textile products have found the
target of US$ 10.4 billion set by the government for the year 2002-2003, as achievable
and termed it a realistic approach. The textile sector which constituted 69% of total
export during 2001-2002, believes that enhanced quota by the European Union and
Turkey would make this possible to fetch another US$1 billion this year.

The rise in export of value-added products from Pakistan was another point of
encouragement for the textile sector. “The export of value-added products rose to
57.4% from 53.9% last year-a clear sign that we are moving in the right direction,
“said the Chairman of all Pakistan textile mills association.

The trade policy is considered an acceptable paper, but in the industry does not fine
anything that could lead to a high level exports achievement and remove trade
imbalance.

Pakistan’s textile sector earned US$5.77 billion during the outgoing year, compared
with US$5.577 BILLION OF 2000-2001 indicating a growth of 0.69%. “Textile vision
2005” has identified the present status and opportunities to make in roads in
conventional and hew markets and has developed sectoral recommendations, hence the
sectoral committees set up by the federal textile Board (FTB) would play an important
role be ensuring the availability of quality raw materials on competitive prices and
improvement in designing, and would adopt quality standards and increase
productivity levels. It would attract foreign brands and promote Pakistani brands with
world-class standers.
With such a positive trend, Pakistan’s textile sector is getting rid of old impediments
and gearing itself up for the new opportunities in the new trade regime.

Overview of textile industry

Arshiya Fayyaz
Roll No 528
Overview of the textile Industry:
The textile sector enjoys 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%. It provides employment to about 15 million people, 30% of
the country work force of about 49 million. The annual volume of total world textile
trade is US$18 trillion which is growing at 2.5 percent. Out of it, Pakistan’s share is
less than one per cent.
The development of the Manufacturing Sector has been given the highest priority
since Pakistan’s founding with major stress on Agro-Based Industries. For Pakistan
which was one of the leading producer of cotton in the world, the development of a
Textile Industry making full use of its abundant resources of cotton has been a priority
area towards industrialization. At present, there are 1,221 ginning units, 442 spinning
units, 124 large spinning units and 425 small units which produce textile products.
The industry consists of large-scale organized sector and a highly fragmented
cottage / small-scale sector. The various sectors that are a part of the textile value
chain are: Spinning, most of the spinning industry operates in an organized manner
with in-house weaving, dying and finishing facilities. Weaving comprises of small
and medium sized entities. The processing sector, comprising dyeing, printing and
finishing sub-sectors, only a part of this sector is operating in an organized state, able
to process large quantities while the rest of the units operate as small and
medium sized units. The printing segment dominates the overall processing industry
followed by textile dyeing and fabric bleaching. The garments manufacturing segment
generates the highest employment within the textile value chain. Over 75% of the
units comprise small sized units. The knitwear industry mostly consists of factories
operating as integrated units (knitting + processing + making up facilities). The
clothing sectors both woven and knits are mainly clustering in Karachi– Lahore and
Faisalabad where sufficient ladies labor is available.

High value added products i.e. garments and textile made-ups have over the years
progressively increased their share in the textile export portfolio. Currently these
products constitute 57% of the total textile exports. During early nineties the textile
exports were dominated by yarn and greige fabric which had a share of almost 56% in
the total exports. As far as the markets are concerned 60% -70% of the merchandise is
exported to the USA and the EU.

Problems Faced by the textile industry:

The Textile Industry in Pakistan is fast loosing the price benefit in raw material prices
while the energy cost and the credit cost has increased considerably. Harvest failure
has made Pakistan’s dependence to importing cotton. Pakistani import of cotton
increased by 107 % The Pakistan Textile Industry is facing an uncertain environment.
The increase in input cost of minimum wage by 50 percent, increasing interest rates,
non-guaranteed energy supplies, lack of R&D and reduction in cotton production has
had a negative impact on the industry’s competitiveness internationally. Because of
the entire situation the companies are downsizing, production units are shutting down;
around 500,000 of the workers have already lost their jobs.

After surviving from the load-shedding scenario the industry has yet to survive the
gas loadshedding scenario as on 6th Nov, LESCO has informed the industry that it
would not be to supply power for the additional load and only the sanctioned load will
be supplied during the winter months.

The government is stressing upon the industry for the consolidation of the sector
through mergers & acquisitions in order to effectively face tough international trading
environment, as the international and regional competitive pressures are going to
further build up and it will be large corporate that are more likely to survive. To deal
with this scenario government has approved the textile package, including different
measures including relief in the interest rate for loan to spinning sector and Research
and Development (R&D) support to textile and clothing industry.

Although the textile sector is the backbone of Pakistan’s economy, the Government as
well as the textile industry has kept their focus on conventional textiles, ignoring
technical textiles and knowledge-based products. In many industrialized countries,
technical textiles account for over 50% of the total textile activity, while this figure
for China is 20%.
Advice for New Merchandiser:
Merchandisers are social scientists; they deal with people, their wants, desires, and
reactions under certain conditions. This job requires a person to be on the job, on the
spot to crack the right deals. It involves a lot of determination, patience and an eye for
detail. In today's competitive marketplace, a textile merchandiser must have more
than just the basic information to survive. Anew merchandiser should have the
passion to learn and should have proactive approach towards work. For any
merchandiser the knowledge about the business is very necessary. He should
learn all about the business or it would be difficult to survive. The areas he need to
concentrate on as a new entrant is the knowledge of Company and its Processes,
Products offered by the Company, Related Products, International Markets &
Business Trends/Events, Buyers, Buyer’s Standards, Competitors. With this
information the merchandiser will be able to make informed decisions and it would
also be help in negotiations.

One of the merchandiser's most important responsibilities is maintaining proper

communication both inside and outside the company. For that the merchandiser
should try to sharpen his abilities to establish and build productive relationships, both
internal and external, and it can be prove as to be a plus a point if he manages to
establish key contacts early on. Other than that strong computer skills are really
essential, as all the work is done on spreadsheets and databases. A merchandiser
should have sound knowledge about all the technical aspects of the product.
A new merchandiser should keep a log of all the developments and tasks otherwise it
would be very difficult to coordinate and manage work. Time management is really
vital in merchandizing or it can cost the job. Pressure handling is another important
aspect, instead of panicking a merchandiser should look for best possible solutions to
deal with the situation. The merchandiser should happily put up with the buyers
attitude, as it can result as an increment in his salary.

Merchandiser should also keep an eye on new developments like Categories of New
Developments, New Season Shades, Styles & Designs, Marketing Research, R&D in
Manufacturing Facilities. All these factors combined will enable a new merchandiser
to establishhis repute and impression in the industry he is working and that will set the
tone for his future.

Textiles

The Textile Industry is dominated by Punjab. For example, only 1.5 million people
from NWFP are employed in the Industry. 3% of United States imports regarding
clothing and other form of textiles is covered by Pakistan. Textile exports in 1999
were $5.2 billion and rose to become $10.5 billion by 2007. Textile exports managed
to increase at a very decent growth of 16% in 2006. In the period July 2007 – June
2008, textile exports were US$10.62 billion. Textile exports share in total export of
Pakistan has declined from 67% in 1997 to 55% in 2008, as exports of other textile
sectors grew.

Textile industry still waiting for policy

implementation
KARACHI: Exporters of value-added textile goods face severe liquidity crunch due to non-fulfillment of
assurances of benefits and relief package announced in the textile policy last year.

The 5-year policy was widely praised by the exporters about five months back as it painted a rosy picture
promising lot of benefits and relief for the value added sector.

But as of today exporters of textile goods find themselves into deeper financial crisis not only because they had
been deprived of the incentives and relief announced in the new policy but due to non-payment of routine sales tax
refunds and duty drawback.

Exporters complain that instead of getting the much-needed relief and incentives they are presently being even
deprived of their routine benefits, which have badly damaged their liquidity position and working capital.
“Exports of most of value-added textile goods are declining and our competitors are capturing our share in the
world market but there seems to be no realisation or any sort of concern amongst the policymakers,” Shabir
Ahmed, chairman Pakistan Bedwear Exporters Association (PBEA) remarked.

The much-appreciated textile policy had not been implemented in letter and spirit, while routine nature of benefits
of the past policies such as payment against duty drawback or refunds against sales tax or income tax claims are
also being withheld, he added.

Shabir Ahmed said as a result exporters are faced with liquidity crunch and are unable to even meet export orders
fast diminishing. The enhanced rates of duty drawback are not being made effective, while the difference against
reduced rate of export refinance as committed in the new policy had not been paid so far.

Another major benefit announced in the new policy was with regard to government contribution towards EOBI
against women workers and deferment of payment of mark-up and loans taken by the industry under Long Term
Financing (LTF), Mr Shabir maintained.

After getting identification (ID) from the ministry of textile, he said, exporters submit their duty drawback and
refund claims with banks for onward clearance from the State Bank. But unfortunately, the SBP had been asking
under which account these payments have to be made.

Mohsin Ayub Mirza, chairman Pakistan Readymade Garment Exporters and Manufacturers Association (Prgmea)
said that presently, the industry is on the verge of collapse and many medium and small size units have already
closed down.

He said as the process of merger of sales tax, federal excise duty with income tax department is under way along
with reshuffle and transfer of officers within the Federal Board of Revenue, even the normal payments against
refunds and drawback are being held back.

Mr Mohsin further said that yarn crisis had deepened but there seems to be no government functionary, who is
least bothered about this issue of national importance.

“The negligence on part of policymakers tantamount to destroying country’s economy because when the current
fiscal closes on June 30, 2010, exports of most value-added textile goods will be down,” he asserted.

When value-added textile sector is not getting yarn for onward processing to meet its export commitments, the
industry would ultimately close down resulting in large scale unemployment in the country, he added.

Problems inside facing

Insight into the Problems Facing Pakistan’s Textile Industry-

Abida Mukhtar

April 17, 2008 by Kalsoom

There are currently a multitude of major issues facing Pakistan. Of these issues,
the economic crises are perhaps the most palpable to the average Pakistani. Below,
Abida Mukhtar, a consultant currently based in Lahore, Pakistan, discusses the
current problems with the Pakistani textile industry:

The Pakistan textile industry contributes more than 60 percent to the country’s total
exports that sum around 5.2 billion US dollars. The industry contributes
approximately 46 percent to the total output produced in the country. In Asia,
Pakistan is the 8th largest exporter of textile products. The contribution of this
industry to the total GDP is 8.5 percent. Moreover, it provides employment to 38
percent of the work force in the country, which amounts to a figure of 15 million.
However, the textile industry currently faces massive challenges. The All Pakistan
Textile Mills Association (APTMA) needs to enhance the quality of its products,
upgrade the technology used, and encourage effective Research and Development
(R&D) in order to compete internationally. However, APTMA argues other factors
such as high interest rates and cost of inputs, non conducive government policies, and
non-guaranteed energy supplies hinder their competitiveness.

Critics argue that the indolent attitude of the industrialist in the 1990s has led up to the
current crisis. If the textile industrialist had worked with the government towards
implementing policies that prepared for the current international scenario, Pakistan
textile industry would have boomed. Instead, the industry suffers from ‘severe
technological obsolescence,’ insufficient R&D, falling cotton crop, and an unclear
path forward.

The lack of R&D in the cotton sector of Pakistan has resulted in low quality of cotton
in comparison to rest of Asia. Because of the subsequent low profitability in cotton
crops, farmers are shifting to other cash crops, such as sugar cane. In Punjab alone,
the cotton area sown this season was less by 1.14 percent as compared to the last year.
Textile owners argue that although the Cotton Vision 2015 targets 20 million bales
till 2015, it is an ambitious target as in reality cotton production is decreasing each
year. It is the lack of proper R&D that has led to such a state. They further accuse
cartels, especially the pesticide sector, for hindering proper R&D. The pesticide sector
stands to benefit from stunting local R&D as higher yield cotton is more pesticide
resistant.

Moreover, critics argue that the textile industry has obsolete equipment and
machinery. The inability to timely modernize the equipment and machinery has led to
the decline of Pakistani textile competitiveness. APTMA has highlighted that the
Pakistan textile industry faces tough competition from the Indian, Bangladeshi and
Chinese textile industries and local policies have resulted in Pakistani textiles facing a
critical condition.

For instance, Bangladesh, India and China enjoy comparatively low interest rates
than Pakistan. The prevailing rates are as following, 8.5 to 9.0 per cent in Bangladesh,
5.25 per cent in India (market rate is 10.25 per cent, however exemption of 5 percent
is provided to the textile industry) and 5.58 per cent in China. Meanwhile, in Pakistan,
the last three to four years has seen the interest rates to have risen more than 150
percent, to 13.25 percent. The increase has essentially crippled the small time textiles
owner, while seriously hindering growth of the textile tycoons. This has led to textile
owners accusing the government and banks for maintaining detrimental policies. I
believe that it is imperative that the new government takes actions that have a positive
impact on the industry as textile provides employment to approx 38 per cent of our
working class. A coherent plan should be devised by the Pakistani government that
allows some sort of exemption/concession such as in India; the Export-Import Bank
was set up for the purpose of financing and facilitating the industries, especially
textile.

Industrialists also argue that the non-guaranteed supply of power by WAPDA (Water
and Power Development Authority) is another problem that negatively affects the
textile industry. Although, some textile units have built their own energy generating
plants to cut cost (these units run on gas), small units production depends entirely on
the electricity supply of WAPDA. The textile industry suffered heavy financial losses
in Dec, Jan and Feb quarter, because of the inconsistent electricity supplies. The lack
of production subsequently resulted in the industry not meeting its target for the
quarter, massive financial losses were borne by textile owners and sadly, it hit the
most vulnerable: workers on daily wages. Their frustration was observed recently,
when the WAPDA and MEPCO (Multan Electricity Power Company)offices in
Multan, were torched by daily wage workers, [see related post]. Textile owners as
well as workers passionately assert that the inconsistent supplies have and are
destroying business across Pakistan. They also highlight that the high cost of the
utilities has making Pakistani textile uneconomical in the international market.

All things considered, it is apparent that the Pakistani Textile Industry is facing an
uncertain environment. The increase in input cost of minimum wage by 50 percent,
increasing interest rates, non-guaranteed energy supplies, lack of R&D and reduction
in cotton production has had a negative impact on the industry’s competitiveness
internationally. In order to sustain the Textile Industry, the new Pakistani government
has a tough task ahead and needs to urgently implement a suitable long-term strategy
that provides a level-playing field against their regional competitors.