Free-fall continues: a review of Pakistan’s textile exports for 1st Quarter 2009-10

Provisional first quarter figures for the fiscal year 2009-10 of Pakistan’s textile exports shows no letup as free-fall continues. The declining trend is really alarming because exports continued to decline in the same period (Jul-Sep) last year and in comparison current years’ figures are really dismal.

Overall, textile and clothing sector shows a decline of US$ 316.5 million (-11%) in the first three months of the current fiscal year as compared to the same period last year.

Raw cotton exports continue to increase, which registered an increase of US$ 11.4 million (39%) in this period. High prices of cotton in the local market and subdued purchases from the textile mills seem to be the reason for this increase. Processed cotton (carded or combed) shows a decline of US$ 5.8 million (-88%), showing that the importing countries are processing cotton themselves.

Cotton yarn shows a slight increase of US$ 11 million (3%), while man-made yarn exports increased substantially by US$ 2.8 million (39%). This trend shows increased activity in this commodity especially in synthetic yarn which is not a traditional export.

Fabric exports also show declines as cotton fabric exports declined by US$ 212 million (-35%) and knitted/crocheted fabric declined by US$ 2.2 million (-13%).

The only positive aspect is the slight increase in exports of readymade garments which grew by US$ 11.7 million (4%). Knitwear exports, on the other hand, declined by an alarming US$ 69.6 million (-13%).

Bedlinen, another traditional and major export declined by US$ 72.5 million (-15%). While export of towels declined by US$ 25 million (-14%).

Artificial silk and synthetic textiles, another non traditional export, increased substantially by US$ 29 million (33%) while exports of tents and canvas products fell by US$ 5.4 million (-33%).

It is now expected that export figures for the next quarter will register better results because of shipments for approaching Christmas season and because of the steps taken to stem decline in the recently announced Textile Policy 2009-14.

Textiles from Swat valley: A strategy to make ROZ’s work

The idea of Reconstruction Opportunity Zones (ROZ's) was proposed by Mr. Obama in March 2009 to provide duty-free access for Pakistani textiles and apparel produced in certain remote areas bordering Afghanistan. At that time Pakistan's textile industry strongly opposed this idea because of the security situation and also because major export products were not included. No work has been done on ROZ's so far but now with the success of army operation in Swat, there is a good chance to bring about employment opportunities to the poor people who are most affected by terrorism.

Here is how it can be done:

Textile is a labor intensive business and by setting up small scale stitching units in Swat will help employ the poorest of the people especially the women. Yet another way to make this work is linking these stitching units with local schools where vocational training is provided to the children. In this way, the stitching units will be ensured a trained labor force. Also, by providing one time meals at schools, the female workforce will have an additional incentive to send their children to school.

Role of USAID:

USAID can play a very important role of facilitator, implementer and monitor in setting of ROZ's in Pakistan. As a facilitator, it can encourage joint ventures between US textile importers and Pakistani's textile manufacturers. As an implementer, USAID can offer ready-made projects to the joint venture companies. Also, by ensuring a registered workforce will speed up setting up of ROZ's. As a monitor, USAID can monitor and verify exports from ROZ's and also ensure that ROZ's are working according to the laws of International Labor Organization (ILO).

Marketing strategy:

Swat valley is now world famous as it was here that the march of Taliban was halted. Now a brand can be developed by the name "Textiles from Swat valley" and a marketing campaign can be devised for consumers who will buy these products knowing that their money will go to the people who are directly affected by terrorism.

This strategy can very well enhance ties between America and Pakistan and if successful, it can also be replicated in Afghanistan.

Textile Policy 2009-14: hard work still ahead

The first ever Textile Policy 2009-14 was announced by the Federal Minister of Textile Industry Rana Farooq Saeed Khan on Wednesday. The policy sets an ambitious target of achieving $ 25 billion over the next 5 years as compared to exports of $ 9.6 billion achieved during last fiscal year.

The policy is really a broad based document which encompasses areas like technology up gradation, infrastructure development, skill development, etc. and addresses rationalization of fiscal measures for the ailing textile industry along with removal of regulatory bottlenecks.
The government has for the first time, addressed all sub sectors of this industry separately with special emphasis on the value added sectors.

The policy provides many measures to address the falling trend of textile exports, but the most notable are as under:

Tiered drawback scheme with maximum benefit to the value added sub sectors.

• Full refund of past R&D Claims.
• The availability of export refinance at 5%.
• Priority in gas and electricity load management.
• Relief on existing long term loans.
• Zero rating of exports.
• Tax free import of machinery.

Although the textile policy is a very comprehensive one and covers almost all the relevant areas of the textile industry like skills development, market support, zero rating of exports, incentives for employment of women and disabled persons, etc. but the government will have to devise a proper SOP framework in order to implement and monitor policies which are contained in the policy. It is really advisable that the government should consider a fast and transparent procedure for the disbursement of funds allocated for various programs. By breaking the overall target of $ 25 billion into intermediate yearly targets will also help the industry in monitoring its own progress. Only timely government decisions will make this policy meaningful and any delay in framework formulation will make this policy ineffective.

Textile Policy 2009-14 is certainly a welcome initiative taken by the government. This policy seeks to revive the ailing textile sector through some key immediate measures and sets a vision for transforming the present textile industry into a new era. The policy looks at the industry from almost every perspective and identifies key areas where investment can bring about fruitful results.

Now that the policy has been unveiled, hard work follows. The government now needs to set its priorities and bring about a framework which will give practical meaning to this policy. Needless to say that this framework should be formulated ASAP, keeping in view that it should be transparent, works fast and should be meaningful to the industry.

By presenting this policy, the government has also recognized that only textile sector can be an engine for rapid growth for Pakistan's economy. If this policy is properly implemented and if due market access is provided, Pakistan's textile industry certainly has the capacity to bring about rapid progress and prosperity which may not be limited to industrial areas only and which may easily spill into the remote areas where progress is really needed.

http://www.fibre2fashion.com/news/apparel-news/newsdetails.aspx?news_id=76139

Pakistani Textiles: Condition Red!

The Trade Development Authority of Pakistan (TDAP) recently released the export figures for the month of May. These numbers paint a very grim picture for the largest industrial and employment generating sector of Pakistan and for the economy as a whole.

For the 11 months of the current fiscal year (Jul-May 2009), the textile sectors’ exports decreased by US$ 931 million, a fall of 9.6% compared to the same period last year. Almost all the sub-sectors are in red now especially the made-up sectors i.e. the bedlinen and the garments, which declined by US$ 184 million (10%) and US$ 331 million (11%) respectively. Only two sub-sectors i.e. towels and raw cotton, are showing a marginal increase. Towel exports increased by US$ 16 million (3%) while raw cotton exports surged by US$ 18 million (28%) during the 11 months of current fiscal year. It is worthwhile to mention here that increase in export of raw cotton is not a matter to rejoice because raw cotton is a commodity which sells very cheap and saps the down-stream value-added industry of valuable raw material.

Implications of the above figures can be felt far and wide in our economy. Couple of months back there was an article in the largest English daily which claimed that more than 300 textiles units have so far been closed rendering more than 700,000 people unemployed. But as there are no updated official figures on employment the figures would actually be much higher than what is claimed.

It is really alarming to know that despite this grim picture, the government has yet take single step to stem the faltering textile sector or the economy. The anticipated trade and textile policies are yet to be unveiled despite news that it is being given final touches for the past couple of months now. In any case, seeing the performance of this government in the past year, it can be claimed with certainty that these policies will not contain anything radical and so we should not be too optimistic. The ineffectiveness of this government can be gauged from the fact that the only demand put forward by the industry was a duty-free import status from USA and EU considering the tight financial conditions in Pakistan, even this demand has not been taken up properly despite Pakistan being a key ally in war against terror.

Only the government alone is not to be blamed for this whole scenario and the industry should be criticized here also. The industry is still running without any sense of direction or vision despite Pakistan being a cotton rich country. The industry has only managed survived on subsidies and doles handed down by the successive governments in the past. The industry has concentrated on taking only without giving anything back to Pakistan.

Policy making at a snail’s pace

Dawn: Monday, 04 May, 2009

WE, the stakeholders of Pakistans textile industry, are amazed by the inactivity shown in the policymaking process. We have been told several times that the eagerly-awaited textile policy is now ready but it will be announced some time in June, as it is being given ‘final touches’.

We have been pointing out that textiles exporters were facing difficulties for a couple of years now, and textile exports were showing a downward trend even before July 2008.

Now a recent news report emphasises that about 700,000 jobs have been lost and more than 300 textile units have been closed over the past two years. The report also pointed out that some local industrialists are shifting their units to China due to numerous tax incentives and superior access to world markets.

It may be pointed out here that China has increased rebates on exports of textile products several times since August 2008 due to the global financial crisis. The Chinese government is also providing free land for creating factory premises and there is no condition of paying income tax by the investors.

Now as global recession is starting to bottom out and major retailers rebuild their stocks, China’s textile exports surged 82 per cent in March from February, according to Chinas National Development and Reform Commission.

Beijing has also stockpiled a huge inventory of domestic cotton and has benefited from low prices of cotton in the international market. Experts also point out that 83 per cent of Chinas huge trade surplus since 2001 is entirely contributed by its textile industry.

India, on the other hand, has also announced several incentive packages, including increased subsidies, interest rate cuts, moratorium on repayment of term loans and several other incentives. It is now looking for exploring alternative markets like Japan, South Africa and Latin America to counter demand contraction in key export markets like the US and Europe.

The situation for Pakistans textile industry is very unique indeed. On the one hand, we are hit by job cuts and mill closures because of lack of export orders and, on the other hand, the price of raw cotton has jumped by about 33 per cent since December 2008, thus making the upstream value-added sectors totally uncompetitive.

The government inaction in the current situation can be gauged from the fact that the pending research and development claims, since June 2008, have still not been fully settled despite repeated assurances from the authorities.

It is indeed very inspiring to see countries several times our size acting in tandem with market conditions and macro-managing their economies effectively while our policymakers take years to give final touches to their policies.

We must realise that economies shine not because of their sheer size; they shine because of a constant check on their pulse and by policymakers’ quick economic management decisions.

Misconceptions about Pakistan’s textile industry

I would like to highlight several misconceptions on Pakistan’s textile industry through this letter. Many times I come across well educated gentlemen who point out that textile industry is always asking for concessions and is a burden on our economy. This view is totally incorrect. Our textile industry is a major foreign revenue earner, largest employment generator and the highest tax payer segment in our economy. It is the only manufacturing sector that makes the country proud by introducing its products to leading companies all around the world.

It is true indeed that the industry does asks for certain concessions from time to time but the fact of the matter is that textiles is a labor intensive sector and wherever in the world there is textile industry it is always always protected directly or indirectly because its employment generating nature. The idea behind free trade is to concentrate industries where they have natural advantage thus making products economical for all but unfortunately our successive governments have been going against this theory and have tried and failed repeatedly to make other industries parallel to textiles. Although it is very important for Pakistan to diversity its product base but to do this on the cost of an industry which has a natural advantage makes no sense.

I am sure that all stakeholders would agree with me when I say that textile industry is ready to play its role in the economic uplift of the country in this dire time of need. All we want is to get GSP+ facility from EU and a proper FTA with USA for our products. If these two treaties are penned properly, we are more than sure that our textile exports would double to touch US$ 20 billion in next 4-5 years thus eliminating the need of begging for financial aid from anyone or putting any burden on our economy.

All we want from our government is to provide a level playing field vis-à-vis our global competitors and if this is provided we are sure that the textile industry will lead Pakistan out of these dark times.