EDITORIAL (January 18 2009): The president of Pakistan Economy Watch (PEW) has said in a statement that Pakistan's textile sector is fast losing its ability to compete in international market due to the prevailing energy crisis, which has resulted in closure of a record number of manufacturing units. The data quoted by him is indeed quite disturbing.
Volatile international cotton rates and the rising interest rates have delivered a hard blow to our textile sector, which accounts for 46 percent of the country's manufacturing sector, 11 percent of the GDP and generates 60 percent of Pakistan's foreign exchange earnings. Further, Pakistan's textile sector lags far behind in the growth as well.
The average annual growth of India's textile sector, for instance, is 11.6 percent, but in Pakistan it has averaged 3 to 3.5 percent. According to PEW chief, despite being the world's fourth largest producer of cotton, Pakistan has yet to introduce insect-resistant cotton varieties and take other measures for strengthening the textile sector.
For instance, Pakistan's primitive ginning units have the capacity to produce only 10 to 12 bales per hour, against the international standard of 60 to 65 bales. The PEW president has urged the government to provide the textile sector immediate "oxygen" of direct subsidies to enable it to survive in the highly competitive global environment.
Incidentally, the global demand for textiles, which stands at around $19 trillion, is growing at a rate of 2.5 percent per annum, in which Pakistan's share stands at less than one percent! This provides a measure of Pakistan's place in the global textile market.
Viewed in perspective, it is also reflective of the "performance" of our textile sector over the decades despite hefty subsidies and bailouts advanced to it by various governments. What has made things worse has been the phasing out in 2005 of special protection granted under WTO to textile and clothing sector, which had resulted in the opening up of export markets internationally, thereby further sharpening competition for our textile exports.
A closer look at the structural composition of Pakistan's textile sector will help put things in proper perspective with regard to PEW chief's demand for "oxygen" of more subsidies. The textile industry comprises a large-scale organised sector, and a highly fragmented small-scale (or cottage) sector.
The organized sector has integrated textile mills, ie, spinning units with shuttle-less looms etc. while the downstream industry comprising weaving, finishing, garment, and hosiery units, etc, fall in the unorganised sector. The country's textile sector is indeed facing numerous problems, including lack of adequate investment in R&D, the export houses' shortage of capacity to meet bulk orders, and the levy of high protective tariffs with a pronounced anti-export bias.
Its other handicaps include absence of a strategic plan, shortage of professional manpower, use of old plants and equipment, the high cost of operations, the multiplicity and a high rate of taxes, the high cost of financing, inferior quality and low productivity, lack of adequate marketing expertise and inadequate infrastructure.
All these factors have discouraged investment in this export-oriented industry, for which the industry magnates should share the blame, because they have traditionally demanded (and been provided) the cocoon of protectionism, which has seriously eroded the sector's competitiveness in international market.
Lack of requisite competitiveness in terms of adherence to the contracted product quality, largely driven by the profit motive, and their general failure to stick to delivery schedules are the other major reasons that have dented our textile exports.
(It will be recalled that Japan's ambassador in Pakistan had told business leaders at a Rawalpindi Chamber of Commerce and Industry meeting in 2006 that "Pakistani textile products have failed to compete with those of India and China. Hence India has been able to capture some of the textile market in Japan, which was previously held by Pakistan.")
As trade and industrial sectors are undergoing rapid transformation in compliance with the WTO guidelines, there is an urgent need for Pakistan to improve the quality of its textiles. Despite establishment of a separate Ministry of Textile, and the proposed "textile cities" the loss suffered by the sector is not only reflective of poor quality control, but also of the high input cost, and the exorbitant profit margin exacted by a majority of our textile exporters.
Two additional factors, ie, the current slump in international market and the Pakistani rupee slide have hit our textile exports. A third factor that has restricted growth of textile value addition is lack of adequate focus on fashion garments, which has become a multi-billion industry in the world. Pakistan has hitherto been mostly engaged in toll manufacturing for foreign buyers, which has restricted growth of the value-added in its textile sector.
This has also been responsible for our failure to develop our own brands, instead of copying foreign brands. Fortunately, Pakistan's textile sector still has the potential to increase its share in the global market if it concentrates not only on modernisation of infrastructure and machinery, but also on developing a skilled workforce.
The PEW president's call for immediate and proper government intervention to salvage this key sector of the economy will make sense only when the textile industry tycoons too come half way through to demonstrate their commitment to improving the sector's lot.
We propose that instead of extending more subsidies, the government should advance soft-term or interest-free conditional loans to the affected units, to allow them to develop greater sustainability. But first of all, the government should initiate urgent measures to ensure uninterrupted supply of power not only to textile sector, but also to all other sectors of the economy.