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The Challenges Faced By the Textile Industry In Pakistan and What’s Next

Pakistan is the 8th largest exporter of textile products in Asia, The fourth largest manufacturer of raw cotton, and the third largest purchaser of cotton in natural form. The textile sector in Pakistan is responsible for over 60% of the total exports of the country as well as around 46% of the entire output country. It contributes 8.5 percent to the overall GDP and offers employment to a 40percent of the total population. Some of the biggest exporters from Pakistan include Style Textile (Pvt) Ltd, Nishat Mills Ltd, and Yunus Textile Mills Ltd.

Raw materials for the textile industry

The significant contribution of textiles to our economy is a reason to place it in the middle of our industrial revolution. However, it’s beset by various problems that have led to slow growth.

Energy Crisis

Energy is the single most significant obstacle to the industry’s expansion. The country’s general energy crisis has had various adverse effects, and the industry of textiles is among the sectors that the problem has struck.

Because of this, manufacturers attempt to develop different methods for power generation, such as high KvA generators, which results in rising costs of production. Thus, increasing costs and decreasing the profitability of exporters of textiles in Pakistan.

Competition

The textile industry in Pakistan faces intense competition from nations like Bangladesh, Vietnam, India, and Thailand on the international market. In addition, with high costs for services, wages, and an insufficient flow of foreign investment into the country, the industry needs to rise to the challenges.

Insufficient new equipment or machinery

In the absence of investments and other factors like the declining value of the nation’s currency and the rise in interest rates, There has yet to be any rapid modernization of machines and equipment. The textile industry is still operating manually, while procurement processes have been digitalized on a global level.

This means that Pakistan lost its advantage contrasted to the Indian textile industry. For instance, it has embraced the latest technologies and developed the most modern design concepts to compete in the global textile market.

The price of Raw Materials is rising.
The challenges facing Pakistan’s textile industry have become more difficult due to the rising cost of raw materials for the textile industry, which includes yarn fabric and natural cotton. The increase in raw cotton prices is due to the absence of policies supporting the textile industry and the lack of support for cotton farmers to make their products at the highest capacity.

The textile industry in Pakistan’s raw material is cotton. At the same time, the production of cotton has been going down in recent years. The last few years have seen a drastic drop of approximately 35 percent in the production of raw cotton towards the year’s end in January 2021. It was the lowest for 30 years. The reasons for this decrease are drought, pests seeds, degrading the source, and the reduction in planting space. One consequence can be that Pakistan is now a net importer of raw cotton, which influences the yarn price.

Then there are the vast problems with credit small companies confront when trying to acquire wool or raw materials, which is becoming more difficult due to the rising cost of yarn. High costs must be paid when purchasing credit since exporters are given payments for 3-4 months following the purchase because of the manufacturing or logistics procedure. This makes the raw material costly and unobtainable. But, a raw material procurement platform such as Zaraye can assist by offering various financing options that are flexible and flexible, as well as working capital for manufacturing companies.

Pakistan’s textile industry

The lack of information
Due to the lack of digitization in the sector in Pakistan, One of the most significant issues buyers face is needing access to the most competitive rates for the yarn. Because of this deficiency of information, buyers need to find out where the most competitive prices are, resulting in competitive pressure both locally and globally due to the lack of efficiency. Zarate provides a single platform that gives manufacturers details and choices to make quick, efficient purchasing decisions—all the while having the ability to pick the most competitive price for yarn and various other materials.

The absence of R&D institutions
Pakistan needs more connections between research institutes as well as the industry of textiles to create new products. This has led to low-quality raw cotton and, consequently, yarn fabric compared with similar countries within the region. It results in a lower-value product that negatively impacts the final cost.

In the end, the textile industry in Pakistan is a huge opportunity to grow if it considers the numerous issues that require immediate intervention, particularly from the federal government, to boost the sector. To improve the efficiency of the textile industry globally, Pakistan needs to meet ever-growing customer demands. The government’s policy is essential to attract foreign investments and to have an investment policy that improves and boosts the local entrepreneur.

What’s next for the textile industry?
Every industry in the present is moving towards technology, which includes those in the field of textiles from Pakistan. While technological advancements are slow, many companies will eventually rely on technology to increase efficiency to remain relevant in a globally competitive market.

The industry of textiles in Pakistan is in desperate need of change; however, the implementation process can be challenging. But, if this is executed with care, it could completely transform the textile landscape and create Pakistani textiles competitive again.

Textile production in Pakistan has tremendous potential accessible through digitalization platforms such as Yarn Online, Sanatkar, Zarate, and others by making information accessible to sellers and buyers, which results in efficiency and efficiency. But, the path to take for this sector also relies on the policies of the government that help the textile and farmers who grow the raw cotton.

Where is Pakistan exports its textiles?

Some of the nations Pakistan exports its textiles to are the United States, the United Kingdom, China, Germany, and Spain. Pakistani exports of textiles were reported at $14,242.623 million between July and March (2021-22), and when compared with the period of July to March (2021-21) with an overall value of $11,355.465 million, the figures showed an increase of 25.43 percent.

Which is the largest textile industry in Pakistan?

Alkaram Textile Star LLC located in Faisalabad is the largest textile industry in Pakistan set up in 1970.It is the largest most modern and vertically integrated textile company in Pakistan

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Growth in textile exports — new beginnings, new hopes

A little over halfway through the current financial year, Pakistan’s economic landscape looks strong for 2022 as it has bagged a growth of 5.37%, substantially higher than the previous two years. Several indicators reveal that our economy has done well in spite of the Covid-19 pandemic setbacks, with year-on-year improvements in key indices.


Textile sector, which is among the significant contributors, has played a pivotal part in this regard. Despite strict fiscal constraints, timely and appropriate policy measures taken by the government resulted in a V-shaped economic recovery. Effective policy measures taken by the government to contain the virus along with fiscal stimulus and monetary measures by the State Bank of Pakistan in FY2020 helped uphold the economy during the pandemic when severe economic depression was prevailing around the globe.

Sustainable and inclusive economic growth is the key to a strong and vibrant Pakistan, which can open doors for development and prosperity in the country. The economy of Pakistan was built around textiles and its base is still connected to this sector. The journey of the textile industry in Pakistan has not been a smooth road.

The emergence of economic crisis worldwide was an instant setback, coupled with rising manufacturing expenses, escalating energy tariffs, rising prices, shortage of raw material, frail infrastructure, obsolete technology and lack of investment were among the factors considered for the downfall of the textile industry.

However, this sector has now picked up a growing pace following the removal of Covid-19 restrictions witnessing a sharp surge of 26pc year-on-year to $9.38 billion in the first half of FY2021-22.

Half-year exports of readymade garments went up 22.93 percent to $1.831 billion from $1.490 billion, knitwear increased by 35.21 percent to $2.5 billion from $1.849 billion, bedwear increased 19 percent to $1.659 billion from $1.394 billion, towels climbed up 17.54 percent to $523.686 million from $445.697 million.

Likewise, cotton cloth went up 21.35 percent to $1.134 billion from $935.009 million, raw cotton exports went up 197.30 percent to $1.763 million from $0.593 million last year. This indicates country’s preferences are shifting from raw and intermediate goods to value-added exports.

Increased textile exports have come on the back of quantum growth in high value-added products. Likewise, the export of textiles posted a 22.94pc growth in FY2020-21 compared to the same period a year ago. In absolute terms, the total exports of textile remained $15.4 billion in 2020-21 against $12.526 billion of the previous year. Exports of 13 sectors, including value-added textiles, posted double-digit growth in FY2020-21 compared to corresponding year.

Strengthening exports is critical for economic growth. To sustain strong economic growth, Pakistan needs to increase private investment and enhance export volume according to the World Bank’s Report – Pakistan’s Development Update, October 2021. Textile sector is capable of harnessing $30 billion for the economy of Pakistan. This is a wake-up call for the policymakers who have been facing an economic conundrum for quite a while now. Reportedly, Pakistan is missing out on almost $30 billion worth of exports related to the textile industry which can prove to be a major boon for Pakistan’s debilitating economic situation characterised by repeated boom-bust cycles. The sector not only provides large-scale jobs but also has a huge share in the exports of the country coupled with a magnanimous room for value-added textile products. These pertinently shed light upon the importance of textile industry in Pakistan which, unfortunately, is facing numerous problems.

To benefit from the economic potential that lies in the textile sector, a number of carefully curated policy measures have to be taken that can support the sustainable growth of textile industry. Declining share of China in the US apparel market and shifting focus from apparel to global textile market have already created room for Pakistan and other competitors to enhance their shares in apparel exports.

Textile industry, which comprises 46 percent of the total manufacturing sector, provides employment to around 25 million Pakistanis, contributes 8.5 percent to the GDP, is the industry that can lead Pakistan towards economic prosperity. The future of textile industry is bright in Pakistan and promises new dawn given that its grievances are addressed properly. Government should focus on how to increase the textile exports. If the bottlenecks are removed, textile industry is capable of carving a pathway for an economically stable and prosperous Pakistan.

Current conditions for textile industry are very favourable. However, unprecedented hike in input prices at international level and continuous fluctuation in exchange rate has significantly increased the working capital requirements of the export industry. The SBP’s Export Refinance Scheme is the only support for the exporters to meet the capital investment requirements. Rs2022 billion were disbursed to the textile and readymade garments sector from January to June 2021 and only 19pc (Rs387 billion) of the above was financed through EFS. Sufficient lines of ERF may be allocated to banks for onward sanctioning to exporters based on performance. Reallocate export financing away from working capital and into capacity expansion through the Long-Term Financing Facility.

The following points should be noted:

– In 2021, textile sector showed significant growth in exports. Consequently, their entitlement to Export Refinance has also been increased substantially. In order to create room for growing number of export orders, ERS support should be enhanced.

– The initiative to provide energy resources to export-oriented industries at regionally competitive prices (electricity @ 9 cent/kwh and as @ $6.5 per MMBtu) brought positive outcomes registering upward growth in exports. To continue this momentum, continuous supply of energy at regionally competitive prices should be ensured. This package is not a subsidy, instead, there is no cost of the service study, all sector inefficiency, subsidy to domestic consumers, AJK, Fata, Balochistan and high T&D losses in the DISCOs are included in the basket tariff. An extension in energy package and allowing tariff on existing consumption to direct and indirect exporters will result in further increase in exports and also conduct a Cost-of-Service Study and set tariffs accordingly.

– In order to gear up textile exports, Duty Drawback of Taxes (DDT) incentive was allowed to textile exporters based on their exports which resulted in significant growth in textile exports. Duty Drawback of Taxes (DDT) incentive should be continued to for growth momentum.

– SBP has amended foreign exchange regulations requiring exporters to bring export proceeds within a maximum period of 120 days from shipment. These payments terms can be the most challenging as our regional partners offer 180-day terms in the international market as the importers carefully evaluate the pricing policies. All prudential regulations should be aligned with the international regulatory framework, considering the regional competition in international trade.

– Government has taken exemplary initiatives to streamline the refund process. However, old outstanding refunds (around Rs365 billion in Sales Tax, Duty Drawback and Income Tax refund regime, Rs85 billion under textile policy incentives i.e. DLTL, TUF and mark-up support scheme) are still outstanding.

– SEZs are being established to promote industrialisation and investment in the country and several Chinese textile industries are making joint ventures with Pakistani counterparts. However, it is imperative to focus on production of such raw materials that are being imported from China. This would help decrease production cost of our export items.

– Upgradation and development of infrastructure in industrial clusters, especially road infrastructure, healthcare centres, trauma centres and security issues has become need of the hour.

– Reduce effective rates of protection gradually through a long-term tariff rationalisation strategy to encourage exports.

– Consolidate market intelligence services by supporting new exporters and evaluating the impact of current interventions to increase their effectiveness

– Design and implement a long-term strategy to upgrade productivity that fosters competition, innovation and maximises export potential.

Textile exporters have time and again proved that if given a level playing field, they can compete against the best in the world. We are not short on innovation and taking bold decisions. The sky is really the limit for our textile exports to grow and contribute substantially not only to foreign exchange earnings but also to overall sustainable economic growth.

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How are Pakistan’s Textile Exports being Affected by Current Global Dynamics

The recent textile export growth in Pakistan has occurred despite a wide array of issues in energy. Power supply, reliability, quality, pricing, and gas availability remain a bane for the country’s economic development.

The massive blow to the public and the textile industry is due to a massive hike in power and petroleum prices, fueling inflation. Therefore rendering the country’s textile exports uncompetitive in the global market.

The National Electric Power Regulatory Authority (Nepra) has increased the base tariff by approximately 46% to Rs 24.82 per unit from Rs 16.91. While the price of petrol has been increased to 248.54 and diesel rates, have been increased to 276.54. 

The year-on-year inflation is expected to accelerate in July and may remain within the range of 14.5% to 15.5%, according to the monthly Economic Outlook released by the finance ministry. The highest inflation rate in the past decade indicates the adverse impact of increased government-administered fuel and energy prices.

The combined effect of the fuel and power price hike may lead to a historical economic stagnation which would result in bankruptcies, and inevitable defaults on electricity bills, leaving many textile export orders unfulfilled besides causing massive loss of employment opportunities and tax revenue.

With the fear of a sharp increase in unemployment due to the textile industry being affected, the government should take immediate decisions to ensure investment protection through bailout packages for industries.

The increase in energy prices and the implementation of a super tax have been unpopular decisions. They are not in the best interest of consumers as well as the textile trade and industry. 

The textile industry and business community have been actively against the self-imposed decision of Nepra to raise the base electricity tariff.

Such tough decisions have put the survival of textile industries at stake, which has, in turn, affected textile exports and the overall Pakistani economy. Who should take steps like bringing power and gas tariffs down to reduce the cost of doing business and to promote textile exports?

The chairman of the Pakistan Yarn Merchants Association, Saqib Naseem, claimed that the sharp increase in energy prices would be catastrophic for business and the textile industry. They urged the government to reduce utility charges for the textile industry to continue trade, export, and other industrial activities seamlessly without delay.

What should ideally exempt textile industries and businesses from load shedding of gas and electricity to meet the local market and textile export targets? All of this has also impacted yarn prices because these problems have also affected spinners. The main issue for the Pakistan textile industry is the high cost of doing business, which needs to be brought down to bring the export industry on equal footing with global competitors. 

The textile business community needs to be taken on board in helping to prepare policies that can sustain economic growth and enhance textile exports further so that the increasingly wide trade deficit can be reduced, which is necessary for the country’s uplift.

A sign of Pakistan’s dwindling economy is that local textile producers are expecting a USD 500 million cut in monthly exports from July onwards due to energy shortages that have reduced production capacity by 30%

Due to this gas supply shortage, the Pakistan textile industry will remain closed from July 1 to 8. The interruption of gas supply will majorly affect the textile industries in Punjab because about 70% of textile mills are mainly located there. The current shortage has already reduced textile production by about 30%, and the latest interruption may very well reduce the output by up to 50%, severely debilitating Pakistan’s textile exports.

The interrupted gas supply to the textile industry has affected textile exports which will no doubt impact the export target achievement for the next fiscal year besides increasing unemployment. What had set an export target of $20 billion for the textile industry for FY 2021-22 – is already a lower target than the previous target of $21 billion.

The textile industry’s expansion by opening new factories would exponentially drive exports. Due to the current dynamics and issues, these new up-and-coming factories and businesses still need gas or electricity supply and could not launch successfully. These are losses the economy cannot sustain because of how significant the textile industry is to Pakistan’s exports and overall GDP. 

If efforts are not made to further textile exports to their maximum potential, the Pakistani economy is at risk of sinking deeper into debt. Local businesses and the textile industry cannot be neglected mainly because the textile industry is an export-oriented industry – which has the definite potential to promote immense sustainable economic growth. However, none of this can happen without essential policy support and exceptionally competitively priced energy. Furthermore, the implementation of the Textile Policy must be fast-tracked so that a comprehensive plan to propel textile exports can be set in motion.