Textile sector facing intense competition

The decades-old Pakistan based international textile buying houses have shifted to India, Bangladesh and Middle Eastern countries due to uncertain political situation. The traditional buying houses of Pakistani products have told Pakistani producers / manufacturers to come to their new countries of residence along with their products/samples if they wanted to get supply orders. Since the removal of quota regime, Pakistan's textile sector has been facing intense competition from neighboring countries on export front. The exports of textile products continues to decline and showed 3.14% decrease  in the first nine months of the current financial year as compared to the same period last year. The total textile exports were $7.765 billion in July-March period of 2007-08 compared to $8.017 billion in the same period of previous year. Such a huge drop in textile exports resulted in serious repercussion on balance of payments as this sector traditionally contributes 67%to total exports.

Almost all the products in the category of textile exports, particularly in value-added sector, performed poorly during the period under review, which turned the overall export of textile products to negative. Exporters have predicted further decline in shares of textile sector in overall export of the country if the present state of affairs continue to persist in the coming days.

Textile exports also missed their targets for the said period while the export of other products not only registered growth but also achieved the targets set for the period. The second quarterly State Bank of Pakistan (SBP) report said fall in the textile exports was attributed to both supply and demand factors. On the supply side, textile exports were adversely affected by the rising cost of production due to increase in domestic cotton prices and tariff rates, as well as by the frequent power shortages and political unrest. On the demand side, textile and apparel product exports appeared to have suffered from the slowdown in the US economy.

The SBP further said that poor cotton harvest and the resultant growth in cotton prices appeared to be the most critical factor in deteriorating competitiveness of domestic textile. The decline in the textile exports was broad based with only the exports of synthetic textiles, readymade garments and textile made-ups registering growth. The SBP report also confirmed that a lacklustre performance of textile sub-group was disappointing, mainly due to a shortfall in cotton production as well as a weak external demand. Moreover, weakness in the production of ginned cotton and cotton cloth also reflects the smaller crop, shift: to production of synthetic fabrics. Textile sector has been given Rs30 billions of rupees cash incentives and subsidies as well as concessions on bank loans and export finance in the last few years to compete with its regional competitors in the international market; however industry representatives said, despite this, the intense competition is depriving the country of its share in various markets because of un-competitiveness of local products due to high cost of production. However, questions have been raised over the quality of local products by different international organizations, which stressed on improvement in the quality of products along with cutting down the cost of production.

Rising input and energy costs coupled with higher financial charges have deteriorated overall sectors performance in the last couple of years. On the other hand investment on balancing, modernization and renovation (BUR) of textile has been continuously declining since 2004-05 after a record of $928.6 million investment in a year. The main reason for depression in this economic lifeline of the country is the rise in bang interest rate, decrease in cotton production, high cost of energy, long hours of load shedding, and higher wages of skilled workmen as compared to Pakistan's international competitors and general law and order situation of the country.

Recently State Bank of Pakistan (SBP) Governor Dr Shamshad Akhtar has informed the Economic Coordination Committee (ECC) of the Cabinet that the textile industry was grossly misusing the research and development (R&D) fund, and the government should review its policy of injecting billions of rupees for protecting this inefficient sector of the economy. Previously, the textile industry was enjoying refund and rebate facility on exports, however, this policy was discontinued in 2006-07 on reports that a number of inefficient textile units were getting huge fake refunds, misusing the facility. Now ECC took SBP Governor's views very seriously and asked the Ministry of Finance (MOF) to come up with some other strategy to help the textile industry to become more result-oriented to compete with other players in the world market in the future.