NOTWITHSTANDING their own inefficiencies, the textile industry’s exports are in trouble chiefly because they mostly comprise low value-added products and because of the industry’s high cost of doing business.

This should be cause for concern both for the government and for the textile industry since over half of the country’s total exports usually comprise textile and clothing items.

In July, Pakistan’s overall exports fell by over 16.9pc to $1.598bn from $1.923bn in July 2014. And textile and clothing exports were down by almost 12pc to $1.026bn.

Similarly, exports were down 3.5pc last month and 10.27pc during July-August FY16 over the same period in FY15. Exports had also declined 4.88pc in FY15 to $23.885bn from $25.110bn in FY14. Textile exports were down by about 1.8pc last year to $13.7bn.

The calls for reviving the export industry are gaining momentum. The government is perhaps already fatigued by the repeated extension of subsides and incentives and by the criticism that these measures have attracted over the decades.

And marathon sessions at the highest level last week ended up with nothing other than promises for cuts in electricity prices (a monthly exercise on account of automatic fuel adjustment) and of better energy supplies in the future.

Marathon sessions at the highest level last week ended up with nothing other than promises for cuts in electricity prices and for better energy supplies in the future

No doubt the industry is facing problems, but a holistic study of these problems and of their causes and solutions is of urgent importance. It should be examined where the industry is lagging; what are its internal structural shortfalls, weaknesses and strengths; and what government policies are contributing to the downfall.

For example, it is clear that the cost of doing business in Pakistan is relatively higher than its regional competitors, and this needs to be addressed. But it should also be checked why our textile exports still mostly comprise plain cloth and yarn, and why the exports of better quality stitched and finished products are not gaining ground.

It should also be determined (based based on field research) whether various export subsidies extended by the government were diverted to other sectors, as could be seen in the context of conglomerates and tycoons expanding into cement, banking, fertiliser and power production sectors.

This is important because many business houses have utilised subsidised inputs like natural gas to produce power and resell it to the national grid and instead set up more and more independent power plants.

Nobody has ever held the industrial sector accountable and determined what it gained from the subsidies and how much it invested in adopting efficient technologies and innovations; how many jobs it created; and how much foreign exchange it brought to the country. This is unlike East Asian governments, which have linked structural support to their industries to their export gains.

No surprise, then, that many exporters take benefit of cheaper gas rates and better supplies while sitting on the boards of directors of the gas companies.

A structural correction at this point is also of an urgent nature because of problems being faced on the IMF front. The current record foreign exchange reserves, backed by multilateral and capital market flows, can prove to be a house of cards given the higher imports (despite decade-low oil prices). And the drop in remittance growth last month is another worrying sign.

The textile industry has generally held the government’s misplaced priorities responsible for issues like the marginalisation of the export-oriented sector, a lack of check on imports and smuggling, and the relatively high cost of doing business. This has resulted in wasting the opportunity offered by the EU’s GSP Plus facility.

According to textile industry leader Gohar Ejaz, Indian exports are growing at an average of 16pc against Pakistan’s 2pc, in a global export market that is growing at 6.6pc. “This means we are losing our share every year.”

He added that India provides 10pc subsidy to its exports and ensures 100pc refunds.

Pakistan’s textile and clothing exports rose by a cumulative 22pc between 2006-2013, against Vietnam (230pc), Bangladesh (160pc), China (97pc), India (94pc) and the global average of 44pc, he said.

He reported an 11pc quantitative growth in yarn exports in the last one year but a 28pc fall in foreign sales of cloth and bedwear items, 16pc in towel, 53pc in tents and canvas, 23pc in readymade garments, and 64pc in art and silk. And in terms of value, all the 11 major textile product categories posted declines.

Ejaz complained that the imposition of multiple surcharges on electricity and the infrastructure cess on gas supply to textile firms had exploded the industry’s energy costs, leaving it uncompetitive not only in the global market but also in the domestic market.

He said global electricity cost an average of nine cents per unit against Pakistan’s 14 cents. He added that Pakistan’s per capita textile consumption was around 10kg per person and the local industry contributed only 2.5kg, with the rest coming from abroad, including around 5kg in the shape of smuggled second-hand garments.

Published in Dawn, Business & Finance weekly, September 14th, 2015

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