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Textiles’ export potential stifled

Updated April 28, 2014

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- File Photo
- File Photo

THE good news for Faisalabad’s textile exporters is that the Japanese are keen on sourcing their imports from the city. The bad news is that they may not be able to grab this opportunity owing to the growing energy crisis — power cuts and gas rationing for their factories.

“The Japanese are shifting their business from China to other textile producing countries because of [political] tensions between Beijing and Tokyo. Last year, Japan’s textile imports from China dropped to 74pc of its total purchases of $40b, from 86pc a year earlier. China’s loss was the gain of Vietnam and Cambodia,” Sohail bin Rasheed, president of the Faisalabad Chamber of Commerce and Industry, told Dawn.

Pakistan, with minuscule share of $93m in Japan’s total textile purchases worldwide, is one of these states.

“Although we have a big opportunity here, we will not be able to use it on account of energy shortages that have led to closure of a large textile manufacturing capacity in the city. Nor have we been able to take full advantage of trade concessions given by the European Union under its GSP Plus system,” Rasheed said.

The boost in investor confidence that followed the election of a business-friendly government a year earlier and the grant of EU trade concessions appears to be fading away. The expectations of new investment in textile manufacturing capacity to take advantage of the trade concessions are dying down as the industry fights a battle for its survival.

“New investment? We are trying to save what we already have invested. Only a fool will invest in capacity expansion or set up a new project when the existing capacity is at risk of total closure,” concluded Ahmed Kamal, former chairman of the Pakistan Textile Exporters Association.

It is difficult to independently find out the exact manufacturing capacity that has been closed down in the city. But manufacturers claim that more than a quarter of the city’s total production capacity is lying idle on account of power and gas cuts.

Apart from that, a large capacity is shut down for some years because of losses suffered by exporters due to other factors. The city, exporters contend, can fetch around an additional $1b in export revenues without new investment if the entire closed capacity is revived.

“In 2007, some 33,000 containers were shipped [for export] from the Faisalabad Dry Port. In 2013, this number had dropped to just 6,000 containers,” said Ahmed. “This does not mean the country’s exports have suffered. This means that exports from this region [Faisalabad] have attenuated.

“It also means that gas shortages for the industry in Faisalabad and the rest of Punjab have created an intra country disparity, giving a 6-8pc cost advantage to textile exporters from other parts of the country where mills are getting uninterrupted supplies of gas.”

Mian Mohammad Adress, who produces caustic soda for textile manufacturers, says his two-thirds of total capacity is closed down for lack of gas supply. Yet, he would not want to increase production for the domestic market even if full gas supply is restored to his factory. “There will no use in increasing my output unless the textile industry also gets gas and power without interruption and runs at its optimal capacity.”

However, the crisis has been compounded by other older and newer factors as well. The factories, for example, are facing a liquidity crunch because of unpaid refunds of 2pc sales tax on their sales. The exact amount is hard to come by, but exporters’ funds form the chunk of the unpaid refund claims of Rs97bn the Federal Board of Revenue (FBR) admits it owes to taxpayers.

The 10pc revaluation of the rupee against the dollar has raised the millers’ cost of production and narrowed their margins, with exporters from Punjab suffering a loss of Rs10-12b in March alone.

Likewise, the increase in the price of electricity last September has set the industry in Punjab back an additional Rs80b a year. On top of that, rivals India and China are giving huge rebates to their textile exports, adding to the woes of Pakistani exporters.

“These factors have eroded our competitiveness in the international markets and paved the way for massive imports of Indian yarn and Chinese fabrics and garments into the country at the expense of domestic industry and jobs,” Ahmed said.

But people like Syed Zia Alamdar Hussain, a major knitwear exporter from Faisalabad, have not lost hope despite the crisis.

“The government is moving in the right direction. It’s managing the economy in a much better way [compared to its predecessor].

“But now it’s time to focus on the revival of exports by allocating gas and power to the industry on a priority basis, compensating manufacturers for massive exchange rate losses, bringing down the costs of doing business and supporting exporters against their regional rivals in the global market before it is too late. It is not easy to revive a factory once it shuts down.”

(This is the third in a series of articles on Faisalabad’s industry)