Ahmed Kamal, CEO of the Kamal Group
Ahmed Kamal, CEO of the Kamal Group

After two years of unprecedented profitability, Pakistan’s textiles and clothing exports are facing a strong demand downturn as consumers tighten their belts in the US, Europe and other markets. But Pakistani textile manufacturers aren’t the only ones experiencing this gloomy situation; the orders in the world’s every garment exporting country, including China, India and Bangladesh, have been slowing because of the Ukraine war’s impact on price inflation, interest rates and energy markets worldwide. With consumers in the US, Europe, and elsewhere worried about putting food on the table and paying heating bills, their textile and clothing budget is squeezing.

“With food and energy prices going up, the consumers have stopped spending on bedsheets and clothing. This is why retailers and brands in the US, Europe, and elsewhere have slowed down their orders and asked their suppliers to delay the shipments,” Ahmed Kamal, chief executive of the Kamal Group, told this correspondent in an interview.

“The ongoing textile gloom has nothing to do with any domestic factor, as some exporters would like you to believe. The downturn is driven by the slump in the global demand for textiles. Dar, Miftah, Imran Khan or anyone else have nothing to do with this. With electricity available for nine cents a unit, gas at a third of the international price and minimum wages a little over $100 a month, what else the industry wants from the government?

“The only thing the government can do is bring down inflation, which pushes borrowing costs up, improve exchange rate and implement uniform gas prices across the different industries.”

Pakistan’s textile and clothing exporters have profited immensely in the last two years from surging sales after demand spiked in most major markets once Covid-19 restrictions eased and interest rates floored. The nation’s textile and clothing exports rose 23 per cent to $15.4 billion in 2020-21 and by 26pc to $19.4bn in 2021-22.

‘Textile exporters expanded just because cheap money was available during the pandemic, but what is the wisdom in increasing capacity based on imported raw materials?’

The Pakistan Bureau of Statistics data shows that the textile and clothing shipments have dropped just 2pc to $5.9bn in the first four months of the present fiscal year, but exporters warn that the decline would be significant over the next few months as the manufacturing capacity is shutting down due to piling stocks in their warehouses as importers put shipments on hold.

“Every textile producing country is experiencing a downturn in their foreign sales, leading to capacity closures. India saw the world recession and shut down half of its textile manufacturing capacity. Pakistan, too is facing the same pressures impacting its textile and clothing sales and the profitability of its manufacturers. But we imported expensive cotton without realising that commodity boom was easing and global demand for nonessential items deflating,” Mr Kamal says.

Unlike his peers from the industry, he admits that Pakistan’s textile and clothing exports had grown in the last two years in the post-Covid period in value rather than in quantity. “Those who say otherwise are lying to you. Indeed, the demand spiked after Covid curbs on mobility were eased or lifted. But the actual reason behind the unusual jump of nearly $7bn or well over 50pc in textile sales in two years is the commodity price boom.

“The cotton price doubled as energy rates shot through the roof. So was the case with other commodities. The volumes of export shipments also grew. But the growth in the dollar value of our exports far outpaced the increase in exported quantity. As the cotton prices rose, exporters, who had bought the raw materials at much cheaper rates, were afforded a lifetime opportunity to make enormous profits on inventory gains.

But now we have inventory losses since many of us imported expensive cotton at $1.30/1.50 a pound, which is down to 80 cents. Global oil is also declining. So export value had to come down even if demand hadn’t squeezed. When the industry made inventory gains, we would take all the credit for boosting export sales. How can we now blame someone else for our wrong decisions that are resulting in trade losses?” He says the world is adjusting to new realities, and the textile market will take three months or so to return to normal.

Elated by enhanced export demand, the textile industry claims to have invested around $5bn in new capacities over the last couple of years to further increase its foreign sales. But Mr Kama is critical of the industry for expanding the manufacturing capacity just because cheap money at subsidised rates was available (under the State Bank’s Temporary Economic Refinance Facility scheme introduced to induce the manufacturers not to cancel or hold their plans to invest in their capacity expansion).

“We neither have cotton to feed our existing mills nor energy to operate them. On top of that, the nation is faced with one of the worst dollar liquidity crisis. Where’s the wisdom in increasing capacity on the basis of imported cotton and fabric?

“China and India are leaders in the textile and clothing trade because they produce their raw materials and are not dependent on imported fibre. If you want to increase manufacturing capacity and boost exports, you must first grow enough cotton, become competitive, diversify products and then invest in manufacturing.”

The downturn in global clothing demand has come at a time when Pakistan is facing a full-blown currency crisis, with the exchange rate depreciating fast amid soaring inflation and a rising budget deficit. With foreign exchange reserves fallen to around $8bn, the government is struggling to ward off a potential default on its foreign loans in the face of drying multilateral and bilateral flows, stagnating exports and declining remittances.

“You cannot boost exports overnight, and remittances are more likely to drop further because of global inflation and higher interest rates in Europe, America and elsewhere. So the only solution to the currency crisis is to reduce your import bill, banning all nonessential imports to balance your current account. Only those products and items should be allowed to come into Pakistan that are essential for our survival.

“We also need to fortify our borders and ports to prevent the entry of under-invoiced and smuggled goods into the country. I wonder why mobile phones worth over $150 a set are still allowed to be imported and how the shelves of departmental stores are filled with under invoiced and smuggled items?” he argues.

Published in Dawn, The Business and Finance Weekly, December 5th, 2022

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