THE business confidence of the textile industry was somewhat renewed after two top textile tycoons, Bashir Ali Mohammad and Tariq Say eed Saigol were included in the Economic Advisory Council. They were expected to play a meaningful role in the continuation of the existing support policies and a possible restructuring of the existing textile sector’s debt.

But the State Bank’s decision to further tighten the monetary policy—the increase in the policy rate from 10.5 to 12 per cent --- has once again upset the textile industrialists.

The industry is seeking to retain all financial incentives and concessions in lending rates for at least ‘next two fiscal years’, to enable it to work for a turn around. Its representatives pin their “hope on some stability in international economic situation, stable oil prices, stable political and social conditions within the country and a better South-Asian region within next two years’’, says a top garment manufacturer/exporter.

Earlier, there ere some speculations that top government officials were seriously considering to withdraw research and development rebate given to exporters of readymade garments and home textiles that cost the national exchequer about Rs32.5 billion since 2005-06 to March 2008. But now it is generally believed that three per cent R & D allowed for fabric exports may be withdrawn.

Earlier this month, the State Bank governor informed the people that textile sector was given Rs897.5 billion export refinance at 7.5 per cent since July 2003 to December 2007. In last nine months, of the Rs273 billion export refinance, 65 per cent went to textiles.

“Textile sector has always been one of the major beneficiaries of the incentives provided by the SBP under various schemes. These are export refinance scheme, long-term financing for export-oriented business (LTF-EOP) and long-term finance facility (LTFF)”, the SBP governor reminded in her statement.

But the “export is down by 2.54 per cent in last ten months to $8.65 billion from $8.87 billion in the same period last year, she said. The textile industry leaders issued angry rebuttals on this statement.

“Following recessionary conditions in US our exports have suffered somewhat’’, Iqbal Ibrahim, Chairman of the All Pakistan Textile Mills Association (APTMA), explained. “It is true that government support has helped us to remain afloat in the market,’’ he said and argued that what hurt the industry was the rise in interest rate and the rising utility and transportation charges.

“The benefit of rupee devaluation against dollar has been totally eroded by the rising cost of imported ingredients for our products’’, Mr Aziz Memon, a leading readymade garment exporter, said.

“Garments and knitwear is a $3 billion plus export business that is gradually making deep inroads in the EU and US markets”, Mr Bilal Mullah, Chairman of the Pakistan Readymade Garment Exporters and Manufacturers Association, said and added that these sectors were labour intensive and big foreign exchange earners.

He lamented that “in last three years more than 800 small units have been closed down because of rising production cost. Increasing labour charges, utility cost and rising prices of fabrics and accessories have rendered our products uncompetitive in the market’’.

“Right now there are about 50 top readymade garment and knitwear manufacturers who are operating under manufacturing licence for leading store chains of Europe and America” he said.

“We sell our product say at one dollar, they put it on their counter for sale at $3.50 by just putting their label and without any real value addition,’’ another garment dealer explained. He said the leading foreign stores were now passing on their expenses to their suppliers from Pakistan.

“We are asked to keep an inventory of shelf-ready products for three months at a given time’’; that, he said, meant additional cost for them. Many garment and knitwear manufacturers preferred to do the job with their own money rather than depend on banks which charges high rate of interest and then levy heavy penalties.

“At least 50 per cent of our production cost is on fabrics which are mostly imported on buyers’ choice”, said the garment exporter to point out his cost of production. He said the share of labour cost, utility charges and other incidentals were almost 30 per cent while 20 per cent was spent on mostly imported accessories.

“We have very little option in controlling and containing our production cost because either it is import-oriented or flows from government policies.”

“Why should anybody grudge six per cent R and D rebate on readymade garments, five per cent on home textiles and three per cent on export of dyed and processed fabrics,’’ argues Aziz Memon. He justified the rebate on the grounds that Pakistan’s competitors like India, Bangladesh, China and Indonesia were giving hidden and not so hidden support to their exporters.

In the last three years, the readymade garment exporters got about Rs22 billion rebate while the fabrics and home textiles secured a little over Rs10 billion since 2006-07.

Mainly because of these rebates, the readymade garment and knitwear exports have increased from $2.58 billion in 2004 to $3.25 billion in 2007. The target for the current fiscal year is $3.2 billion.

Garment manufacturers are keen to set up big factories to achieve economies of scale to bring down production cost.

“Women are considered good dress makers world over,’’ a garment manufacturer said but regretted that not many women were in this field because of our cultural values and social conditions.

Heavy bank borrowing was a major issue with spinners. But for most of the value-added sectors, the bank loan was a problem but not of much significance. “Mainly it is a problem of spinners,’’ a leader of value-added sector said.

Spinning units are capital intensive and many of them undertook balancing, and modernisation or expansion in 2001 and 2002 when interest rates were at their lowest in 30 years. “Now the interest rates have gone up beyond 13 per cent, the bank loan and debt servicing have become an unbearable liability. Value-added sector wants a fresh look at the interest rate policy but the spinners want an outright moratorium for two or three years.

The industry’s debt problem would worsen with the State Bank’s decision to raise the discount rate from 10.5 per cent to 12 per cent on Friday last. The lending rate will go up further.

The domestic cotton prices have touched Rs4,000 per bale which many textile industrialists believe would be back breaking for the industry. There is a need to consider some pre-emptive measures, they said.

“We expect domestic demands for cloth and apparel generating from rural areas in next few years with increase of prices in agricultural products’’, Bilal Mullah said. He said many small and medium sized units did cater to local market needs of shalwar kameez.

By the time prosperity will come to rural areas in next few years, the demands of upcoming young men and women would be different. “We will try to catch up with these demands,” he said.

“But the government will have to stop the flooding of our domestic markets from apparels and clothing from China, India, Indonesia and other countries that are smuggled and under-invoiced”, a textile unit-owner said.