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Textiles getting back on their feet

March 18, 2013

THE local textile sector, which had been in a bind for long and had even lost export orders worth $1 billion in the last fiscal year, is now showing signs of recovery, as it grew by 8.33 per cent during the first seven months of this year.

The industry is upbeat over the changing situation, and is hopeful that it would meet its target of $14 billion in exports by June 30, owing to an improvement in the supply of gas and electricity.

The overall increase was the outcome of a continued rise in the export of these products since September 2012, due to a slight surge in demand from key markets of Europe and the United States. Ready-made garments, towels and low value products like cotton yarn and cotton cloth led the growth in exports. This also contributed to an overall increase in the country’s total exports to $14.068 billion in the July to January period of the current fiscal year.

Pakistan’s major exports include cotton yarn, cotton cloth, knitwear, bedwear and ready-made garments, which cumulatively accounted for $9.606 billion (78 per cent) of the total textile exports of $12.357 billion in 2011-12.

Of the $1.748 billion of bedwear exports in 2011-12, $1.363 billion went to the European Union (EU) and the United States. Despite the imposition of frequent non-tariff barriers being imposed on local bedwear exports, the EU imported $850.91 million, or 49.5 per cent, of the goods. The US imported 29 per cent, or $551.7 million, worth of beadwear items.

Meanwhile, according to data released by the Pakistan Bureau of Statistics (PBS), the export of local ready-made garments surged by 12.51 per cent year-on-year during the seven-month period, while those of towels and knitwear grew by 18.02 percent. Cotton yarn exports increased by 32.44 per cent year-on-year, while those for yarn (other than cotton yarn) increased by 31.48 per cent. Export of cotton cloth increased by 12.16 per cent, while those for made-up articles by 6.81 per cent and other textile materials by 56.8 per cent.

However, it was only in late November that analysts finally noted the robust profitability of listed textile companies in Sindh and Punjab. While historically the sector has remained immune to trading patterns of the country’s capital markets, share prices of textile companies have surged in the last four months. For instance, on August 6, 2012, shares of Suraj Textiles were trading at Rs39, but by the end of the trading session on November 27, they were selling at Rs64 per share. Similarly, during the same period, share prices of Nishat Mills went up from Rs43 to Rs63, Reliance Weaving’s from Rs7 to Rs23.90, and Fazal Cloth’s from Rs78 to Rs112.45.

However, analysts say that it is the large composite textile units that have mostly survived in an adverse business climate. Textile companies were forced to become more efficient during the recessionary period. Till before September, it was also suffering through a depressive phase. PBS figures for the July-June 2011-12 period show that overall textile exports had declined by 10.38 per cent to $12.35 billion, compared with $13.78 billion in the same period a year ago. The sector’s share in the country’s export pie had also accordingly dropped. A severe energy crisis and a fall in internal demand were blamed for this decline.

On October 25 last year, the Senate’s Standing Committee on Textile Industry was informed by relevant ministry authorities that the industry was facing losses due to lack of utilities and certified cotton seeds, as well as a bad reputation due to its inability to meet production orders in the past.

But industry representatives also pointed out that local companies did not enjoy the kind of incentives and subsidies that their foreign competitors were being provided. This was making local textiles less competitive in the international market, they argued.

But as far as removing trade restrictions is concerned, no immediate change is expected in US policy. During a meeting with local towel manufacturers last month, Kara Babrowski, economic officer at the US Consulate in Karachi, made it clear that the US government could not provide local textile companies duty-free access to its market. She added that the US was providing aid to Pakistan under the Kerry Lugar Bill. Some market association leaders pointed out during the meeting that Pakistan was facing intense pressure from Bangladesh, after that country had been given the LDC (least developed country) status.

They complained that Bangladesh had clocked in a growth rate of 6.3 per cent last year, and that its economy had been growing between five and six per cent every year since 1996. But its textile industry was still given tax-free access by 37 countries, including those in Europe, as well as Canada and Australia.

The local textile industry also complains that European countries are unwilling to have a free trade agreement or even a preferential trade agreement with Pakistan because the latter is not willing to open its auto sector and government procurement to them.

However, over the years, a major problem with the local textile industry has been that its exports are restricted to a few countries. That has made it vulnerable to policy changes or economic downturns taking place in those countries. For example, 70 per cent of our cotton yarn is exported to China and Hong Kong. Meanwhile, the US and the EU import 78.5 per cent of our bedwear, 83.3 percent of knitwear and 79 per cent of our ready-made garments.

Leading tycoons and leaders of the All Pakistan Textile Mill Association point out that there is a need to expand the reach of the local industry to a wider range of markets, to ensure sustained and ‘shock-free’ exports. Indonesia, Vietnam and Turkey are all countries where the local industry can turn its attention.

And while we currently enjoy a competitive advantage over India, and our type of yarn is preferred by buyers, the Indians are fast catching up in terms of efficiency and technology. It is therefore likely that they would compete more strongly in the coming years. Meanwhile, local exporters are also shy of moving towards the Asia Pacific region, where they could almost triple their export earnings.