KARACHI, July 15: The performance of textile manufacture export was `remarkable’, rising by 18.4 per cent during July-March FY06 against nominal growth of 4.4 per cent realized during the same period last year, stated the State Bank of Pakistan’s third quarterly report for 2005-06 released on Saturday, which presented a picture of “the state of Pakistan’s economy”.
The report noted that both low and high value-added products had contributed to this ‘impressive’ textile export growth. The increase in textile exports in the post-Multi-Fiber Agreement (MFA) period was believed to be a good omen for the economy which remained heavily dependent on textile exports.
The SBP report makes what it terms an ‘interesting’ observation that textile exports had jumped by 18.4 per cent in the first nine months of the outgoing fiscal year, compared to a moderate 4.4 per cent rise in the same period last year, in spite of a slowdown in the production growth of textiles.
The central bank thought that the jump in exports might be a reflection of aggressive marketing by exporters in the post-MFA regime by utilizing inventories and significant growth in export-related production of small-scale textiles units.
On the production side, the report noted that similar to the petroleum industry, a slowdown was also seen in the textiles sub-sector which had the largest weight in LSM. During July-March FY06, the sector saw a production rise of four per cent, significantly lower than the 28.7 per cent growth seen in the same period last year. The SBP report reasoned that the deceleration in textiles mainly was due to low cotton harvest, high prices and disruption in gas supply during Dec-Feb FY06 by Sui Northern Gas Pipelines Limited (SNGPL) to about 40-42 captive power plants (CPP) in the areas of Sheikhupura, Faisalabad and Gujranwala where various textiles and chemical units are located.
More on textile exports, the SBP report recalled that in FY05, exports had suffered due to uncertainties surrounding the end of MFA in the middle of FY05. It said the growth, though, in the post-MFA period in FY05 was 9.3 per cent prior to that it was just 1.2 per cent. As a result FY05 growth was restrained to 4.9 per cent.
Within the low value-added group, cotton yarn and cotton fabrics showed 35.2 per cent and 15.5 per cent increase, respectively, during the period as against minus four per cent and 9.3 per cent growth in the same period last year. Along with an increase in quantum, the low base effect explains the jump in the group.
With regard to high value-
added products, bedwear and readymade garments were the major contributors, registering 46.5 and 27 per cent growth, respectively, during the period under review as against minus 0.3 per cent and 6.7 per cent in the same period last year. Almost the entire increase in bedwear was explained by the quantum impact, while increase in readymade garments was also caused by high unit values. “It is hoped that the reduction in EU antidumping duty from 13.1 per cent to 5.8 per cent with effect from May 7, 2006 will have a favourable impact on the export growth of bedwear in the forthcoming months," the report stated.
On Saturday, when the SBP report was released, textile circles were also debating on what the Trade Policy 2006-07 to be announced on Monday would hold for the industry. Already on Friday, the State Bank governor announced a cut in export refinance rate by an effective 1.5 per cent, which the head of the central bank said was meant to lower the cost of production. The step was being seen as a follow-up of the prime minister’s assurance to the industry at a meeting of the Export Promotion Bureau (EPB) in Islamabad last week, when he had pacified textile tycoons by saying that the SBP would look into the exporters’ demands.
“The textile sector is asking the government for a concessionary and incentive package of Rs50 billion so that the industry can compete with India, China and Bangladesh,” said Abdul Shakoor, a textile dealer. Those proposals are being pursued by the industry since April when they were first designed. But the government’s dilemma was that if they agreed to such a huge package of Rs50 billion, big cuts would have to be made from social sector spending, which would be, if nothing else, ‘politically incorrect’ decision.
“The government will perhaps hit a middle-of-the-way road, where textile exporters can be given as much as to please them, without causing much hurt to others,” said Mr Shakoor.
Saima Naz, analyst at Atlas Capital Markets, noted that Pakistan being the third largest player in Asia had a total of five per cent spinning capacity of the world. At present the cotton spinning sector comprises 458 textile units (50 composite and 408 spinning), with 8.8m spindles and 77,000 rotors in operation with capacity utilization of 87 and 49 per cent, respectively, for July-Feb 2005-06.
The analyst observed that Pakistan was gradually moving towards higher value-added in exports. The shares of bedwear, knitwear and towels had increased while those of cotton yarn and synthetic textiles declined during the past few years. The textile industry has made an investment of about $6 billion during the last six years in the form of BMR activities and capacity expansions. The share of total investment of $6 billion among different sectors of textile is 47 per cent in spinning, 27 per cent in weaving, 11 per cent in textile processing, eight per cent in made-ups, five per cent in synthetic textiles and five per cent in knitwear and garments.
The analyst quotes industry sources as saying that the textile sector proposes to make huge investment in the next five years, which would increase the spinning sector capacity by 1m tons to 3m tons, polyester fibre industry’s capacity from the existing 600,000 tons to about 1m tons, weaving industry to add another 3.5bn sq metre capacity to the existing 6.5bn sq metre and to enhance finished products’ capacity by 1bn sq metre.