Textile council to meet on export boost plan amid power woes

December 08, 2023

ISLAMABAD: The textile and apparel exporters are hoping to get a strategic plan to increase their shipments to $50 billion in the next four years, as they meet with Commerce Minister Gohar Ejaz on Friday amid high power tariffs that are hurting their competitiveness.

The Export Advisory Council for textiles, which was formed by the government last month to advise on ways to stimulate exports, will hold its first meeting in a consultative session with the minister and other stakeholders.

This image shows an industrial advisory council in session on December 7, 2023. — X/Gohar_Ejaz1

The government on November 22 notified two Export Advisory Councils – one for textiles and the other for non-textiles products headed by Minister Ejaz as chairman of both bodies with the mandates to find out doable and practical ways out to stimulate the export of the country given the economic outlook of the country.

The first-ever meeting of the export advisory council in its consultative session may today come up with a strategic plan based on energy availability at competitive prices, a fixed tax refund system, a transition to zero emissions energy for exports, and a robust track and trace System.

The textile industry said the high power tariffs of 14 cents per unit (Rs43 per unit) are causing the closure of existing units and a halt to investment for expansion, upgradation, and the opening of new investments.

"High power tariffs are crowding out the export sector, as firms find it financially unfeasible to compete in international markets. The threshold value of power tariffs, above which the export sector faces challenges, is estimated at 12.5 cents/kWh. Beyond this, existing units are increasingly shut down, and investment in expansion and upgradation and opening of new units is halted, causing an overall decline in production and exports," a senior official of the commerce ministry told The News.

No doubt, the official said, Pakistan's textiles and apparel exports have witnessed dynamic shifts in recent years. Apparel and made-up textile articles account for over 70 percent of Pakistan’s textile exports. Around 70 percent of exports go to the EU, USA and UK. Textiles and apparel exports increased by 54 percent in two years, from $12.5 billion in FY20 to $19.3 billion in FY22 mainly because of the RCET (regionally competitive energy tariff). This growth was underpinned by the fresh investment of $5 billion in the upgradation and expansion of manufacturing facilities to add an additional $5 billion in annual exports and the creation of 0.3-0.5 million new jobs.

However, FY23 brought challenges as textile exports dipped by 15 percent to $16.5 billion. The withdrawal of the RCET amid a broader macroeconomic crisis played a significant role. This has led to erosion of the profitability as Energy costs, at 9 cents/kWh, constitute 12-18 percent of total input costs across the textiles value chain. An increase in power tariffs to 14 cents/kWh slashes profitability from 8.61 percent to 1.00 percent, impacting major textile exporters.

There has been a notable shift towards high value-added goods, indicating a positive move away from traditional exports like yarn and grey cloth. The country’s textile sector’s value-addition success story is evident, with every 1 unit of cotton input being converted to 3.9 units of value-added exports, up from 2.5 units of value-added exports 3-4 years ago.

The textiles & apparel sector is currently contributing 60 percent to export earnings and employing 40 percent of the labor force, which holds a pivotal economic role. However, the exit of firms mainly because of high tariffs could reduce export earnings, risking the ability to meet import bills and external financing obligations. This may elevate the need for external borrowing, increasing future debt servicing and heightening the risk of Balance of Payments crises. The potential reduction in GDP, government revenue, and fiscal space for development expenditures might trigger a recession. Increased government borrowing and debt servicing could follow. This situation could also cause the loss of employment in the sector which would affect millions of households. Spillover effects on other sectors like cotton, retail, and power could not only result in further output, investment, and employment losses, but it could also lead to the collapse of publicly listed firms which may impact the stock market, resulting in the loss of public savings and reducing foreign and domestic investments.

The look, he said, at the US trade with Pakistan shows only 48 percent of US apparel firms are sourcing from Pakistan, compared to 97 percent from China and Vietnam, and 83 percent from Bangladesh.

"China currently dominates the international textiles and apparel market, followed by Bangladesh, Vietnam, and India, However, Pakistan’s share is marginal in the International market. However, China’s share of world textiles & apparel exports has been declining since 2014, while those of Bangladesh and Vietnam have increased. Pakistan has seen little growth. The consultative session of the export advisory council may ask the government to match regional incentives to incentivize investment in the country's textile sector."