LAHORE: The year 2018 has been another disappointing year for our textile sector that failed to deliver despite 29 percent depreciation of rupee during this calendar year, as the industry is plagued with inefficient technology and low-skilled workforce.
It is worth noting that the rupee was valued Rs109 against the US dollar on January 1, 2018 the existing dollar rate of Rs140 is 29 percent higher than it was at the start of year. Pakistani exports have not picked up in recent months despite high devaluation of rupee.
The exports in fact declined in the month of November 2018 by over six percent compared with November 2017. The exports are unlikely to surge under the current circumstances. The decline in energy and power rates at best can stem the decline, but is unlikely to boost exports.
The mills in basic textiles are still closing. Last week, a weaving mill called it a day in Punjab despite lucrative concessions from the federal government. The total number of mills that have closed down is over 125; majority closed in 2018.
The international market has not been responsive during most of the year. The US sanctions against China equally hit Pakistani textile exports, as most of our yarn and fabric goes to that country.
The value-added textile exports did increase, but the growth was no way near the devaluation of the rupee. In fact, the exports of both readymade garments and knitwear increased robustly in quantity but there was a sharp decline in per unit value. The value-added textile sector is facing efficiency and sustainability issues.
International Finance Corporation, a member of the World Bank Group, has signed an agreement with leading global apparel company, Gap Inc in Pakistan to boost resource efficiency in its operations and drive long-term sustainability.
This programme, if successfully implemented, may boost value-added exports in future. Under the agreement—the first of its kind in Pakistan’s textile industry—IFC’s Advisory Services will assess the use of resources at Gap Inc’s supplier factories in the country, and help them implement efficiency measures to reduce the use of water, energy, chemicals, and other resources. This will also help Gap Inc improve competitiveness and sustainability.
The perception of the country has also not improved and there are reports that some US importers are reluctant to place repeat orders with Pakistani exporters, probably on lobbying from anti-Pakistan forces.
Textile sector is also facing shortage of skilled hands. In four years, the sector fired most of their best hands due to decrease in exports. Many of them have either changed profession or are self employed in different sectors. Most of them are not in a position to take the risk of rejoining the industry that dumped them; they are content with what they are earning regularly.
While government policies did play a role in increasing the plight of the textile sector, the industry itself increased the stress due to its lethargic attitude towards achieving efficiencies. Perhaps several decades long textile exclusive facilitations by the government played a role in making the sector complacent.
They expected a bailout package from the government. They did not upgrade technology nor did they improve efficiencies.
Take the case of the spinning industry, where 90 percent of the spindles are power inefficient because of old technology. The new high tech spindles consume 40 percent less power. Had efficient technology been used, the industry would have survived high power and energy prices in the past 5 years. The present government, realised the high power and gas rates, and rationalised. But the technology was still old, which meant it ended up subsidising power inefficiency to the tune of 40 percent.
This subsidy should have been conditional. The government should have asked each industry to improve power efficiency by at least 10 percent per year, which meant technology upgrade of ten percent each year.
This way the government would not have had to increase the subsidy even if the exporting industry grew by 10 percent. In case of failure to improve power efficiency, a tariff penalty of 5 percent should have been slapped on the defaulting mills. This would force the exporters to improve efficiency, or else subsidy would increase every year. If we look at the current scenario the textile sector, the competitiveness of the textile sector stands fully restored. The only handicap now is their obsolete technology and general inefficiencies (IFC has jumped in to remove these inefficiencies).
The other parameters are ideal for any industrial sector in Pakistan. The minimum wage of Rs15,000 that was equivalent to almost $150/month a year back is now equivalent to $105/month. This minimum wage is only $10 higher than that of minimum wage in Bangladesh.
Indian worker gets minimum wage of $175 per month that is $60 higher than current minimum wage in Pakistan. The minimum wage in China is $240 and Vietnam is $145.
Rupee devaluation is icing on the cake. Water charges for industries in Pakistan are half than the charges borne by industries in China, India, and Bangladesh. The power and energy rates are at par or lower than most competing economies.
The domestic textile sector lost another advantage of procuring its main input - cotton - from local production that continues to decline. The decline in cotton production that was an institutional failure, also stressed domestic textile industry.
In 2012-13 Pakistan produced 12.88 million bales from 2.8 million hectares. In 2017, the cotton sowing area was reduced to 2.41 million hectares while the production declined more sharply to 10.73 million bales. Cotton productivity declined in Punjab from 701 kg/hectare in 2012-13 to 664 kg in 2016-17. The projections for 2018 crop are also not very bright.