Money Matters

Economics of Austerity

Money Matters
By Engr. Hussain Ahmad Siddiqui
Mon, 01, 23

Textile is the country’s single largest industry. Yet it is almost totally dependent on imported machinery, equipment, accessories and spares. The local facilities for manufacturing textile machinery items practically do not exist though worldwide, the sector has been a harbinger to the development of capital goods industry.

Economics of Austerity

Textile is the country’s single largest industry. Yet it is almost totally dependent on imported machinery, equipment, accessories and spares. The local facilities for manufacturing textile machinery items practically do not exist though worldwide, the sector has been a harbinger to the development of capital goods industry.

Textile & Apparel industry annually imports textile machinery and spares valuing hundreds of millions of dollars even under adverse conditions for the sector. It has imported machinery valuing $344 million in 2019, $435 million in 2020, and $792 million in 2021, from different sources including China, Germany, Italy and the USA. In view of the persistent widening trade deficit, it is imperative to strengthen domestic manufacturing facilities for import substitution. The government therefore needs to evolve a strategy to progressively reduce dependence on imported textile machinery and encourage indigenous efforts for manufacturing of a wide range of basic textile machinery, in the medium- and long- term.

To make the proposed exercise meaningful and successful, perhaps a look at the historical background of indigenous manufacturing of textile machinery will help the stakeholders. Foundation was made as early as in 1973 for creating an engineering base in the public sector for local manufacturing of textile machinery, with the establishment of Textile Winding Machinery Corporation. Consequently, Textile Machinery Company was set up in 1975 at Korangi, Karachi, to produce manual and automatic cone winding machines with an installed capacity to manufacture 50 winding machines annually.

The world-renowned Gilbos of Belgium had provided technical know-how under a licensing agreement. Having commenced production in 1978, the company remained grossly under-utilised from the very beginning. It had produced and sold optimally in 1988, besides cone winders, the high drafting system, ring spindle frames and textile spares valuing just Rs50 million and earning nominal profit. By early 1990s production of textile machinery items came to a halt as Textile Machinery Co was privatised and remains closed after transfer of ownership to the private sector.

Spinning Machinery Company, the other production unit, was set up in 1977 at Kot Lakhpat, Lahore, to produce ring spinning frames/machines under license from Schubert & Salzer of Germany. It went into commercial production in June 1982, but could not achieve full capacity of producing 250 frames of 476 spindles annually in any given year. The capacity utilisation remained around 20 percent as total sales until June 1989, when its production was discontinued, was 231 frames valued at Rs155 million. It also produced high drafting equipment and spares for the textile industry. Obviously, the company lacked economy of scale, suffered higher production cost and thus incurred huge financial losses. Resultantly, production of ring spinning frames at Spinning Machinery Co was discontinued.

A nationalised company, Pakistan Engineering Company Ltd (PECO), at Lahore was already manufacturing and marketing power looms. PECO produced automatic shuttle looms in collaboration with Iwama Looms of Japan that already had strong references of installing machines in Pakistan. Starting from producing 250 looms of a variety of sizes, the company had progressively reached an annual production of 600 looms. Negotiations were also in advanced stage with the global leaders for assembly-cum-manufacturing of modern shuttle-less looms under license. This however did not materialise due to on-going privatisation process of PECO. In early 1990s the power loom works at PECO was closed down.

In fact, local manufacturing of textile machinery had remained on the agenda of successive governments, as efforts continued to be made by the public sector engineering industry to diversify their product range to include textile machinery, but without concrete results. Sadly, the textile industry never liked to promote the domestic engineering industry mainly for the reason of making massive over-invoicing in imports and stashing it in foreign currency abroad. As a result of lobbying by the powerful textile industry, the government policies too remained non-supportive and inconsistent in promoting the engineering industry.

The local manufacturing of textile machinery had inadequate tariff protection, and continuous unrestricted import of these equipment was allowed either at nil or at concessional duties. This was despite the comparable quality and selling price of indigenous products versus imported units. These companies therefore failed to capture the market for their products. The Chinese and the Japanese manufacturers of textile machinery, with whom the holding corporation State Engineering Corporation was negotiating licensing agreements for future production of machinery in line with market demand, backed out due to the prevailing environment and attitude of the textile industry.

After the closure of operations at Spinning Machinery Co, another public enterprise Pakistan Machine Tool Factory (PMTF) at Karachi ventured into producing ring spinning frames under license from Jingwei Textile Machinery of China. The selected brand/model, having a major population of installed units, was already popular in the Pakistan market. It was planned to manufacture 300 frames annually in the final phase, achieving 60 percent deletion over a period of five years. The Chinese had transferred almost complete technical know-how for the local manufacturing.

But initial plans faced serious problems, again due to the negative attitude adopted by the textile industry and unfavorable tariff structure. Finally, the company launched the product in December 1998. But there was a lack of response from the textile industry and production/sales projections could not be attained, as investors continually preferred to import these units from China. Future plans for manufacturing of knitting machines at PMTF, and blow-room equipment, carding machinery, and dyeing & finishing machines at Heavy Mechanical Complex in collaboration with the Chinese could also not materialise.

On the other hand, the private sector has been hesitant to invest in the engineering sector in a big way. Still, significant contribution has been made by the private sector in recent years towards manufacturing of parts, accessories and some items of textile machinery. Nonetheless, these SMEs mostly in the non-organised sector have been unable to achieve a sizable quantum of production. The long list of locally produced items includes power looms, warping machines, twisting machines, winders, washing machines, calendaring machines, sizing machines, scouring machines, textile spindles, spinning and twisting rings, fluted rollers, textile shuttles, metallic card clothing, textile inspection machines and air-conditioning & humidification equipment for textile industry.

Today, the textile industry is embroiled in many crises. Since October textile exports have been declining sharply on a month-on-month basis, and not likely to achieve their annual export target. The industry is facing multiple challenges, such as high energy cost, government’s limitation on imports, massive rupee devaluation, and slump in global orders. Many textile industrial units have meanwhile been closed down as a consequence of these factors. Still, revival of the export-oriented industry is inevitable within a short span of time. The industry has great potential for expansion on increasing global and domestic demand of textiles and made-ups in future. Significant revamping and modernisation of the industry is thus anticipated.

This provides an excellent opportunity to gear up for the indigenous manufacturing of textile machinery based on advanced technology by the private sector in a big way. These items may include conventional machinery for spinning, weaving, knitting, processing, dry & wet finishing, and printing etc. No capital goods industry in a developing country can bring out its products in a short-time comparable in quality to similar products of the global manufacturers having extensive experience gained over decades of research and development. This equally applies to the manufacturing of textile machinery.

Therefore, joint venture agreements with renowned international technology partners need to be negotiated and finalised. The modalities may include having equity participation or licensing arrangement or joint manufacturing under technology transfer agreements. Besides setting up new industrial units, the existing facilities at various engineering industrial units can be gainfully utilised for undertaking progressive manufacturing of a large variety of equipment required by the textile sector.

The writer is retired chairman of State Engineering Corporation