Textile sector performs worst during PML-N tenure

LAHORE: Textile sector performance was the worst during the 2013-18 Pakistan Muslim League-Nawaz (PML-N) tenure as it lost both export and domestic markets partly due to inconsistent government policies and its inability to invest in technology.

From the government side its basic textile sector was hit by a 61 percent increase in power tariff announced by the PML-N government immediately after assuming power. The government also levied Rs3.61/unit surcharge to cover the theft in the system.

Power accounts for 35 percent of the production cost of yarn. The PML-N government also failed to pass on the benefit of lower oil prices to the industry as the power generation cost substantially declined.

The PML-N government did try to minimise the impact of gas shortages by importing liquefied natural gas (LNG). The price of imported LNG is linked to the price of crude oil.

Initially the imported gas was a little cheaper than domestic gas, but as the crude oil rates went up it now costs Rs1,350/mmbtu against Rs600 charged for domestic gas. Domestic gas is now available in Punjab where 70 percent of the spinning capacity is installed.

Producing power from imported gas costs them 2.5 times more than mills located in other provinces where domestic gas is available. This is a Punjab specific problem where 115 spinning units have closed for good in the last five years.

The decline in cotton production that was an institutional failure also stressed domestic textile industry. In 2012-13 Pakistan produced 12.88 million bales of cotton which was sown on 2.8 million hectares.

In 2016-17 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 701kg per hectare in 2012-13 to 664kg in 2016-17. In Sindh, it declined during the same period from 1,090kg to 1,012kg per hectare. As a result, cotton import increased substantially.

Finally the PML-N government denied genuine refunds to the textile exporters that have now accumulated to Rs200 billion. This has created liquidity problems for the textile traders.

The government also lost its creditability on its failure to implement the export facilitation policies it announced from time to time. The incentives announced in the packages were only partially granted.

Failure to invest in technology also eroded the competitiveness of the textile sector. Its competing economies invested heavily in technology. During the 2006-15 periods, Pakistani investors were almost absent from global textile machinery market (barring 2006).

During this period, China imported 55.7 million spindles (to make yarn). It thus increased its spindles by 68 percent. India imported 25 million spindles increasing its spindle base by 28 percent. Bangladesh imported 4.29 million spindles while Pakistan imported only 2.95 million spindles increasing its capacity by 3 percent only.

China was also the leader in import of shuttle less looms as it enhanced its weaving capacity by 78 percent by importing 465,000 looms. India enhanced its weaving capacity by 13 percent on import of 78,600 looms.

Bangladesh increased its weaving capacity by 7 percent by importing 42,900 looms while Pakistan could add only 7,300 looms during the period under discussion. It thus enhanced its weaving capacity by 1 percent only.

India, China and Bangladesh were the major markets for our yarn and fabric. When each of these economies invested at least two times more than Pakistan in spindles and shuttle-less looms, our exports were rightly hit.

This inability to upgrade technology is reflected in the exports. Indian exports in 2012-13 were $32.2 billion that increased in 2016-17 to $36.4 billion. Bangladesh was exporting textiles worth $24.6 billion in 2012-13 that jumped to $31 billion in 2016-17.

Vietnam, a new player in this sector exported textiles worth $18.1 billion in 2012-13 and in 2016-17 its textile exports touched $31.5 billion. Sri Lanka’s exports jumped from $4 billion in 2012-13 to $4.9 billion in 2016-17. During the same period the textile exports from Pakistan declined from $13.1 billion to $12.5 billion.

An interesting study by All Pakistan Textile Mills Association (APTMA) reveals that none of the Pakistani textile sub-sector has been able to export its goods in quantity terms that the industry exported 8-10 years back in different categories.

For instance, the highest ever quantity of yarn exported from Pakistan was 740 million kg. In 2016-17, Pakistan exported only 455 million kilogram of yarn that is 39 percent lower than peak and is worth $771 million in current prices.

In the same way, the highest quantity of fabric exported stands at 2,625 million square meters. In 2016-17 Pakistan exported only 1,962 million square meter of fabric which 25 percent less than the peak. In dollar terms this 25 percent fabric at current price could generate $778 million of exports.

Peak knitwear exports were 132 million dozen and current exports are 13 percent less at 113 million dozen. This 13 percent could generate exports of $415 million.

Similarly, $57 million could be generated if we achieve bedwear exports peak in quantity, as only towels can generate addition $40 million and readymade garments $428 billion.

We have lost 3/4th of our synthetic fibre market in the last 8 years. Those losses translate in to $1.659 billion.

APTMA report states that we can add $4.137 billion in textile exports if we could recover the markets we lost in quantity terms.