Incisive policymaking is needed to help the textile sector
Pakistan has untapped export potential in the textile sector. The role and impact of the textile sector can very well be gauged from its contribution to the national economy. It comprises 8.5 percent of the country’s GDP, employs 40 percent of the labour force and contributes 60 percent to the export sector. Directly and indirectly, the textile sector impacts the lives of 25 million people out of a 220 million population. To actualize this great inherent potential, considerable investment in machinery, enhanced skill set and product development are critical. Success in these avenues is not possible in the absence of supporting policies from the government, particularly in the backdrop of tough competition in the sector in the region.
The Pakistan Institute of Development Economics (PIDE), in its latest study, has highlighted the policy consistency and other critical issues concerning the textile sector of the country. The report argues that the PTI government’s policy of regionally competitive energy tariff (RCET) has boosted textile exports and brought economic stability. It says abandoning the policy in favour of a new support regime will have serious repercussions for the industry. The government of Pakistan introduced the RCET policy in 2018. From October 2018 onwards, under this policy, the government provided re-gassified liquieied natural gas (RLNG) at $6.5/mmbtu, and since January 2019, electricity tariffs were 7.5 cents/kWh. However, the electricity tariffs were raised to 9 cents/kWh in September 2020.
A policy is a tool to achieve a certain objective and an effective way to eliminate uncertainty by upholding a clear pathway. A predictable and stable policy enables all agents to have a level playing field and act accordingly. Unfortunately, there is a lack of policy predictability and consistency in Pakistan. This is a significant growth constraint. For instance, a few large textile mills are taking the risk of expansion and installing additional units in the backdrop of favourable policy for textiles. Yet, most of the textile industry is reluctant to decide what kind of machinery to import and how much expansion to plan. All of them are unsure about the time frame of the current policy, which could change anytime. A miscalculation could inflict considerable losses on the mills.
The textile sector is in dire need of a long-run comprehensive investment plan to emerge as a key driver of economic growth. Investment on such a scale can have positive spillover effects in the sector and in allied industries. As of now, the industry’s productivity has increased a bit, and investment is happening. Now, to avail the full potential of the textile sector and retain and enhance the existing customer base, consistent implementation of the RCET policy is needed.
Instead, some quarters are arguing that the RCET will make the sector regionally uncompetitive. Others are suggesting a moratorium on gas supplies. With these whimsical policy signals, we would not be able to develop investors’ confidence to reap the full potential benefits of the sector will remain a distant dream.
The textile sector is in dire need of a comprehensive investment plan to emerge as the key driver for economic growth.
Assuming that competitive energy prices alone would solve all the problems is naive. Take the example of electricity. Power supply from the grid follows a lot of fluctuations and breakdowns. These fluctuations in the supply have heavy costs for a unit depending upon which sub-sector it is operating in. For instance, a one-minute breakdown in spinning stops work for 20 to 25 minutes and causes a 10 to 15 percent production loss in the case of weaving.
Likewise, ensuring the desired pressure of the gas at the unit’s inlet cannot be guaranteed by just competitive energy tariffs. Additionally, the latest machinery is computerised and comes with sensitive electronic gadgets. Power shutdowns and fluctuations can sometimes cause damage to these gadgets and stop working. These gadgets are not locally made, so these must be imported. This takes at least a few days, if not more, further adding to the costs.
Furthermore, availability of the raw material, i.e., cotton, is increasingly becoming a significant challenge. Its production is on the low side and its quality is poor. Cotton is a Kharif crop (monsoon crop/ autumn crop). In Pakistan, there are three other major Kharif crops besides cotton. These include maize, rice, and sugarcane. Over the last two decades, the area under sugar cane and rice cultivation has increased by almost 19 percent. Whereas the cultivation area of maize has increased by 40 percent.
The cultivation area of cotton has decreased by 18 percent. Besides, the cotton crop is more prone to pest attacks and plant diseases. If farmers use pesticides, it adds to the cost, and for the small farmer, integrated pesticide management is expensive. Thus, farmers are shifting from cotton to crops which are more profitable for them.
Additionally, contamination in hand-picked cotton in Pakistan is a persistent issue concerning the quality and value of cotton. Pakistani cotton is one of the most contaminated in the region. Untrained cotton pickers from field and low-ginned quality standards add to cotton fetching lower value in the market. Pakistani ginned bales contain 8-10 percent trash, while in the world, it averages around 2-3 percent. Poor quality cotton in terms of its physical properties raises the processing costs and reduces the output and quality of the final products.
To increase cotton production, we need to supply farmers high-yield seeds that raise profitability. The provision of such high-yield seeds is only possible after necessary research and innovation regarding the seed quality. Research should also be done on the type of seeds resistant to pests/insects and plant diseases. All these concerns put a question mark on the performance of government agriculture research bodies.
The state machinery has apparently misunderstood policy-related dynamics. Most of the policies can rightly be described as arbitrary, unpredictable, non-consistent and non-conclusive. There is a sheer lack of long-term comprehensive planning. Consistency and long-term planning is the way forward.
The writer is a Research Economist at the Pakistan Institute of Development Economics (PIDE), Islamabad