Reviving the textiles and apparel sector

As the country heads towards elections next week, the All Pakistan Textile Mills Association—in consultation with a broad base of stakeholders—has put forth a 41-point policy roadmap for the incoming government to revive and revitalize Pakistan’s textiles and apparel industry and push the sector’s exports to over $50 billion per annum by 2029.

The textiles and apparel industry has always been a vibrant part of Pakistan’s economy, but recent years have highlighted critical shortcomings: the range and variety of products we have to offer is very limited and our manufacturing capacity is too low to be able to capture a major share of global trade in textiles and apparel.

The international market is growing rapidly, with a marked shift towards man-made fibers (MMF). However, our exports remain relatively low and predominantly cotton-based, limiting our potential in the global marketplace and necessitating a strategic shift towards product diversification and expansion of manufacturing capacity.

After navigating through the tumultuous times of the Covid-19 pandemic, the sector achieved remarkable growth as textiles and apparel exports surged by over 54%, from $12.5 billion in FY20 to $19.3 billion in FY22. However, the economic crisis of 2022-23 brought to light the fragile nature of these gains, emphasizing the need for a competitive, sustainable, and distortion-free business environment.

Prohibitively high energy costs that are over twice those faced by competing firms in regional economies forced production cuts of over 30% as manufacturing became financially unviable; persistent delays in issuance of tax refunds coupled with a shortage and high costs of working capital and supply chain finance created an industry-wide liquidity crisis; and deterioration in Pakistan’s international image led to long-standing international clients systematically shifting their sourcing away from Pakistan.

To overcome these challenges and achieve $50 billion in annual exports by 2029, our proposed policy roadmap focuses on three main themes: diversification, expansion, and competition.

First, the government must incentivize product diversification to increase the range and variety of exportable products. Crucially, this requires rationalizing import and other duties on MMF inputs like purified terephthalic acid and polyester staple fiber that have created opportunities for rent-seeking in the domestic market and resulted in a strong anti-export bias. It must also create incentive structures to incentivize investment in MMF manufacturing capacity as well as a shift towards higher value-added original brand and design manufacturing.

Second, investment needs to be made in upgradation and expansion of manufacturing capacity. Our ambitious initiative to establish 1000 new garment plants is a bold step in this direction. This project is not merely about scaling up production; it represents a strategic reorientation of our industry towards higher value-added manufacturing. The sector currently has an annual export capacity of around $25 billion; by boosting it to over $50 billion per year, we aim to diversify our export portfolio and enhance our competitiveness on the global stage. This expansion is a testament to our commitment to growth, innovation, and resilience in the face of global economic shifts, and an investment in the very fabric of our nation—our workforce, our economic stability, and our future. By creating up to 1.5 million jobs, both directly and indirectly, we are not just bolstering the industry but also nurturing a future that promises prosperity and opportunity for the people of Pakistan.

Establishment of specialized industrial and export processing zones with developed factory sites and plug-and-play facilities are of utmost importance to facilitate this investment and create an ecosystem conducive to growth and innovation. These zones will significantly lower entry barriers for new ventures and catalyze the expansion of exports by attracting domestic and foreign investment in export-oriented activities. Efficient logistics and transportation systems, advanced testing and certification facilities, and robust supply chain management are essential components that will elevate our industry to meet international standards of excellence.

Finally, the government must foster a business environment that is conducive to competition, growth, and ease of doing business.

This encompasses policy interventions related to energy, taxation, investment and financing, export marketing, supply chain traceability, environmental and social sustainability and compliance, and reviving domestic cotton production. While all of these are crucial for boosting the sector’s competitiveness, three points merit special emphasis.

First, to be able to compete in international markets, firms require regionally competitive energy tariffs of 9 cents/kWh. Moreover, with the European Carbon Border Adjustment Mechanism expected to come into force soon, a transition towards net-zero emissions in export production is immediately needed. Achieving both goals requires allowing B2B power contracts with a wheeling charge of 1-1.5 cents/kWh and increasing the cap on solar net-metering for industrial consumers from 1MW up to 5MW so that firms are able to procure clean energy at competitive end-use prices.

Second, the industry’s liquidity crisis must be resolved. This entails fixing the FASTER sales tax refund system to ensure all refunds are issued within 72 hours as per the law and bringing inflation down to single digits to allow for a reduction in interest rates and revival of credit provision to the private sector.

Third, the government must undertake an aggressive and multi-faceted export marketing exercise that promotes Pakistan’s textiles and apparel products in international markets. This includes high-level delegations consisting of Minister for Commerce and business leaders attending international textiles and apparel sourcing conferences, hosting networking events and interacting with C-level executives from international apparel firms to woo them to increase sourcing from Pakistan.

Moreover, Pakistan should be promoted as a destination for buying houses of international brands and retailers through incentive packages that increase their physical presence in the country, and entry into non-traditional markets such as e-commerce and direct international retail should be facilitated by relaxing regulations on remittance of export proceeds, warehousing of export products abroad and making investment in setting up retail stores in foreign countries.

To conclude, it is pertinent to mention that if provided with such a business environment, achieving $50 billion in textiles and apparel exports by 2029 is not only realistic but very much within reach. It requires aligning our policies with the needs of a modern, diverse textiles and apparel sector, one that can compete effectively in international markets.

The policy roadmap we have put forth, which is driven by a vision to diversify and expand our manufacturing capabilities, sets the stage for this and is a call to action for the government, industry stakeholders, and our international partners.

It’s a blueprint for a future where the Pakistani textiles and apparel sector is not only a global leader in terms of volume but also a benchmark for innovation, sustainability, and excellence.

Copyright Business Recorder, 2024