Pakistan’s high-value-added (HVA) textile and apparel export segments are witnessing a remarkable resurgence, with earnings clawing back to their 2022 peak. This is particularly noteworthy as weighted average prices in the sector have fallen by over 25 percent. While part of this increase can be attributed to the so-called ‘Bangladesh effect,’ other critical factors have played a pivotal role in driving growth and shaping the latest trends in the industry.
For the past many months, the chatter has been that the Pakistani textile industry is in a primed position to gain from the Bangladesh effect; that is, the reallocation of global textile and apparel orders to competing countries, including Pakistan, following the political upheaval in Bangladesh during the summer of 2024. Readers will recall that the collapse of the Hasina Wajid regime due to widespread unrest led to industry closures in that country, prompting buyers to seek alternatives. Since June 2024, this shift has contributed approximately $100 million in additional HVA exports per month for Pakistan. However, the resilient performance of Pakistan’s HVA textile exports cannot be attributed solely to this effect, as broader structural and policy-related developments may also be at play.
Interestingly, the last time export prices were at current levels was in 2018. Since then, Pakistan’s HVA textile exporters have added $3 billion annually—or $250 million per month—to their export earnings. The bulk of this growth has come from the knitwear and garments segments, which account for 80 percent of the rise in earnings. This growth has been achieved despite significant challenges, including declining domestic cotton production, market-based interest rates, and (allegedly) the highest energy tariffs both in the region and versus competitors. Additionally, domestic retail markets have lost their shine over the past two years due to record inflation and the resultant demand destruction, making export markets a more attractive avenue for manufacturers.
A defining trend in Pakistan’s HVA textile sector is the growing dominance of vertically integrated firms, particularly well-capitalized sponsor business groups that are either vertically integrated at the firm level, or at the group level (i.e., firms with the same beneficial owners/sponsors). As much as half of all HVA export earnings are now attributable to Pakistan’s top 100 export houses. This trend reflects global buyer preferences, as international brands increasingly favor working with fewer, more integrated suppliers who can handle large-scale operations efficiently. Vertical integration has allowed these firms to streamline their supply chains, improve productivity, and better meet the social and environmental compliance requirements faced in developed markets.
This consolidation has been also facilitated by policy distortions in the form of concessional financing schemes provided by Pakistan’s central bank, such as the Long-Term Financing Facility (LTFF) and the Temporary Economic Refinance Facility (TERF), which were disproportionately made available to well-capitalized sponsor groups, due to Pakistani banking industry’s preference for name-lending instead of project evaluation based on cashflows. These schemes enabled large groups to make significant capital expenditures, further improving their production capabilities and overall competitiveness, without significantly scaling up re-investment by sponsors. Meanwhile, smaller firms were left struggling to keep pace.
Meeting labor, environmental, and sustainability standards have also become a critical requirement for textile exporters targeting developed markets. Buyers now demand compliance with social requirements, such as renewable energy usage, effluent treatment, and raw material traceability. Larger firms with access to financing are better positioned to invest in the necessary infrastructure and technologies to meet these non-tariff barriers. This reality has further consolidated the export market in favor of financially robust companies while sidelining smaller enterprises that lack the resources to comply.
Another key development shaping the industry is the Export Facilitation Scheme (EFS) by FBR (which is different from the now-retired Export Refinance Scheme made available by the central bank). This policy allows exporters to import raw materials and intermediate goods—such as cotton, synthetic yarn, and greige fabric—duty-free for value addition and re-export. EFS has significantly improved liquidity for exporters by eliminating the delays associated with duty refunds, which often stretched into months or even years. The scheme also provides access to inputs at globally competitive prices, making Pakistan’s exporters more cost-effective.
However, EFS has not been without controversy. Local spinning and weaving industries have criticized the scheme, arguing that it undercuts domestic production by increasing reliance on imported inputs. Furthermore, there have been allegations of misuse, with claims that goods intended for re-export are being diverted to the domestic market, where local products are subject to turnover taxes at regular rates. This has created distortions in the tax regime, exacerbating the resentment in the local spinning and weaving industries which are already on the verge of closure due to exorbitant energy tariffs and falling availability of local cotton.
The ongoing consolidation of export earnings among large firms poses a significant challenge for small and medium-sized enterprises (SMEs) in the textile sector. While large firms benefit from access to concessional financing, economies of scale, and compliance capabilities, SMEs face hurdles in securing financing, meeting international standards, and competing on cost. The current environment increasingly favors large players, raising concerns about the long-term inclusivity and sustainability of growth in the sector.
Despite these challenges, the sector has demonstrated impressive productivity improvements. Market-based interest rates and commercial energy tariffs may have driven firms to optimize efficiencies in the supply chain. Additionally, the EFS scheme and (now defunct) concessional financing have freed up liquidity and incentivized investments in modern machinery and technologies. These developments have enabled Pakistan’s textile exporters to remain competitive despite rising costs and falling global prices.
Pakistan’s high-value-added textile and apparel export sector is undergoing significant transformation. While the Bangladesh effect has provided a temporary boost, long-term trends such as vertical integration, compliance with global standards, and access to supportive policy measures are reshaping the industry.
However, it must be remembered that this growth is increasingly concentrated among large, vertically integrated firms, which demands a discussion over the falling contribution of SMEs. But that’s for another day.
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