Due to high mark-up rate in the country, the import of textile machinery decreased by 10.6% to $693.3 million during the July-April period of the fiscal year 2005-06 compared to $775.9 million the same period last year.
This would hurt Pakistan's ambitions to increase its share in the world textile trade which is expected to grow to $800 billion in 2014 from the existing $350 billion. Investment in the textile sector is a part of the upcoming global challenge of quota free trade of textile in the world.
Pakistan's textile industry has invested $5.5 billion since 1999 to prepare itself for the post-quota world and projects to invest another $5 billion by 2010 for expanding capacity and technology up-gradation.
The increase in credit costs, which consequently increased the financial charges of the mills, has now forced the industry to stop further investment. On the other hand Pakistan's textile products have become less competitive in the international market owing to tough competition from India, China and Bangladesh.
A study carried out by the Lahore Chamber of Commerce and Industry (LCCI) Committee on the WTO has mentioned that the world textile trade is set to increase from the existing $350 billion to $800 billion by 2014 and Pakistan's share in it is 2.7%. India has 4% and China 26% share. According to some estimates, Asia's share in the world textile trade would increase from the current level of 54% to about 75% by 2014.
This scenario provides an opportunity to Pakistan to excel further and its share could reach to the level of 4% to 5%, provided that fresh investment continues to take place in the sector.
Pakistan textile sector is by far the most important sector of the economy contributing 67% to export earnings and engaging 35% of the labour force. The entire value chain represents the production of cotton, ginning, spinning, weaving, dying, printing and finally garments manufacturing. Pakistan has emerged as one of the major cotton textile product suppliers in the world with a market share of about 30% in world yarn trade and 8% in cotton cloth. The value addition in the sector accounts for over 9% of GDP and its weightage in the quantum index of large-scale manufacturing is estimated at one-fifth.
Pakistan's policy of free trade in cotton, the liberal import policy for textile machinery and other inputs, and the gradual deregulation of investment approval procedures, all resulted in substantial investment in modernisation of the country's textile and clothing sector over the past few years and an investment of $5.5 billion since 1999. Notwithstanding the increase in the country's textile and clothing exports, Pakistan's share in the EU, the largest market for the country's textile exports, declined by 0.6% to 3% in 2005.
Its share in the United States market, which is the second largest market for the country's textile and clothing exports, increased only marginally by 0.2%. In international trade in textiles and clothing while delivery time, reliability, consistency, service, product differentiation, brands and marketing are all very important, price still remains the most critical selling point.
Some cost comparisons on garmenting reveal (2002 Gherzi Report) that Pakistan ranks amongst the high cost producers within the Saarc region. Whereas it is only marginally higher in cost of production and lower in labour productivity vis-à-vis India, it is significantly more expensive and less labour productive when compared with Bangladesh and Sri Lanka.
In case of its comparison with China, though the wage levels measure out to be quite similar, the Chinese labour productivity rate enjoys a distinctive edge. In the above-mentioned report, all the developing countries are compared by using the same or similar types of sewing technologies. European labour productivity was gauged as much greater due to advanced and automated technologies, but this difference then gets far outweighed by hourly labour costs, which are about 40 to 50 times higher.
The industry needs to focus on management quality standards by adhering to ISO 9000 certification in its true letter and spirit and has to ensure that environment friendliness and social accountability concepts are properly maintained throughout the production chain.
WTO rules and regulations place very strong emphasis on social aspects pertaining to the workers in particular and the society in general, and are extremely sensitive to use of banned substances (chemicals, dyes, etc) in the manufacturing process.
In the next few years, for the Pakistani textile industry to consolidate and for related exports to thrive, a careful Government support policy will have to be evolved, which not only enables this sector to ride this critical phase of changing business mechanisms but also at the same time encourages it to be more imaginative and sensitive to the new global requirements. Modern technology in production will have to be adopted and to cope with this modernisation the stock of existing human resource will need to enhanced and improved.
If implemented properly, the improvement in technical efficiency, greater economies of scale coupled with government support measures with regards to interest rates, operating overheads, better physical infrastructure provisions and policy facilitation can go a long way in decreasing the cost of production.
Textile sector experts are of the view that the country needs an investment of $1.2 billion annually if it has to touch the level of $32 billion exports by 2014 from the existing level of around $9 billion.
Textile industry experts predict that by 2014, textile-manufacturing facilities in the West will cease totally, forcing them to outsource from efficient areas of the world. If the current share of Pakistan is maintained in the larger pie, there is a potential of textile exports worth $24 billion per annum. But the way investment in capital formation has reversed in recent past, particularly owing to the high mark-up rate and non-availability of any thing like India's Technology Up-gradation Fund Scheme, experts fear that the country would not be able to meet the target.
The Indian textiles and clothing exports are set to touch $15 billion 2005-06 fiscal year, after fetching $13.04 billion last fiscal, with encouraging trends in the post-quota regime governing global trade in textiles and clothing, particularly from the US and the 25-member EU, the two main markets for India. It is no surprise that with the TUFS and TUFS-like schemes the Indian textile industry is looking forward to an investment of around Rs 1,400 billion by 2010 and aiming to touch exports figure of $50 billion by 2010.
The Indian textile sector is set to double its share in world textile trade from the present 4% to 8% by 2008.
(The writer is Professor, Institute of Business and Technology (BIZTEK)
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