Textile numbers for the first quarter of FY19 were released yesterday by the Pakistan Bureau of Statistics (PBS). The figures continue to paint a bleak picture for textile exports which showed negligible change as compared to 1QFY18.
The highest growth witnessed was in the knitwear segment which recorded a 10 percent increase in 1QFY19 whereas lacklustre performance persisted across other valued added segments including bed wear, readymade garments and towels. On a month-on-month basis, textile export figures are much gloomier with double-digit plunges across the board from cotton yarn to readymade garments. In order to assess the reasons for the sector’s dismal export performance, BR Research reached out to Azizullah Goher, the Secretary General of the Pakistan Textile Exporters Association (PTEA) and other stakeholders to get their views.
According to Azizullah, long standing issues of the textile industry which include cheaper energy provision and refunds have not been fully resolved yet. He pointed out that the weighted average provision of gas to the textile manufacturers was only just approved by the ECC and would take time to reflect in a decreased cost of production for textile exporters. Additionally, the verdict is still out on the reduction in electricity tariffs for the sector which wants Rs3.53/kWh reduction in power surcharges.
The other pressing issue has been the pending refunds which now have reached almost Rs262 billion, according to data obtained by this newspaper. Out of this amount, the largest pending amount is that of duty drawbacks which has reached almost Rs130 billion. Textile stakeholders maintain that the last refunds payment they received was in June of this year and the delay has caused them severe liquidity issues. This makes sense as awarding the incentives on paper is easy to do but in order to make any meaningful impact on textile exports, companies actually need to receive their refunds in order to reinvest them in getting more export orders.
There is another matter that warrants attention and that is the rupee depreciation. Granted, there will be a benefit if Pakistan’s textile exports have become cheaper in international markets. But there is also an associated downside and that is the increase in raw material costs such as imported cotton, dyes and fabric which make a decent proportion of overall costs for value added textile exporters. Ultimately, it is a trade-off and stability in the value of the rupee is good for business all around. Take for instance, cotton which is the basic raw material for the textile industry. There has been an almost 22 percent decrease in the cotton production in the last four years whereas this has been supplemented by importing raw cotton which has seen an almost 300 percent increase in the same period. Yet, with the depreciation in the rupee and illogical protectionist measures in the form of import and regulatory duties, the cost of raw cotton has been increased.
But the industry is still optimistic in light of the recent decision to subsidise the cost of gas for zero-rated export sectors and believes once the new government has found its feet it will work towards solving the issue of pending refunds and bring stability to the rupee depreciation as well. Stakeholders believe that it will take at least another quarter to translate the effects of a lowering in cost of production to increase export orders. Let’s hope the next quarter shows more optimistic textile export figures!
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