The deteriorating law and order situation in the country has adversely impacted foreign investment as the number of "foreign investors" has gone down by 25-30 percent as compared to last year, Dr Shahzad Arshad, Chairman, Pakistan Cotton Fashion Apparel Manufacturers and Exporters Association, has claimed while talking to Business Recorder.
He fears that this trend is likely to intensify if the downslide is not stemmed, as textile exports may decrease by up to 50 percent by July 2008. He has further said that the deterioration in security situation in the wake of Benazir Bhutto's assassination has hurt the economic activities so badly that the European customers are hesitant to place orders for the year 2008.
Pakistan is fast losing its business credibility in international market and "our output is 40 percent less than that of neighbouring countries like Sri Lanka, and most of our textile exporters are shifting their business to Bangladesh," Shahzad has further said.
The countrywide violence following Benazir Bhutto's tragic murder has indeed caused a sudden slump in the country's industrial productivity. However, many may view Shahzad's remarks as a self-serving attempt to camouflage the textile sector's own shortcomings that have been largely responsible for the reverses it has suffered in international market.
Others may perceive it as an attempt to cash in on the post-Benazir crisis to extract further concessions from the government. The unfortunate reality is that the textile sector - our major forex spinner - despite the projectionist buffers successive governments have provided to it as done to many other sectors, to keep it afloat has not lived up to its immense potential both quantity-wise and quality-wise.
Hence the European customers' hesitation to place orders for the year 2008, or 40 percent cut in production compared with neighbouring countries like Sri Lanka or the re-location of most of our textile exporters to Bangladesh etc. We have been reminding the government of the adverse impact of the high cost of doing business in Pakistan, and the damage a lax quality control regime can cause to our exports, but apparently to no avail.
Textile sector's importance to Pakistan's economy lies in the fact that it employs 38 percent of the country's total industrial labour force, contributes 27 percent of the industrial value addition, and has 67 percent share in the country's total exports.
However, despite receiving numerous incentives and concessions the sector has by and large failed to improve its performance. That is why it is today faced with many problems. These include the export houses' capacity shortage to meet bulk orders, lack of adequate investment in R&D essentially because of the overriding profit motive, and the levy of high protective tariffs with a pronounced anti-export bias.
Other factors that have stunted the growth of the sector include lack of a strategic plan to achieve expansion, paucity of professional manpower, use of old plants and equipment, inferior product quality, low productivity, lack of marketing expertise and inadequate infrastructure.
Things are so bad in R&D that the Ministry of Textile Industry has had to issue a special directive to all registered units in the country through 12 top registered associations for seeking details concerning the state of infrastructure and the machinery being used by them, as well as their plans to make further investments.
The directive also has sought details of the total R&D rebate each unit had collected and how far it had been able to ensure environmental compliance. The circular has also sought details about the expenditure incurred by each unit on IT and staff training.
The ministry had announced in 2006 the grant of five percent R&D support to textile units on their exports to make the sector more competitive in international market. It should be mentioned here that most of our industries, including textile industry, are not particularly known for their focus on R&D or environmental compliance.
Our textile industry consists of a large-scale organised sector which comprises integrated textile mills, ie spinning units with shuttleless looms, while the downstream industry comprising weaving, finishing, garment, towel and hosiery units mostly fall in the unorganised sector. Despite huge incentives advanced to it, the textile sector has not been able to shake off its "package" addiction and survive on its own through enhanced productivity and quality control, as many of our neighbours have done.
(In September last year, Japan's ambassador to Pakistan, Seiji Kojima had said at a function at Rawalpindi Chamber of Commerce and Industry: "Pakistan's textile products have failed to compete with those from India and China. Hence India has been able to capture some of the textile market in Japan, which was previously held by Pakistan.")
Despite establishment of a separate Ministry of Textiles and the plans for "textile cities," losses in Pakistan's textile exports are not only reflective of poor quality control but also mirror high input cost and exorbitant profits earned by our exporters.
As trade and industrial sectors are currently undergoing rapid transformation in compliance with WTO guidelines, there is an urgent need for Pakistan's textile industry to improve the quality of its products, from raw cotton to finished products, so that it is able to compete in the international market without crutches of any sort.
There is a need for greater investment in infrastructure and R&D, particularly in evolving new production processes and better cotton seed varieties. In today's world it is the game of volume and product quality. Unless we achieve both, our textile sector will be pushed further back into the projectionist cocoon, which has deprived it of the dynamism required for survival in a highly competitive international market.
Cashing in on domestic crises to extract unearned concessions will push the sector further down the hill. Instead of giving it more concessions, the government should evolve a comprehensive strategy to allow the textile sector to develop its innate viability, as it happens to be our economy's main prop. We propose that among other measures, merger of units in both formal and informal textile sectors, to give our textile industry the competitive edge it needs.