Until 2017, it was Pakistan’s fifth largest export category by value. By 2023, it no longer features even among the top-15. Six years ago, Pakistan had come close to giving China a run for its money as the world’s top exporter of denim fabric (5209.42). Today, its denim exports are under weather, and with it – the competitiveness of the country’sseveral top exporting firms.
Although Pakistan’s denim fabric exports (5209.42) have breached half a billion dollar in revenue only once in history (2021), the criticality of the industry to Pakistan’s overall textile and garments value chain cannot be overemphasized. Many of Pakistan’s top exporting firms and business groups – from Soorty, Artistic, US Apparel, to Siddiqsons, Sapphire and Crescent – are concentrated in denim manufacturing, while many others such as Interloop and Nishat have diversified into the segment by setting up denim units.
Despite the understated forex earnings from denim fabric export over the years, the industry is responsible for supporting an upstream value chain that traverses through indirect exporting units in weaving, dyeing, and finishing, all the way up to spinning and cotton farms. Were it not for the country’s denim industrial base, the indigenous short staple, low quality cotton would be hard pressed to find many willing buyers. In fact, the denim industry might be the single largest indirect consumer of locally produced cotton, followed closely by towels.
Yet, the collapse of Pakistan’s denim fabric exports over the past five years has been both spectacular and mind boggling. Between 2018-19 and 2022-23, fabric exports declined by nearly 10 times in volume, from a peak of 492 million square meters to a little over 62 million square meters by last year. The decline began in 2019-20, when a slowdown of 17 percent in quantity exported was attributed to the lockdown and closure of global trade.
During the following two years, a rise in global commodity prices led to a boom in export of raw material yarn, which made export of denim fabric uncompetitive, with export volume declining to an average of 140 million square meters. That year, a concurrent rise in export of woven denim garments – primarily in men’s trousers – meant that local firms were now on firmer footing, exporting higher value-added garments directly to consumers destinations in EU and North America rather than exporting intermediate products, i.e. fabric to regions such as Bangladesh, Viet Nam, and Turkey.
For a while, the shift in trend from export of medium-value to higher value-goods did not necessarily appear to be a negative development, as the industrial exporting base was consuming a lot more of the previously exported fabric at home – although without increasing the overall volume of denim goods (both fabric and garments) exported out of the country. Export earnings of top-15 denim units from Pakistan rose from $1.9 billion in 2018-19 to $2.2 billion by 2021-22. But then came 2022-23, when all hell appears to have broken loose.
The export revenue of top-15 denim units declined to just $1.8 billion, down 17 percent over the preceding year and lowest in at least 5 years. Meanwhile, denim fabric exports had declined to just 62 million square meters in volume, lowest since at least the turn of the century if not longer. But wait for it, even the export of final products, i.e. made-up garments of denim, had also declined by 40 percent in volume, down to levels last recorded during the Covid year, 2019-20.
Many insiders are quick to point out that the massive slowdown in denim industry’s output during 2022-23 is primarily attributable to the disaster struck local cotton crop, where the output dropped to lowest levels in half a century due to the monsoon floods of 2022. Now that the local cotton crop output has recovered by nearly 80 percent during the outgoing kharif season, Pakistan’s denim industry should be all set to stage a recovery.
Unfortunately, early indicators do not offer any semblance of hope. Latest trend in domestic textiles output – both of cotton yarn and cotton cloth, as tracked by the Large-Scale Manufacturing Index – indicates that Pakistan’s year to date yarn and fabric production during 2023-24 is the lowest in at least 20 years, indicating that the recovery in cotton crop performance has not translated into higher output in fiber or clothing segments. And with textiles output clocking in even lower numbers than the Covid or the flood year, it is only a matter of time before the same translates into denim manufacturing – with the industrial segment output coming down to a complete halt. Meanwhile, the slowdown in world cotton prices over the last 20 months means that the lower volume will also be accompanied by a more massive slowdown in export revenue.
What that could mean for Pakistan’s already flailing denim segment remains to be seen. But the signs are not looking too good.