Exchange rate, energy prices, or pricing in the global market – something will have to give, and fast. Despite fears and gloom, Pakistan’s textile and garments industry has delivered a robust year of export performance. Although the dollar value of exports remained flat-lined over the previous year, the quantum of exports grew across the board, with virtually all major value-add segments recording double digit growth in volume exported.

In a year of historic markup rates on bank financing, it was survival of the fittest – and concentration of exports with large firms paid dividends (of course, only if your definition of dividends is protection against erosion of export earnings). The top 30 textile firms account for one-third of industry’s total exports, with an even higher share at sponsor group level. The concentration of exports among a few giants delivered resilience in the face of declining export prices amid possibly harshest exogenous conditions faced by the industry at large in history.

Consider this: despite an average 15 percent exchange rate depreciation during the outgoing fiscal year, unit prices fetched by various value-added product categories came in lower in Pak Rupee terms! Yes, you heard that right. In fact, compared to the historic export performance year of FY22, average unit price in dollars for products in the top performing segment - knitwear – declined by 43 percent; for readymade garments by 31 percent; and for cotton yarn, by 24 percent. In other words, if textile prices in the global market had persisted at 2022 levels, industry exports would have easily breached $21 billion based on FY24 volumes!

The culprit of course is the dramatic decline in raw material prices, which have collapsed 50 percent since peak levels two years ago. The reality is that in the brave new, post-pandemic world, Pakistan’s textile industry is simply no longer competitive against peer countries. This means two things: either course correct by reversing the measures taken over the last two years such as rolling back of concessional finance, energy tariff revisions, and income tax rate rationalization, in hopes that the industry may catch a breath and is saved from impending collapse.

Or – double down and allow only the most efficient to survive in a cutthroat world. Accept that Pakistan’s textile export potential in the short run under market conditions is restricted at current levels of $16 billion (or thereabouts), with most of it contributed by fewer than 100 large, well-capitalized firms with access to in-house power generation and other cost minimization means. While the large houses may have the capacity to sail through troubled waters,let most other small and midsized players diversify away from an industry which does not have a future in a country with uncompetitive and unreliable energy supply; is investment starved; and with zero to negative readiness for a future dominated by circular textiles and concerns for environment.

Despite a grand design, Pakistan’s dysfunctional governance has brought the textile industry simultaneously at the verge of both collapse and re-birth. For investment and capital to flow from dated industries such as textile to technology, older industries must first become unprofitable. Even though no one clearly planned it as such, this now finally seems possible for Pakistan’s textile sector. Let the uncompetitive players phase out, while allowing the few islands of excellence to thrive without the clutches of subsidies and concessions.