Textile Overview Final

BUSINESS STRATEGY [AN OVER VIEW OF THE TEXTILE INDUSTRY OF PAKISTAN]

[Abstract]

The textile sector of Pakistan is the backbone of the economy of the country. It contributes 65 % to the total exports of the country. Besides being a very important sector, it is neglected and today faces stiff competition in international market. This report is formulated to highlight the issues and problems pertaining to the textile sector and some recommendations to utilize the maximum potential of this industry to boost the exports of textile products of Pakistan.

Group Members: (Group # 2: MBA‐II Direct)

i) Ammar Ashraf iv) Piyar Ali Lakho ii) Hassan Ahmed Khan v) Rohan Tariq Mirza iii) Muhammad Hasan vi) Raja Imram Arshad

Vii) Sarmmad Rafique

Submitted To:

‐ Mr. Kamil Shahbazkar

BUSINESS STRATEGY [AN OVERVIEW OF THE TEXTILE INDUSTRY OF PAKISTAN]

2

DEDICATION

This report is dedicated to our great mother land Pakistan ,our beloved Institute Of Business Administration, Karachi, our loving teacher Mr. Kamil ShahbazKar, Ahmed Mansoor Khabaray (Teaching Asst.), Ministry Of Textile, all those people who helped us completing this report and lastly to all the project groups members.


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Table of Contents

Cover Page…………………………………………………………………………………………………………………………… 1

Dedication…………………………………………………………………………………………………………………………… 2

The Textile Industry Of Pakistan: An General Overview……………………………………………………… 3

The Production Process Of Textile Industry………………………………………………………………………… 7

Textile Value Chain Diagram………………………………………………………………………………………………. 8

The Financial Perspective Of The Textile Industry Of Pakistan………………………………………….. 27

Marketing Perspective of the Textile Industry of Pakistan……………………………………………..... 44

Export Potential Of Textile Industry of Pakistan………………………………………………………………… 55

BIBLIOGRAPHY……………………………………………………………………………………………………………………… 64


4

The Textile Industry of Pakistan

The textile sector enjoys a pivotal position in the exports of Pakistan. In Asia, Pakistan is

the 8th largest exporter of textile products. The contribution of this industry to the total

GDP is 8.5%. It provides employment to about 15 million people, 30% of the country

work force of about 49 million. The annual volume of total world textile trade is US$18

trillion which is growing at 2.5 percent. Out of it, Pakistan’s share is less than one per

cent. The development of the Manufacturing Sector has been given the highest priority

since Pakistan’s founding with major stress on Agro-Based Industries. For Pakistan

which was one of the leading producers of cotton in the world, the development of a

Textile Industry making full use of its abundant resources of cotton has been a priority

area towards industrialization. At present, there are 1,221 ginning units, 442 spinning

units, 124 large spinning units and 425 small units which produce textile products.

The industry consists of large-scale organized sector and a highly fragmented cottage /

small-scale sector. The various sectors that are a part of the textile value chain are:

Spinning, most of the spinning industry operates in an organized manner with in-house

weaving, dying and finishing facilities. Weaving comprises of small and medium sized

entities. The processing sector, comprising dyeing, printing and finishing sub-sectors,

only a part of this sector is operating in an organized state, able to process large

quantities while the rest of the units operate as small and medium sized units. The

printing segment dominates the overall processing industry followed by textile dyeing

and fabric bleaching. The garments manufacturing segment generates the highest

employment within the textile value chain. Over 75% of the units comprise small sized

units. The knitwear industry mostly consists of factories operating as integrated units

(knitting + processing + making up facilities). The clothing sectors both woven and

knits are mainly clustering in Karachi– Lahore and Faisalabad where sufficient ladies

labor is available. High value added products i.e. garments and textile made-ups have

over the years progressively increased their share in the textile export portfolio.


5

Currently these products constitute 57% of the total textile exports. During early

nineties the textile exports were dominated by yarn and greige fabric which had a share

of almost 56% in the total exports. As far as the markets are concerned 60% -70% of the

merchandise is exported to the USA and the EU.

TOTAL TEXTILE UNITS IN PAKISTAN:

Ginning 1221

Spinning 445

Weaving

Large 140

Small 425

Power Looms 20600

Finishing

Large 106

Small 625

Garments 5000

Large 600

Knitwear 700

Towels 400

Total Capacities:

Spinning: 1900 Million Kgs Yarn

Weaving: 5600 Million Sq. Mtr. Fabric


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Finishing: 3500 Million Sq. Mtr

Garments: 650 Million PCs.

Knitwear: 350 Million PCs.

Towels: 55 Million Kgs.

RECENT INVESTMENTS IN TEXTILE SECTOR:

During 1999 – 2006, there has been a rapid expansion in investment in new textile

technology. There is now a marked shift to value addition and the share of garments

and made-ups has increased from 47% to 58%. Total investment in textile industry

during the last four years is now being estimated at $ 6 billion that has led to

improvement in productivity, both in terms of quality and quantity, in yarn, fabrics,

home textiles and garments.

Spinning is the most capital intensive segment of the textile sector, but value added

sectors - home textiles and garments - require relatively less capital investment, but they

also create more jobs.


7

Production Process Of The Textile Industry

Textile manufacturing begins with the production or harvesting of raw fiber. Fiber used

in textiles can be harvested from natural sources (e.g. wool, cotton) or manufactured

from regenerative cellulose materials (e.g. rayon, acetate), or it can be entirely synthetic

(e.g. polyester, nylon). After the raw natural or manufactured fibers are shipped from

the farmer the chemical plant, they pass through four main stages of processing

• Yarn production

• Fabric production

• Wet process

• Garments Manufacturing

B

BUSINESS STRRATEGY [ANN OVERVIEWW OF THE TE

8

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10

ROVE FORMATION (ROVING):

The main function of the roving is to attenuate the

sliver. In this process draw frame sliver is fed to the

drafting arrangement, which attenuate the sliver with

a draft of between 5-20.. The twisted (rove) is finally

woundon the bobbin, so that it is easy to transport to

next process, stored and crelled on ring frame

SPINNING

In this process rove is fed to drafting arrangement, which further attenuate to spin into

final yarn. The delivered stand offline fiber from the

drafting arrangement, is strengthened by inserting twist

in it. This twist is generated by the spindle, which rotate

at a higher speed. Each revolution of spindle import one

turn of twist to the strand. Finally the yarn (twisted fiber

strand) is wound on bobbin mounted on spindle with the

help of traveler


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INNOVATION IN SPINNING PROCESS:

Cotton is a more traditional raw material for spinning. Today synthetic raw materials

are used for production of blended yarn. Some of these methods are discussed below.

MANMADE FIBERS

Manmade fibers are often shipped as staple (similar inlength to natural fibers), which is

ready for spinning, or asfilament yarn, which may be used direct ly or followingfurther

shaping or texturising. Both synthetic and celluloseare

manufactured by processes that simulate or resemblethe

manufacture of silk (i.e., forcing a liquid through asmall

opening where the liquid solidifies to form acontinuous

filament). The three main methods of fibermanufacture

are described below:

WET SPINNING

In wet spinning, the polymer used to form the fiber is

dissolved in solution. The solution is forced under

pressure through an opening into a liquid bath in which

the polymer is insoluble. As the solvent is dissipated in

the bath, the fiber forms. Wet spinning produces rayon,

acrylic, and modacrylic.

DRY SPINNING

Dry spinning uses a solvent that evaporates in air. The dissolved polymer is extruded

through the spinneret into a chamber of heated air or gas; the solvent is generally

recovered for reuse. Acrylic is produced by dissolving the polymer in dimethyl-

formamide before dry spinning. Other fibers formed by dry spinning include acetate,

triacetate,


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PROBLEMS WITH SPINNING INDUSTRY:

At present there are 493 textile mills out of which 53 are composite units 410 spinning

units and 30 waste spinning units. There are 8.63 M. spindles and 132000 rotors

installed of which 6,208 M. spindles and 73100 rotors are in operation (June1995). The

capacity utilization is 72% in spindles and 55% in rotors. Annexure-1 describes the

capacity installed worked and idle capacity during the last 10 years. The closed spindles

declined from 30% in 1985-86 to 15% in 1990-91 and have now again increased to 28% in

June 1995. The rotors behaved similarly and %age closures declined from 34% to 10%

and then again increased to 45% during the same period.

Annexure-11 describes the month-wise details of closed capacity for1993-94 and 1994-

95. In would be noted that of the total closed capacity 19% spindles and 32% rotor are

fully closed and 9% spindles and 13% rotors are partially closed. The partial closure

represents both capacity closed for normal maintenance as well as import of market

slump.

The No of spinning units – capacity and hence production of yarn had increased during

the last five years. The exports of yarn could not keep pace with the increase in

production and is reflected in low export volumes detailed as below:

Production & Exports of Yarn(In M.K. Gs)

Period Yarn Production Exports Export %age of production

2004-05 1055.23 502.67 52.4

2005-06 1188.27 505.86 42.6

2006-07 1234.54 555.30 45.0

2007-08 1498.95 578.5 36.6

2008-09 1415.20 511.63 36.1


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The low levels of exports sales coupled with increase in raw cotton prices and increase

in input cost in turn had impact on mills viabilities and this resulted in decline

approximately 100 MKg of yarn production in 1994-95 and this trend is anticipated to

continue in near future. This in turn has developed a state of financial squeeze on textile

industry and is reflected into increase in the closures of spinning units as under

Year Total No of units Units fully closed

2004 - 05 307 31

2005 - 06 334 44

2006 - 07 471 103

2007 – 08 493 114

June – 2009(updated to Aug) 493 120

The main reasons for these disaster is as follow:

(i) Market recession.

(ii) Over capitalization and hence unfeasible performance.

(iii) Uncertain viability of spinning sector at international prices of raw cotton.

(iv) Financial constraints.

(v) Lack of timely modernization according to the market requirement.

(vi) In-efficient management.

(vii) Labour problems.

(viii) Disputes amongst directors/family/shareholders and various cases pending in Courts.

(ix) Law and order situation.

(x) Power disconnection.


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SUGGESTIONS TO BOOST SPINNING INDUSTRY:

1. The farmers and ginners need to be educated on quality improvement, grading,

packing, and labeling and storage functions of cotton. Improved quality of raw cotton

will not only reduce the cost of production and waste product but will also enable the

spinners to produce cotton yarn of higher counts to fetch more foreign exchange.

2. Special incentives need to be provided to attract investment for manufacturing the

textile machinery. This will reduce the cost of textile machinery and ultimately the cost

of production of cotton yarn to enjoy competitive advantage in the international market.

3. Duties on the import of equipment for the generation of electricity should be

removed so that the textile firms could produce cheap electricity themselves which

ultimately will reduce the cost of production of cotton yarn.

4. Performance of the existing apprenticeship institutes should be improved, new

institutes should be established and refresher courses for farmers, ginners, spinners,

mill managers and export managers should be started to improve upon the quality of

human resource in textile sector.

5. Mark up rate for borrowing the money from banks should be inversely related with

the production of higher counts of yarn. The mark up should range from 25 per cent for

20 counts to 14 per cent on the above 100 counts of yarn produced and 13 per cent for 20

counts to 8 per cent for the above 100 counts of yarn exported. Similarly the imposition

of sales tax on cotton yam should production to 10 per cent for below 20 counts of yarn

produced.

B

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the efficien

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N OVERVIEW

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W OF THE TE

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EXTILE INDU

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16

placed in a shuttle which carries the weft thread through the shed. The raising and

lowering sequence of warp threads gives rise to many possible weave structures:

Plain weave,

Twill weave,

Satin weave, and

Complex computer-generated interlacing.

Both warp and weft can be visible in the final product. By spacing the warp more

closely, it can completely cover the weft that binds it, giving a warp faced textile such as

rep weave. Conversely, if the warp is spread out, the weft can slide down and

completely cover the warp, giving a weft faced textile, such as a tapestry or a Kilim rug.

There are a variety of loom styles for hand weaving and tapestry. In tapestry, the image

is created by placing weft only in certain warp areas, rather than across the entire warp

width.

MODERN WEAVING:

Modern looms still weave by repeating in sequence the operations of shedding, picking,

and beating in, but within that

framework there has been

considerable development during

the 20th century. Several new types

of loom have come into industrial

use, whereas older types have been

refined and their scope extended.

Two main influences have been the

rising cost of labour and the

increasing use of man-made,

continuous-filament yarns. The first

has led to an increase in automatic control, in automatic handling of yarn packages, and


17

in the use of larger packages; the second, to greater precision and finish in loom

construction, because deficiency in these qualities is readily reflected in the quality of

the cloth made from these yarns.

Modern looms can be grouped into two classes according to whether they produce

cloth in plane or tubular form. Looms of the first kind, comprising all but a few, are

called flat looms; the others are described as circular. Since the majority is flat looms,

the adjective is used only when a distinction has to be drawn. Flat looms fall into two

categories: those that employ a shuttle and those that draw the weft from a stationary

supply, usually called shuttle less looms. (This term is not entirely satisfactory, as some

primitive looms make no use of a shuttle, merely passing through the shed a stick with

weft wound on it.) Shuttle looms fall into two groups according to whether the shuttle

is replenished by hand or automatically. The second kind is often described as

an automatic loom, but, except for shuttle replenishment, it is no more automatic in its

operation than the hand-replenished or so-called non automatic loom, which, like all

modern looms, is power-operated by electric motor. With both types of loom the actual

weaving operation is entirely automatic and is performed in exactly the same manner.

Hand-replenished, or non automatic, looms are used only where particular

circumstances—of yarns, fabrics, or use—make automatically replenished looms either

technically unsuitable or uneconomic. Basically they differ little from the power looms

of the latter half of the 19th century. They do not run appreciably faster but are better

engineered, making use, for example, of machine-cut instead of cast gear wheels. Often

there is no superstructure, which makes for cleanliness and improved illumination;

frequently rigid heddle connectors are employed, leading to precise and stable setting

of the shed; and usually the over pick mechanism has been replaced by the cleaner and

safer under pick.

Automatically replenished flat, or automatic, looms are the most important class of

modern loom, available for a very wide range of fabrics. In virtually all such looms, the

shuttle is replenished by automatically replacing the exhausted bobbin with a full one.


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In principle they are thus the same as the automatic looms introduced at the end of the

19th century. Since that time, automatic shuttle-changing looms have also been

introduced but have largely become obsolete, because bobbin-changing looms have

been developed to a point where they can deal with most of the yarns for which it was

once thought necessary to use shuttle-changing looms.

RECOMMENDATIONS FOR IMPROVEMENT:

· Increase in loom productivity, · Increase in weaver productivity, · Improvement in the quality of fabric, · Longer lengths and wider widths fabrics can be produced, · As many as 16 colours of yarn in the weft can be used without sacrificing the

speed of the machine, · Increase in versatility, · Use of weft accumulators, which reduces average tension on weft during

insertion of weft, equalizes · yarn tension caused by the diminishing diameter of weft supply package,

avoids snarls in the weft · and gives fewer weft breakages, · Reduces cost of production due to higher productivity and better value

realization due to improved · fabric quality.


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TEXTILE WET PROCESSING:

Wet processing is a tricky business. Unlike spinning and weaving, where specific calculations with certain constants cover up the entire technology, wet processing is a field of variations and uncertainties. Despite strict process controls and quality checks, variations do occur and to cope up these problems quick and correct decisions are required. The wet processing of textile goods involves the following processes:

• Checking and raising in grey department.

• Singeing, scouring, bleaching, and mercerizing in pre-treatment department.

• Dyeing of pre-treated fabric in dyeing department.

• Printing of pre-treated/dyed fabric in printing department.

• Finishing of dyed/printed fabric in finishing department.

• Final checking and folding of finished goods in folding department.

GREY DEPARTMENT:

It is the first department of the mill where the grey fabric is stored, checked and issued for the processing orders. At first all of the fabric is received and stored in the godown. Then it is checked, folded and issued. In case of flallil fabric, it is raised, folded and issued. The sequence of processes is as follows:

GREY GREY

CHECKING

FOLDING

PROCESSING

RAISING

FOLDING

PROCESSING


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PRETREATMENT

This department carries out the various processes also called back processes on textile goods in grey form. The input in this department is the graded grey fabric and the output is white fabric (bleached and/or mercerized).

Pre-treatment occupies the key position in textile finishing sector, since almost all textile undergoes pre-treatment in the course of their finishing operations and estimated to 60-70% of faults that appear during subsequent processing attribute to wrong or inadequate pre-treatment. The sequence of various processes in the pre-treatment is:

COLD PAD BATCH BLEACHING

SCOURING

BLEACHING

SINGEING

DESIZING

MERCERIZATION


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DYEING

“It is the process of colouring the textile materials by immersing them in an aqueous solution of the dyestuff called dye liquor”

The general theory of dyeing explains the interaction between dye, fibre, and water and dye auxiliaries. More specifically it explains:

• Forces of repulsion, which are developed between the dye molecule and water; and

• Forces of attraction, which are developed between the dye molecule and fibre.

The processes consist of three stages:

1 Migration of the dye from the solution to the interface accompanied by absorption on the surface of the fibre.

2 Diffusion of the dye from the surface towards the centre of the fibre.

3 The anchoring of the dye molecules by covalent, ionic, or hydrogen bonds, or other forces of physical nature.

The process of dyeing can be classified as:

• Cotton dyeing.

• Polyester/Cotton blends dyeing

COTTON DYEING

Dyeing on cotton (natural fibre) is carried out by a variety of dye classes but at ATI, cotton dyeing is carried out with the following dyes:

• Reactive dyes.

• Vat dyes.

• Pigment dyes.

DYEING PROCESSES

For cotton dyeing with reactive dyes the following process are adopted

• Exhaust process.


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• Semi-continuous process.

Pad – batch process.

• Continuous process

Pad – steam process.

Pad – dry – chemical pad – steam process.

Pad – thermosol process.

PRINTING

Printing can be defined as the localised application of dyestuff or pigment to fabric to generate a pattern or design. In printing thick or viscous solution of dyestuff or pigments are used to ensure that the colour adheres to the precise spot applied and does not spread to destroy the definition of the printed object. The word printing implies a process that uses pressure being derived from the Latin word meaning printing. The German word Druck used for printing also means pressure.

FINISHING

Textile finishing is a term that is commonly applied to different processes that the textile materials undergo after bleaching, dyeing or printing for final embellishment to enhance their attractiveness and sale appeal.

The type of finishes and methods of their application depend upon the nature of the fibrous substrate and their arrangement in yarn or fabric. The properties of fibres such as swelling capacity, chemical reactivity, response to heat treatment etc determine the type of finish suitable for a particular product. Choice of the finish is further governed by factors such as structure of yarn, type of weave and construction of fabric i.e. woven, knitted or non-woven


23

GARMENT MAKING PROCESS (USED IN PAKISTAN):

Knowledge is the key to success and this also stands true for textile

industry. Every textile entrepreneur need to know the basic, traditional

as well as modern and technical apparel making techniques. This helps

the traders compare all the available means in the market and select the

one best suited for the business requirement. The basic processes of textile

manufacturing viz. spinning, weaving, knitting, finishing processes, dyeing, printing

and others are all involved in fabric manufacturing. However, the actual ready to wear

apparel involves many more processes right from pattern drafting to garment

construction which include pattern designing and pattern making, grading, marker

making, apparel cutting, sewing, pressing and finishing. Lets have an overview of the

basic processes as well as the latest trends in the making of an apparel.

PATTERN MAKING:

The basic procedure for apparel making is to design a pattern and put it

into an identifiable form. The traditional method of pattern making

includes creation of hard paper patterns. The modern apparel making

system has adopted the digitization of pattern making process. These

days many clothing firms provide the most modern and technical services for garment

construction. They can create fresh computerized patterns or make modifications to

existing hard paper patterns or digitize the available data. These patterns can be made

from their own samples or specifications provided by the apparel manufacturers. Most

of these firms try to provide patterns that will sew properly without confusion in the

production line.


24

PATTERN GRADING

Grading is the process used for creating sized patterns. There are certain

proportional rules and set increments that form the basis of grading.

These rules are set on the basis of analysis on body measurements of the

general population. The clothing firms also help in pattern grading

using the specifications provided by the apparel manufacturers and some of them also

assist the manufacturers in establishing specifications for their product. The grade rules

are developed keeping in view the market segment for which the product is intended

such as men, women, youth, child, toddler etc. These firms mostly use the softwares

available in the market for checking the accuracy of the grades.

MARKER MAKING

Fabric is the most important basic material for apparel making and it

accounts for around 50 per cent of the ex-factory cost of a garment.

Thus, material optimization or maximizing fabric utilization is the

fundamental factor for every apparel firm. Marker making is done to

avoid material wastage. While making markers, fabric width, length, fabric type and

subsequent cutting method, all are taken into account. Both single size and multiple size

paper markers are made using automated marker making tools and Computer Aided

Design Computer Aided Manufacturing (CADCAM) along with traditional manual

methods. The firms providing this service use previously graded pattern or the

digitized copy of styles provided by the apparel manufacturers.


25

APPAREL CUTTING

Apart from using traditional tools such as straight knife, band knife,

shears etc. nowadays, automatic spreading equipment and

computerized cutting systems are widely used for apparel cutting .

Pattern specifications are kept into consideration while cutting which

ensures that the constructed garment is exactly similar to the sample produced. The use

of markers ensures as little textile waste as possible.

APPAREL SEWING:

The sewing operation in most of the garment construction companies is

closely supervised for quality control. A variety of apparel styles and

fabrics are sewn these days. There are a large number of sewing

machines available for almost any sewing operation. Some of the

examples of such machines are single needle, double needle, safety stitch, automatic

meter, automatic multi stitch, loop tacker, pocket welt, keyhole buttonhole, automatic

button.

PRESSING & FINISHING:

After the sewing operation, the constructed garments are examined,

pressed, tagged and bagged in the pressing and finishing department.

The automated processes adopted these days prevent the possibility of

wrinkling of the sewn garments throughout the finishing process.


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GARMENTS MANUFACTURING FACILITIES IN PAKISTAN:

There is now more focus on garment and knitwear export in Pakistan. At present there

are 5000 plus garment units operating in Pakistan. Of these 12% are said to be large

scale and 88% are small almost cottage industry level. There are about 250,000 industrial

sewing machines and half a million domestic sewing machines in this sector. In knitting

too there are about 750 big and small units. Pakistan fetched more than US $2 billion

from export of garments and knitwear during last fiscal year and expects to push up

earnings in the current fiscal year too. These two sectors, said to be the highest value

added textile products, are likely to emerge main foreign exchange earning items in the

post 2005 world export market.

SUGGESTION FOR IMPROVEMENT:

- As garments sector is the most value added sector in textiles, investments in

textile should focus on garments.

- A $ 20 million dollar investment in spinning & waving sector produces on 200 –

300 jobs, while such a investment in garments sector can generate almost 4500 –

5000 jobs and about $ 0.5 million foreign revenue.

- Exports of raw yarn and cloth should immediately be banned and exports of

unfinished goods should be immediately banned.

- More foreign collaboration is required for the end product industry i.e. Garments

manufacturing so that a permanent relation be developed to external buyers.

- The textile industry should reverted to composite units for the production of a

complete range of products.

- A redesigned energy policy should be implemented for the textile sector as

interruption in power leads to serious losses and cancellation of orders.

- One of the greatest value addition to the garments sector and eventually to the

textile sector would be to evolve brands rather than be merely a out source

facility. The brand establishment could a one the most powerful boaster for the

textile sector of Pakistan.


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Financial Perspective Of The Textile Industry TEXTILE TRADE: WTO

The world textile trade is regulated by a governing body’s agreement by World Trade Organization’s (WTO) called Agreement on Textile and Clothing (ATC). This agreement enforced rationing of textile trade and imposed quotas on export to certain countries namely European Union, Canada, United States of America and Turkey on December 2004. This severely hampered developing countries exports to these countries and affected these countries textile sector contribution to their respective country’s GDP.

RATIONING & CONSEQUENCES ON PAKISTAN

Rationing or quotas act as a quantitative barrier on textile or garments that a producing nation can export to a consuming market. Pragmatically, this has meant that low-cost producers aren't free to sell as much as they could while retailers must cobble together supply chains to produce the lowest-cost supply possible. This has led to serious repercussions on textile trade. Rationing goes as far back as 1974 when it was imposed on a dozen countries mainly in Asia by America, European Union and Canada. The developed importing countries used their status and persuaded the exporting countries for mutual rather forced restraints, limiting poor nations to export raw materials. It was initiated as short-term measure but later on extended and converted into a long-term plan. The basic purpose behind this was to give a breathing space to the local industries of developed countries so as to make them able to compete in future. Setting such unfair conditions, the new entrant like Pakistan, whose industry is in the upstream infant stage, has rendered many problems. These were the tactful strategies used by the developed countries to exploit the weaker position of the developing nations. The use of quotas began to be phased out in 1995, but so far only about 50% of textile products have been freed, including such items as seat belts, umbrellas, baby clothes and brassieres. Once the quotas are removed on remaining items, competitive countries will no longer be limited in their access to lucrative markets and uncompetitive nations will lose their guaranteed markets which are now governed by quotas. Pakistan’s total share in the global textile and clothing market is 2 per cent. Will Pakistan be able to increase its share in the post quota era or will it loose the percentage that it currently possesses?

The industry had great expectations from the post-quota regime. While exports have gone up, it was not to the levels expected. And competing countries are getting ever more aggressive. The industry is however confident of better prospects ahead.


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The industry and the government had expected orders to start flowing in post-quota, and had expected an export growth of 35-40 per cent during the year. It was also expected that readymade garments and home textiles would be the driving force for textile exports.

In anticipation of this, many in the industry went in for massive capacity expansions, etc. However, the orders did not come in as expected.

The progress has been slow, but not that bad. This situation of influx was expected by the industry players, but they are still anticipating that exports will increase gradually and will be higher in 2006, rising further in consecutive years.

If the industry moves with such a slow pace it can not meet the export target as was set previously.

For the post quota regime relaxation by the government were not enough as they did not attract a large amount of small businesses to enter and there is very small sport by the government to promote home textiles. Holding one textile / apparel exhibition once a year does not bring in importers and it definitely does not do any good to potential exporters.

Government needs to enter into contracts with the international sourcing houses and associations for the reason, to promote purchasing from Pakistan, causing higher influx of foreign exchange into the country.

DISABLING RATIONING

Companies thought that the global market will be anxiously waiting for them to enter the market and orders of big brand names will start pouring in which did not happen because despite Pakistan being able to produce high quality products lacks the proper marketing and image building required for promoting itself globally.

This shows that the industry was not prepared for the post quota era therefore they could not meet the demand.

The quotas put forth another problem by being lifted too slowly and that too from only half the products causing slow transitioning to technically enhanced industry that practices high exports.


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WTO: IMPACT ON PAKISTAN TEXTILE INDUSTRY

When the rationing system was disabled, it brought a astonishing change to Pakistani Textile Industry. Textile industry is the one of most important sector in the Pakistan’s economy as its share in economy, GDP and foreign exchange earning, is the highest. Despite of the global economic recession of year 2001, this is the only industry that is contributing to the great extent in the Pakistan economy that is why it is called as the backbone of the economy. The share of textile in the total country’s exports is around 66%. Pakistan is among one of the largest exporters of textile in the world along with China, India and Bangladesh. Before year 2005, Pakistan was exporting its textile products under the quota system but the implementation of WTO has abolished the quota system in the international market, which gives rise to many threats and opportunities for the textile industry of Pakistan. With the implementation of WTO, Pakistan’s industry has to face many challenges and the major one is that now they have to face the intense competition from China and India for exporting their textile product in the international market. Just at the end of the first month of WTO regime of January 2005, China has proven to be the biggest threat for Pakistan textile exports. In January 2005, the United States imported more than $1.2 billion in textiles and apparel from China, up from about $701 million a year ago. Moreover, some analysts have predicted that China could capture as much as 70 per cent of the American market in the next two years. Before the end of quotas, about 16 per cent of apparel sold in the United States was from China.

INTERNATIONAL REPERCUSSIONS OF WTO & PAKISTAN

Along with China, India has also reacted to the situation. Their government has started giving incentives to the textile exporters. Their primary textile markets are United States and European Union but Indian textile industry is facing many problems. Though labor cost in India is low but their operating cost is very high, government support is only with the small producers who have antiquated technology, their productivity is low and quality of cotton is far behind Pakistan. The cotton yield in India is just 330 kg per Hectare, whereas world average is 900-1,000 Kg per Hectare. Because of these reasons threat from India is less as compare to China.

This was just the one side of the picture, and was giving an impression that this change of regime has affected Pakistan negatively in the international textile market. But the things are not so easy to state. WTO has not only created challenges for Pakistan exports but also opened many doors of opportunities subjected to the few conditions. The end of quota system has meant that there is now a large international textile market. Pakistan has opportunity to increase its exports. Moreover, Pakistan is an agricultural-based country and its cotton quality is known to be the best in the world, which enables opportunities for Pakistan to bring improvements in the product quality. Two of the Pakistan textile products that are Bed linen and Towels are best available in the entire market. Approximately 6,500 towel looms operate in Pakistan, with an increase in the value of exports to all markets of more than 300 per cent since 1993.


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The opportunities enabled for Pakistan is subjected to certain conditions and Pakistan should act fast to realize the facts. Pakistan textile industry is facing some problems like weaving sector in Pakistan is dominated by small, family-owned power-loom weavers who produce poor quality fabrics at very low productivity levels. Moreover, the cotton-ginning industry in Pakistan has quality and efficiency problems that affect the final cotton goods. Pakistan’s ginning technology is obsolete, with machines only one-fifth as productive as machines in developed countries. In addition, different ginning mills have their own standards, affecting the overall uniformity of cotton lint produced. Power-loom technology currently in place is often from the 1940s and 1950s and has become obsolete, producing 48-inch fabric when present demand is for fabric widths of 92 inches.

PAKISTAN GOVERNMENT POLICIES AND WTO

Pakistan has to improve the quality of the product and they should make their product available at competitive prices in the international market. This is not far from Pakistan and they can produce quality products at competitive prices because labor cost is very low, cotton quality is the best and expertise is available. The Government is sensitive about the situation and making efforts to enable Pakistan to compete effectively in the post WTO regime. Government has initiated to rectify the situation one such example is to encourage machinery upgrades. Pakistan’s Government created a program (under Textile Vision 2005) to upgrade the technology used in a large portion of Pakistan’s weaving sector. The program is designed to give loans to textile firms in Faisalabad to upgrade from power looms to auto looms. In the last few years the huge investment is made in the textile sector of Pakistan and exporters are encouraged to use the latest technology.

It is true that due to WTO there are many threats to be faced by textile exporters of Pakistan and first few months are not very good but it does not mean that Pakistan cannot compete in the international textile market. Pakistan has the capability to compete in the global market and for this we need to capitalize on our strengths (cotton quality, low labor cost, increased exports of their major products etc) and should analyze our competitors this will enable us to compete effectively in the international textile market in the post WTO regime.

Textile Industry is the major economic sector of Pakistan and for quite some time to come it will continue to be the main driving force in the industrial and agriculture area. It contributes more than 66% to the total export earning of the country, accounts for 46% of the total manufacturing and provide employment to 38% manufacturing labor force. The availability of cheap labor and basic raw cotton as raw material for textile industry has played the principal role in the growth of the Cotton Textile Industry.


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The textile industry is contributing towards the economic growth of Pakistan from the last five decades as can be highlighted by the following facts and figures. Its share in the total export of the country is 63%, in manufacturing 46%, in employment 38% and 11% in the gross domestic product.

Around PKR 8 billion investments have been made during the last five years. But the government policies pushing such important sector to the wall and which can collapse anytime will not only result in the downfall in foreign exchange reserves but also loss of revenue, increase in trade deficit, unemployment and wastage of economic resources of the country.

The input costs are all time high and volatile. There was favorable stability in cotton prices during the last three years but ever changing prices of polyester remained unstable for many years, which left negative effect on the financial results of spinning sector and adversely changed the positiveness of results into dismal figures.

The government keeps on the policy of raising prices of other inputs costs. Government of Pakistan needs serious policy revisions regarding facilitation of Textile sector.

EXPORTS IN TEXTILE INDUSTRY:

We would like to discuss how textile sector is going by stating down the series of events that are taking place in the industry and their implications.

STRIKES OF VALUE ADDED SECTOR:

The strike of the value-added textile sector continued on second consecutive day on Wednesday this month. But protestation was curtailed outside the textile units. Police registered cases against more than 1000 people for burning, damaging and looting private and official property by disorderly mobs in the city.

One labor rally was taken out in the city and protestors raised slogans against the government and demanded that the export of cotton and cotton yarn should be stopped straight away to save the living of the 2.5 million family members in the country. Its thought that scarcity and non-availability of cotton yarn in the market has endangered millions of dollars worth export orders of home textile, made-ups and fabrics and this is the reason that we are seeing protests by the value added exports to stop the export of yarn. The value adding sector muses that not only the cost of finished goods has increased due to non-availability of yarn in domestic market "but also they have became uncompetitive in international markets due to high production cost".


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Value adding sector gives the argument that Indian government has banned export of cotton to safeguard its upstream value-addition industry, and Bangladesh has forced ban on export of jute, necessitated by indigenous necessities.

Aftab Ahmad, central chairman, and Ajmal Farooq, regional chairman of All Pakistan Textile Processing Mills Association have called upon the authorities not to ignore this important sector of the economy. Chairman of Council of Loom Owners, Waheed Khaliq Ramay, urged the government to restore the situation. The trade leaders demanded total disallow on export of cotton and yarn.

More than 60,000 power looms and textile value added units remained closed as a protest as workers & owners of power looms observed strike, organized rallies and set up hunger strike camp to press the authorities for their demands.

IMPLICATIONS OF 15 % REGULATORY DUTY ON EXPORT OF YARN:

All Pakistan Textile Mills Association (Aptma) has said categorically that export duty of 15 percent is penalizing and it could not be accepted by Aptma

Aptma spokesman said cotton and yarn under DTRE and Manufacturing Bonds will not be subjected to any duty, value added yarns at $3.5 & above per kilogram should be permitted to be exported duty free and without any quantitative restriction as this is a price which is higher than the average price at which towels and fabrics are being exported without any constraint or duty.

CONDITIONAL DUTY-FREE EXPORT OF YARN ALLOWED BY GOVT:

In response to the protests associated with duties, ministry of textile industry has allowed conditional duty-free export of cotton yarn, with minimum price and quantity restrictions. Ministry of textile industry had issued notification for amendment in the SRO issued by ministry of commerce on May 12, 2010 for imposition of 15 percent regulatory duty on export of cotton yarn.

As per notification, the ministry of commerce has permitted export of cotton yarn with immediate effect with some restriction including quota and price. They said that current relaxation for the export of cotton yarn has been approved after intervention by finance minister Abdul Hafeez Sheikh, as a delegation of spinners met him at Islamabad to resolve the regulatory duty issue, besides negotiations between and value added sector.

In addition, value-added yarn, bringing a price of $3.5 per kg or more will also be allowed duty free with a maximum quantity of 2000 tons per month to be counted from May 13, 2010.

Re-exports of yarn against imports of cotton under temporary importation schemes, such as DTRE, will be permitted duty free for those who were already registered to use such facilities before May 12, 2010. However, duty will be compulsory on the value of exports over and above the value of imported cotton.


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IMPACT OF VAT ON PAKISTANI TEXTILES

Pakistani textile industry opposes the Value Added Tax (VAT) plan, as according to them, it will cripple the spinal column of the country’s economy.Although the industry was to take pleasure in zero-rates under the VAT policy, it would still meet problems of tax payment and refunds, which would create a fund crunch.

In 1996, when the sales tax policy started, the textile industry was rated zero, but yet it paid, which was later refunded. But this process turned complex, resulting into extra expenses on sales tax staff and stopped huge funds of the textile industry.

Later on, all the legal companies were registered appropriately and the trouble of handing out invoices was discarded eternally. As of now, the industry is suffering from power failure for certain durations, higher rates of power and gas and several duties and taxes, which have turned the textile industry business more expensive as compared to its neighboring nations. Above this, if the VAT policy is implemented strictly on the industry, then it will lead to unfavorable shortage in funds.

MAKING TEXTILE SECTOR COMPETITIVE:

The Economic Coordination Committee on 28th June approved bulky package of Rs20 billion for the Textile Sector to help it in acceleration of exports in 2007-08 Under the package six per cent R&D hold up for garment sector, 5 per cent on dyed printed home textile and 3 per cent on dyed printed fabrics. R&D package is to boost Research and Development activities. The Prime Minister, however, gave thought to grievances of textile sector and decided to continue the assistance to make the industry internationally competitive. Subsidy under the new package will go on till June 2008. Earlier, the decrease of subsidy rate was scheduled from 1st July 2007. The spinning sector will be set 3 per cent markup on long term loans. It will cost government Rs1 billion. While Rs2 billion would be incurred on R&D from 1.7.2007 to 30.6.2008. Under the new package, flat rate of one per cent subsidy would give more payback to sectors like yarns, grey fabrics and cotton etc.

Textile industry had uttered dissatisfaction over new budgetary proposals for 2007-08. The disapproval was focused on government policy of making little difference between exporters of value added goods and manufacturers of semi-finished raw material. Textile business tycoons in their disapproval stated that the government proposals confirmed global textile rating agencies predictions that Pakistan would ultimately be made supplier of semi-finished goods. But after the first ever protest by spinners, Pakistan could also fail to spot the chance of supplier of semi finished textile goods. They were serious of relief in tax particularly the withholding tax in 2007-08 budget and demanded subsidy as has been extended to agricultural sector. Similarly spinners were demanding R&D on marketing value added goods. Government’s new package has resolved the issue and now the responsibility fell on the shoulders of textile industry as to how efficiently the package is utilized.


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In South Asian perspective Bangladesh has outstripped the other regional states. It has protected the maximum share of leading garments on the US and EU. Pakistan has been left at the back both by India (13 per cent increase in exports to EU&US) and Bangladesh (22 rise in exports to US&EU between Jan-Nov 2006 and 34 per cent in November alone). While Sri Lanka exports upbeat by 24 per cent to EU due to Generalized System of Preferences plus scheme-zero rate of duty. Japanese market is also being gone to its competitors. Before, the budget, State Bank of Pakistan, an significant source of revenues for government, had shown concerns that textile sector had serious surplus liquidity, distorted the tightening of monetary policy, chewed the Bank’s profits despite record subsidized loans in 10 months. In response to textile industry’s demand for more incentives, the Bank had made it clear that “the financial sector was fairly competitive”. Financing to textile industry and real interest rates in the country are inferior than its regional and competitive partners”. It is further clarified that the State Bank of Pakistan provides finance to Banks @ 7.5 per cent alongside commercial lending of 12.57-13-57 per cent. In India the rate is 9 per cent alongside 15 per cent commercial rate. Bangladesh and Sri Lanka the dispensation rate is 6.7 against 11.14 per cent commercial rate while Sri Lanka provides loans at 18 per cent in both cases. Borrowing rates for Pakistani exporters is the lowest in contrast to other regional competitors.

Government’s policy is to act in the following pattern.

(i) rationalize tariffs

(ii) ensure a conducive trade, finance and fiscal policies

(iii) remove the sales tax on textile value chain

(iv) reduce import duty on polyester chain.

The government also provides ease of use of development finance and export financing at low mark up rate including bother free environment. After the new package, textile industry needs to set off in to production of high value added goods, technology up-gradation and research to assemble the global competitiveness and challenges. The over all exports increase up to 6.5 per cent is not heartening. Before the budget, Chairman Aptama had made claims that 116 textile mills have been closed down. An estimated 700,000 spindles were going out of process which includes closure of 20,000 during May alone. He had claims that about 500,000 spindles have been closed during last year and had rendered more than 15,000 people jobless.

Government plan of cotton vision is to get better the quality of silver fiber in the country. According to Chief Executive Trade Development Authority of Pakistan, textile dream was being updated in line with the chaining needs. Country’s exports are under stress because the core products failed to give matching performance in terms of exports. Nevertheless, a study by CBR’s team comprising senior officials conducted before the budget had exposed that Rs40.7 billion as a refund and rebate was paid to the textile industry whereas the industry remunerated only Rs13.8 billion of indirect taxes (sales tax, customs and excise). In case of


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income tax, the textile industry had made not noteworthy payment of Rs45 billion through withholding tax ranging between 0.75 and 1.5 per cent.

Despite EU’s precincts introduced in 2005, Chinese textile exports continued to increase share in all major markets. Smaller exporters like Morocco, Egypt, Cambodia have also extended their textile and clothing exports. Share of less developed countries’ textile exports to EU and US increased during 2006. Pakistan textile exports to EU&US amplified by 12 per cent only in post quota regime. Exports of yarn and fabric to Japan is also decreased by 7 per cent. Developing countries like Pakistan required outsourcing planning to ensure cheaper good production to get maximum returns. The proposed Reconstruction Opportunity Zones (ROZ) in Tribal areas will be another chance to give a new boost to 41-hot selling textile/clothing and non-textile (leather, surgical, medical, sports stone etc) identified items for exports to US at a zero custom duty. Government’s latest package would therefore, get better skill, professional knowledge and managerial knowledge. Extension of R&D facility will aid to focus on innovative measures. It will make possible sustainable indigenous environment to protect and endorse textile industry and benefit the economy at the same time.

LOANS FOR TEXTILE INDUSTRY:

Loans are also necessary if a country wants to promote a sector. So its deemed important that textile sector be given loans that are easily accessible so that capital can be provided for the development of the industry and for its competitiveness.

FINANCIAL OUTLOOK OF SPINNING INDUSTRY OF PAKISTAN

Spinning industry is capital intensive in nature and needs a huge investment and continuous support of banks for the regular supply of fibers.

FINANCIAL RATIOS AND SPINNING MILLS OF PAKISTAN

The future of firms can be determined to some extent from financial ratios derived from their financial statements. This report highlights current problems and financial health of the mills and considering these ratios, one can develop an idea about the future of this sector.

CURRENT RATIO

Current Ratio is an indicator of the capability of the firms to pay their current liability by converting current assets. It is calculated by dividing current assets with current liabilities.

Current Ratio= Current assets Current liabilities


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High figures mean that company has the capacity to pay its current liability. Acceptable figures vary, depending upon the type of business. Generally, more than one is acceptable. Smaller value shows that company has not enough current assets to discharge its current liabilities.

The current ratio of spinning mills of Pakistan is less than 1.00 in both years. It is alarming. Mean of current ratio in 2006-7 was 0.87 and 0.82 in 2007-8.

Ratio table depicts that there is no improvement in 2007-8 and if it continues, there is a probability that in coming year’s situation of the sector will not improve.

Return on assets

Return on Assets (ROA) is an indicator which tells about the efficiency of firm in using the assets. It is calculated by dividing the annual earning of the company with total assets, shown as percentage.

Return on assets = Net earning X 100 Total assets

This ratio is also an indicator of money earned by a company against each dollar invested. Ratio table shows that mean of the return on asset is -2.07 and -1.73%, which is quite alarming.

OPERATING PROFIT MARGIN

Operating Profit Margin (OPM) is also called operating margin, operating income margin or return on sales (ROS). It shows the efficiency of the firm in generating profits from its operations. Difference between gross profit and operating profit provides information about the over head expenses in total cost.

OPERATING PROFIT MARGIN = OPERATING PROFIT X 100 NET SALE

Ratio table depicts that in 2006-7, its mean value is 1.82%, whereas in 2007-8, there was a decrease of -0.58%. It shows that as a whole, spinning mills of Pakistan have borne losses. The table also depicts that 25% firms have -3% loss, however, more than 50% firms have positive figure.

Net Profit Margin= Net Profit X 100 Net sale

In 2006-7, spinning mills of Pakistan reported -1.76 % and in 2007-8 operating profit margin became -6.25%.


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RETURN ON EQUITY

Equity is the money invested by the shareholders for profit. This ratio indicates the firm’s ability to earn against the investment. It is also called return on average common equity, return on net worth, return on ordinary shareholders' funds.

RETURN ON EQUITY= NET INCOME AFTER TAX X 100 NET EQUITY

Spinning mills of Pakistan have only 0.71% ROE in 2006-7 and situation became worst in 2007-8. In 2007-8, it has -10.74%, which tells us that net loss of the firms will lead them to a serious position and this position may not allow them to survive and ultimately there are more chances that many firms will be bankrupt.

DEBIT RATIO

Debt ratio is one the fundamental ratios used to determine the financial health of the firms. It tells that what is the level of total liabilities and assets of the firms.

Debit ratio= Total liabilities X 100 Total assets

Spinning mills of Pakistan have 78.95% and 64% debt ratio in 2006-7 and 2007-8 respectively. It means that liabilities are more than the assets.This ratio has declined, which means that with the passage of time the difference between liabilities and assets is increasing.

ENERGY TO TOTAL COGS

Cost of fuel or energy is the second major cost of spinning mills. Data shows that its range is from 6 to 22 percent of the total cost of production. It is very useful to note that there are mills where share of fuel cost is too low and the mean value of energy to COGS is 11 and 10% in 2006-7 and 2007-8 respectively.

There is a slight decline in the share of energy and it may be due to increase in cost of raw material which has pushed down the energy share or might be due to better use of energy. There is another possibility that this decline may be due to shift of many mills on in house generation of electricity by using natural gas, which is cheaper than the electricity provided by the government.

It may be due to efficient system or use of natural gas to produce electricity. The table shows a minor reduction in the average share of fuel cost. It may be due to many reasons; efficient use of electricity, modern technology or switching to gas based generators of electricity.


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Financial ratios of spinning industry of Pakistan

2006-07 2007-08

Mean Percentile Mean Percentile

25 50 75 25 50 75

Current Ratio 0.87 0.69 0.9 1.02 0.82 0.73 0.84 1

Return on Assets -2.07% -4.00% 0.00% 2.00% -1.73% -5.00% -1.00% 1.00%

Gross Profit Margin

6.53% 4.00% 9.00% 13.00% 6.21% 2.25% 8.00% 13.00%

Operating Margin 1.82% 0.50% 5.00% 10.00% -0.58% -3.00% 4.00% 8.00%

Profit Margin -1.74% -2.25% 0.00% 2.00% -6.25% -4.00% -2.00% 1.00%

Return on Equity 0.71% -11.25% 2.00% 11.25% -10.74% -23.50% -2.00% 8.00%

Earnings Per Share (Pk. Rs)

0.4 -3 0 2 -2.37 -3 -1 2

Debit Ratio 78.95% 57.00% 71.00% 88.50% 81.97% 64.00% 73.00% 89.00%

Total Asset Turnover

0.98 0.62 0.86 1.12 0.95 0.55 0.82 1.2

Fixed Asset Turnover

1.45 0.86 1.17 1.95 1.56 0.9 1.28 1.91

Current Asset Turnover

3 1.69 2.46 3.56 2.65 1.46 2.13 3.09

Salaries to Total Cost

8.12% 6.00% 7.50% 9.00% 7.78% 6.00% 7.00% 9.00%

Energy to Total Cost

10.50% 9.00% 10.00% 12.00% 9.90% 8.00% 10.00% 11.75%

Raw Material to Total Cost

68.76% 64.00% 70.00% 73.00% 70.48% 68.00% 72.50% 76.00%


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CONCLUSION

From all above discussion, more than 50% mills have shown losses in 2007-8, current ratio of more than 60% mills is less than one. Return on assets is quite low, rather many companies have shown a negative figure. Financial situation of spinning mills with the exception of few leaders is quite precarious and in coming years, there is a chance that many share holders will lose their all investment and banks will not be able to take their loans back.

IMPORTS & EXEMPTION OF CUSTOMS DUTY:

During the first eight months (July to February) of the current fiscal year, the import of textile machinery recorded 3.1% growth to $163.844 million as compared to $158.897 million in the corresponding period of last year. In the current tough and disappointing scenario, investment in textile industry is like a light at the end of the tunnel and reflects that still there are chances of revival in this important sector of the economy. The import cost in February was $23.10 million as against $7.992 million in the same month of last fiscal year, showing an increase of 190%.

The government has already granted exemption of customs duty on import of a wide range of textile machinery and equipments.

The textile machinery had been showing decreasing trend in since 2006. Pakistan imported textile machinery worth $928.6 million during 2004-05. However a decline of 12% in the import of textile machinery was witnessed in 2005-06 worth $817.2 million. In 2006-07 imports declined by 38.4% and totaled $502.9 million, while machinery worth $438.3 million with a decrease of 12.8% was imported during 2007-08. Before the removal of quota system, the textile industry made around Rs 5 billion investments by modernizing and expanding its units to prepare itself in the post quota regime.

INVESTMENT IN TEXTILE INDUSTRY:

During the last ten years (1999-2009) textile industry has made an investment of about US$ 7.5 billion. The total investment to be divided in various sub sectors of textile industry, indicates that 50.2% in spinning sector followed by 17% in textile processing, 15% in weaving while the investment and other sectors namely like knit wear, made ups and synthetic textile at respective rate of 7.02%, 4.71% and 5.76%. This investment includes both investment through bank loan as well as own sources. Textile Machinery worth US$ 215.5 million has been imported during the year 2008-09. Presently whatever investment is being made it is mostly confined to the denim sector whereas spinning and value-added sector have modest investment in this context.

TEXTILE EXPORTS:

Textile sector is the backbone of Pakistan export economy. It comprises of 521 textiles units. Pakistan is the fourth largest producer of cotton and third largest consumer. It contributes 9% of GDP and employs 38% of the workforce in the manufacturing sector.


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Cotton textile exports grew from $9.2 billion in 2004-05 to $10.4 billion in 2006-07 and $10.5 billion in 2007-08, but in the last fiscal year exports of textiles fell by 6% if compared to 2008-09 ($9.95) billion.

The share of textile exports in total exports of the country shrunk to 55 percent so far in the current financial year from well above 60 percent in the past years. As the overall export volume remained stagnant in the first seven months of the current financial year, the shrinking share of textile goods in exports has been adversely impacting the export sector. During July-January 2009-10, total exports came to $10.870 billion as against $10.820 billion in the corresponding period of last year. In the months under review, textile export proceeds totaled to $5.981 billion over $5.849 billion in the same months of previous year. The domestic market although large and growing at 5 per cent per annum consumes only 25 per cent of the yarn produced which translates to downstream production. 50 per cent of the yarn is exported, the other 25 percent is converted to fabrics etc. for exports. Pakistan produces around 8 to 10 per cent of the world's cotton but its share in total world trade for textile and clothing is around 2 per cent in value terms. Pakistan currently produces around 8.5 per cent of the world's total yarn production and accounts for 30 per cent of total world trade in yarn. Both these figures relate to quantity.

TEXTILE INVESTMENT WILL GENERATE 17.37 MILLION JOBS BY 2012

The textiles sector has witnessed a burst in investment during the four years and the investments between 2004-08 were Rs. 1,08,531 crore and its expected to touch Rs. 1,50,600 crore by 2012. This enhanced investment will generate 17.37 million jobs by 2012.

PRIVATIZATION OF LEADING BANKS HAS BEEN A MAJOR FACTOR IN DECREASING OF INVESTMENTS:

The privatization of all leading banks in the country has added salt to the injury, as it is only the National Bank of Pakistan (NBP) management that is ready to extend a patient hearing to the cries of textile sector. Rest of the banking industry, otherwise, is not ready. The grim situation in textile industry is getting from bad to worse and many new entrants to the sector have already closed down their units. A good number of single spinning unit holders are on their way to closure. The weaving sector is breathing hard at the oxygen ventilator. The apparel sector is left in the lurch with the termination of 6 percent.

GOVERNMENT’S APPROACH FOR IMPROVING TEXTILE INDUSTRY:

The government is stressing upon the industry for the consolidation of the sector through mergers & acquisitions in order to effectively face tough international trading environment, as the international and regional competitive pressures are going to further build up and it will be large corporate that are more likely to survive. To deal with this scenario government has approved the textile package, including different measures including relief in the interest rate for loan to spinning sector and Research.

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41

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42

1977 565.4 46.7 8.3 816.6 37 4.5

1978 683.6 74.9 11.0 869.6 51.6 5.9

1979 753.5 88.8 11.8 1,305.7 58.7 4.5

1980 828.6 97.2 11.7 1,311.9 78 5.9

1981 796.4 84.6 10.6 1,292.0 85.6 6.6

1982 834.1 112.5 13.5 1,323.6 86.6 6.5

1983 958.5 141.6 14.8 1,477.2 107.3 7.3

1984 1,022.4 93.9 9.2 1,641.0 97.8 6.0

1985 1,000.2 145.2 14.5 1,643.5 106.2 6.5

1986 1,187.2 202.5 17.1 1,869.0 105.8 5.7

1987 1,455.8 243.4 16.7 2,112.7 122.8 5.8

1988 1,286.6 235.5 18.3 1,990.7 123.8 6.2

1989 1,465.5 331.3 22.6 2,271.6 139.0 6.1

1990 1,484.5 436.1 29.4 2,203.8 156.3 7.1

1991 1,559.7 474.2 30.4 2,221.0 169.8 7.6

1992 1,627.8 571.5 35.1 2,402.2 178.8 7.4

1993 1,628.8 567.4 34.8 2,540.3 161.7 6.4

1994 1,942.8 532.4 27.4 2,680.6 170.1 6.3

1995 1,816.4 507.0 27.9 2,733.7 160.8 5.9

1996 1,890.0 569.6 30.1 2,644.3 219.3 8.3

1997 1,950.1 502.4 25.8 2,759.8 194.3 7.0


43

1998 1,763.4 420.3 23.8 1,781.3 185.6 10.4

1999 1,746.7 455.1 26.1 1,776.0 230.9 13.0

2000 1956.6 534.1 27.3 2571.8 249.8 9.7

2001 2090 561.3 26.9 2912.0 271.0 9.3

2002 2043 550.7 27.0 3274.0 299.2 9.1

2003 2120 503.5 23.8 2856.0 283.0 9.9

2004 1783 504.0 28..3 3065.0 282.2 9.2

2005 1783 671.0 37.6 3180 239.9 7.5

2006 2380 780 32.8 3235 263.3 8.1

Source: ICAC (World Textile Demand (SEP 2007) & TDAP


44

Marketing Perspective of the Textile Industry PRESENT TEXTILE PRODUCT MARKETS KNITWEAR:

USA, UK, Germany and The Netherlands are the top four trade partners for Pakistan.

Pakistan primarily exports robes made of cotton that constitutes 70% of total quantity

exported in the category. The remaining 30% exports of Pakistan are in robes made of

synthetic material. Country-wise export of knitwear is given in Table-3.

Table 3 : Country-wise Export of Knitwear

(Value in 000 $)

Country 2008-09 2007-08 2006-07

U.S.A 1,069,214 1,074,347 1,144,244

UK 176,130 142,326 156

Germany 72,217 74,284 62,280

Spain 48,775 54,450 49,141

Canada 41,797 46,806 48,147

Belgium 41,482 39,974 37,231

France 31,981 34,954 33,738

U.A.E 36,533 27,094 15,491

Sweden 12,559 10,728 7,299

Saudi Arabia 14,180 9,177 5,685

Ireland 4,641 6,358 5,019

Denmark 5,198 5,654 4,848

Finland 5,982 4,809 4,745

Benin 4,736 4,978 4,316

Australia 4,422 4,503 3,193

Norway 3,412 3,558 2,008

South Africa 2,827 3,103 2,374


45

Mexico 3,377 2,970 2,473

Sri Lanka 2,056 2,329 1,878

Japan 2,094 1,775 1,322

Portugal 1,326 1,325 835

Qatar 1,119 1,084 549

Poland 1,030 999 394

The

Netherlands 70,589 73,748 79,987

Italy 34,638 57,014 74,647

Turkey 3,251 5,147 5,185

Greece 3,492 2,770 2,971

Singapore 2,536 1,341 2,144

Hong Kong 1,113 1,204 1,511

Chile 919 846 730

Other

countries 37,127 23,472 37,155

Total 1,740,753 1,723,127 1,798,477

Source: Trade Development Authority of Pakistan.


46

NUMBER OF THE LARGE AND SMALL TEXTILE UNITS IN PAKISTAN:

The textile industry is one of the most important sectors of Pakistan. It contributes

significantly to the country's GDP, exports as well as employment. It is, in fact, the

backbone of the Pakistani economy.

ESTABLISHED CAPACITY:

The textile industry of Pakistan has a total established spinning capacity of 1550 million

kgs of yarn, weaving capacity of 4368 million square meters of fabric and finishing

capacity of 4000 million square meters. The industry has a production capacity of 670

million units of garments, 400 million units of knitwear and 53 million kgs of towels.

The industry has a total of 1221 units engaged in ginning and 442 units engaged in

spinning. There are around 124 large units that undertake weaving and 425 small units.

There are around 20600 power looms in operation in the industry. The industry also

houses around 10 large finishing units and 625 small units.

Pakistan's textile industry has about 50 large and 2500 small garment manufacturing

units. Moreover, it also houses around 600 knitwear-producing units and 400 towel-

producing units.

CONTRIBUTION TO EXPORTS:

According to recent figures, the Pakistan textile industry contributes more than 60% to

the country's total exports, which amounts to around $ 10.87 billion US dollars. The

industry contributes around 46% to the total output produced in the country.

In Asia, Pakistan is the 8th largest exporter of textile products.


47

CONTRIBUTION TO GDP AND EMPLOYMENT:

The contribution of this industry to the total GDP is 8.5%. It provides employment to

38% of the work force in the country, which amounts to a figure of 15 million. However,

the proportion of skilled labor is very less as compared to that of unskilled labor.

ORGANIZATIONS IN THE INDUSTRY:

All Pakistan Textile Mills Association is the chief organization that determines the rules

and regulations in the Pakistan textile industry.

PAKISTAN’S TOTAL EXPORTS:

The share of textile exports in total exports of the country shrunk to 55 percent so far in

the current financial year from well above 60 percent in the past years.

As the overall export volume remained stagnant in the first seven months of the current

financial year, the shrinking share of textile goods in exports has been adversely

impacting the export sector. During July-January 2009-10, total exports came to $10.870

billion as against $10.820 billion in the corresponding period of last year. In the months

under review, textile export proceeds totaled to $5.981 billion over $5.849 billion in the

same months of previous year.

Government claims to diversify the export base by focusing on the sectors other than

the traditional ones, however the figures available on the exports tell a different story.

“No new product or new market has significantly contributed to the exports and it is

the same old and traditional items that have been making the total export volume,”

according to textile exporters.


48

Textile products remained the mainstay of the country’s export sector over the years

and being the largest industrial and export-oriented sector, it caters to the employment

of a major part of industrial labor of the country.

Textile exporters said that the most worrisome factor is the stagnant export of textile

goods and whatever is being exported in this category largely comprises of raw cotton,

cotton yarn and low valued textile goods.

The value-added sector, they pointed out is under intense pressure due to a host of

domestic and international issues, which have been making the country’s products

uncompetitive in the foreign markets from its international competitors.

The prolonged power outage, gas shortage, high financing cost and infrastructure

problems are some of the major issues, which have been hampering the growth of the

value-added textile sector.

Also, the high tariffs on the textile goods in EU and US markets have given leverage to

its competitors like Bangladesh and Vietnam to kick out Pakistani products from these

lucrative and high-priced markets.

“It will be a wishful thinking to increase the export of value-added sector in the present

situation when even raw materials are not available in adequate quantity to run the

industrial units in this sector,” a value-added textile exporter felt.

He noted that revival of textile sector is not possible without the growth in value-added

sector because it is the one, which would fetch better prices of cotton instead of raw

cotton and cotton yarn, which is presently being exported in huge quantity.

“The share of textile products in the total exports could only be achieved through focus


49

on the value-added textile chain and if remedial steps are taken, the textile’s share

jumping to 60 percent is not a hard target to achieve,” he added.

STRATEGIES FOR THE IMPROVING PERFORMANCE AND EXISTING MARKET SHARE:

• Textile Asia 2010 was arranged at expo centre Karachi to promote the textile

industry of Pakistan

• Government of Pakistan - Ministry of Privatization & Investment - Setting up

textile industry-joint venture in Pakistan

• Since textiles are Pakistan’s major export sector, the Board of Investment in

Pakistan has developed a focus to promote and mobilize local and foreign

investment particularly in the manufacturing sector for textiles.

• New Product Developments in Textiles: Conventional Textiles is experiencing

radical changes nowadays. New products are entering into markets. There is lot

of opportunities for Pakistani manufacturers to tap new products in global

market. But this has to do with implementing product innovation and

development within the manufacturing organizations. Various Pakistani Firms

have complete setup for innovative value added products and are doing

excellent in Textile Business. Such success stories should be replicated in

different manufacturing units so as to attain competitive advantage over our

regional competitors.

• Women Wear in Textiles: Women’s wear is the highest seasonal products as

compared to other textiles. The products included in this category have high

value and fetch more profits in exports. Unfortunately Pakistan lacks in this area

of manufacturing. To manufacture Women’s wear t textile products, the firm

should have well expertise in Design, CAD/CAM, machines and human

resource. Effectively combining all these resources, value added exports targets

could


50

• Comprehensive Database Management System in the Cell being developed

• Online Portal and interactive web applications to create link between the Private

Sector and Government

• Seminars and Workshops in collaboration with International experts

• Value added products should be manufactured, because they have got higher

demand in the international market and in this way Pakistan will be able

generate more revenues.

• Trade shows and exhibitions should be arranged in order to promote the

products of textile industry

• Pakistan should focus its exports to middle east and gulf countries as well

SOME POTENTIAL FUTURE MARKETS FOR THE TEXTILE EXPORTS:

• Germany

• Indonesia

• Thailand

• Spain

• Gulf region

• Saudi Arabia

FUTURE TARGET FOR TEXTILE PRODUCTION:

According to our recent Economic Survey 2005-06, the performance of agriculture has been weak - due to poor performance cotton production i.e. 12.4 million bales as against targeted 14.3 million bales. Pakistan is among the three countries where cotton consumption has substantially increased during past few years; it is projected that by 2010 we need over 15.50 millions balls that’s why Government of Pakistan has set a target to achieve 20.13 millions bales by 2015 under a program “Cotton Vision 2015”; In view of cotton production potential we are already utilizing our land under the cultivation of cotton at its optimum level; however area in Baluchistan and D.I. Khan


51

district and in NWFP can be further consider though there is sever shortage of water; which needs heavy investment and require long term strategies, planning and sustained commitment. The International Cotton Advisory Committee has projected the world cotton production by 2010 to be 153 million bales (weighing 170 kgs each), while the demand would be much higher from countries like India, China; so one of the primary concerns is to meet the requirement of local textile industries.

GOVT. OF PAKISTAN’S POLICIES TO BOOST TEXTILE SECTOR GROWTH AND ITS EXPORTS:

A five-year textile policy announced by the Govt. offers about Rs87 billion cash subsidy to the textile and clothing sector to boost exports. It envisages plans to boost textile exports to $25 billion from the current $17.8 billion by 2014.

The policy, approved by a special cabinet meeting presided over by Prime Minister Yousuf Raza Gilani, was announced by Textile Minister Rana Farooq Saeed Khan.

The hefty package for the sector carries special duty-drawback rates, besides repayment of earlier research support, subsidy on long-term financing loan and development and other subsidies.

The policy focuses on export promotion measures, instead of steps to increase production and revive the ailing industry.

1. Under the new policy, the textile industry has been exempted from load shedding. It will also enjoy priority in gas allocation like the fertilizer sector. An amount of Rs2.5 billion has been allocated to make export refinance available at five per cent.

2. An amount of Rs44 billion as special drawback rates will be provided to value-added textile exports for two years -- Rs17 billion in 2009-10 and Rs27 billion in 2010-11.

3. The proposed rates include one per cent of the FOB value of exports on processed fabric, two per cent of the FOB value on home textiles and three per cent of the FOB value on garments.

4. In addition, exporters achieving an increase of 15 per cent will get one per cent additional drawback. Another Rs5.4 billion has been earmarked for earlier refunds of research and development subsidy for the sector.

5. An amount of Rs4.5 billion has been allocated to continue monetization of customs duty of PTA to offset additional cost for users for the current year. A decision about this duty will be taken by the National Tariff Commission during the year.


52

6. Another Rs5 billion has been allocated to convert long-term loans on the same pricing as applicable to the LTTF scheme together with a grace period of one year on both existing and converted facilities, without the facility of refinancing. Textile machinery will be zero rated.

7. In order to encourage women’s participation in the industry, the government will pick two regulatory costs to employers -- social security and EOBI. The cost of this measure is estimated at Rs2 billion for the current year.

8. The government plans to treat local sales of yarn and fabrics to large exporter as deemed exports. For this purpose, small producers will get one per cent drawback on levies and unadjusted taxes on sales to export houses which will cost Rs2 billion.

9. The government has set a target to increase the rate of conversion of cotton from $1,000 to $2,000 over the next five years. A textile investment support fund and technology up gradation fund (UTF) will be set up. An amount of Rs1.6 billion has been allocated for the UTF for the first year. However, this fund will go up to Rs17 billion by 2014.

10. Under UTF for capital intensive projects, the government will pick up 50 per cent of interest cost of new investment in plant and machinery with a maximum of five per cent. For small investments, government will contribute up to 20 per cent of capital cost as a grant.

11. An amount of Rs1 billion has been earmarked for infrastructure development for 2009-10 in public-private partnership. More industrial estates will be established, besides developing clusters.

12. An amount of Rs1 billion has allocated for skill development initiatives. A comprehensive training plan will be worked out.

13. A legal framework will be developed to specify standards and testing requirements, prescribe disclosure requirements and other matters relating to practices and methods relevant to the sector

14. The principle of cascading will be implemented while ensuring adequate protection to the local industry and removing anomalies. All regulatory bottlenecks will be removed. Market access will be increased through free trade agreements.

15. The government will provide necessary support for branding, grading, labeling and other activities that would add value to the textiles chain. An insurance scheme will be introduced to protect local exporters from unforeseen losses and help the industry in IT-related issues.

16. The policy will focus on certain sub-sector issues from fiber to garments, including ginning, spinning, weaving, knitting, processing, fashion designs,


53

handloom and handicrafts, carpets, technical textiles. Specific schemes will be launched, mostly on public-private partnership basis, to upgrade and improve these sectors.

17. The persistent problem of contamination and trash content will be addressed through enforcement of the standards laid down in the Cotton Control Act and Cotton Standardization Ordinance. Measures will be taken to develop other vegetable fibers (jute, flax etc.), wool and sericulture for supporting diversification within natural fibers.

18. A ginning institute will also be established in Multan to undertake research in improved ginning methods. Similar initiatives will be taken in other cotton growing areas.

COUNTRIES THAT PUT HIGH TARIFF ON PAKISTANI EXPORTS: America is the greatest exporter of Pakistani textile products. But It is undeniable that Pakistan’s exports are penalized harshly when they arrive at US borders. American import duties on Pakistani textiles have sometimes approached 20 per cent, while other countries’ exports to the US have enjoyed minimal tariffs. Such discrimination also puts Pakistan at a stark disadvantage with its textile-exporting competitors from the developing world, many of whom are tariff-exempt in US markets.

American trade policy hurts these industries more than it helps. The average US tariff rate on Chinese exports to the US is three per cent, compared to 10 per cent on Pakistani exports. Tariffs on Pakistan’s goods are far above those imposed on products from affluent countries. To choose a simple example: Pakistan’s towels and T-shirts trigger 7.5 percent and 19 percent tariffs, while tariffs on Sweden’s cars and airplane parts are only 2.5 percent and zero. So last year, Pakistan’s $3.6 billion in goods exported to the U.S. faced a $365 million tariff penalty – almost three times the $142 million penalty on Sweden’s $13 billion. Lobbying campaigns have kept U.S. tariffs on the textiles Pakistan makes much higher than our tariffs on rich-country goods. To make matters worse, our exemption of most African and Latin American towels and shirts from tariffs puts Pakistan at a disadvantage against its direct competitors.

Other counties that put high tariffs on Pakistani textile exports include Japan and many EU countries.


54

STRATEGIES TO TAP THE UNTAPPED MARKETS:

1. To participate in all the trade shows those are held in the international markets and put our products on display. So that there is awareness regarding the Pakistani textile products.

2. To participate in the international seminars and conferences on the topic of Textile, so as to know about the international quality standards and requirements.

3. To organize trade shows in the countries which are still not the export market for Pakistan?

4. To coordinate with the govt. of Pakistan in its efforts to promote the textile exports of Pakistan.

5. To help and coordinate with the Govt. of Pakistan in identifying and signing MOUs with the countries that are potential markets for Pakistani textile exports.

6. To coordinate with the Chinese Govt. in identifying the global textile importers and analyzing the business environment there.

7. To identify the countries which lenient trade and tariff barriers, so that the exports is profitable there.

8. Expand the market share in the existing markets, by identifying the segments whose needs are still unmet.

9. Creating more value added products, because they bring handsome revenues and also they have huge market in the international arena

10. Decreasing the costs to as minimum as possible, so that the products appear attractive to most of the buyers.

11. Employing the innovative marketing strategies like branding the products, giving them unique and stand alone brand identities.


55

Export Potential Of Textile Industry The present Global Scenario of Textile Industry with particular reference to the position

of Pakistan in the International Textile Market is given here for the interest of our

readers. The demand for textiles in the world is around $18 trillion, which is likely to be

increased by 6.5%. China is the leading Textile exporter of the world’s total exports of

US$ 400 billion. Country wise major market shares of the textile exporting countries are:

China: $ 55 billion, Hong Kong: $ 38 billion, Korea: $ 35 billion, Taiwan: $ 16 billion,

Indonesia and Pakistan: $ 9 billion.

Though Pakistan has emerged as one of the major cotton textile product suppliers in the

world market with a share of world yarn trade of about 30% and cotton fabric about 8%,

having total export of $ 7.4 billion which accounts for only 1.2% of the over all share.

Out of this Cotton fabric is 0.02%, Made-ups is 0.18% and Garments is 0.15%.

Now a very important question is “What is the potential and future expected growth

of the textile industry of Pakistan”.

While answering this question first we have figure out our strengths and weakness and

how to improve them.

OUR STRENGTHS ARE:

• 4th largest producer of Cotton Yarn and Cloth in the World after China which is

No. 1.

• We have signed MOU with Monsanto for BT cotton to improve the yield per acre

which is now low and at 13th position in the world. Ranks 2nd in export of yarn

and 3rd in export of cloth.

• We have large spinning capacity – with major part of European, Japanese &

Chinese Machinery.

• Ample availability of cheap labor.


56

• Good markets for products.

• Large domestic market.

WEAKNESS ARE:

• Low productivity resulting in high labor costs.

• Limited skills development facilities.

• Low value addition.

• Small product and market base.

• Little Research and Development.

COTTON PRODUCTION:

Despite a massive shortage in the domestic market, the country's raw cotton export

registered a robust increase of 140 percent during the first 10 months of current fiscal

year mainly due to rising demand in the world market. Pakistan achieved a bumper

crop during the current cotton season and overall cotton production stood at 12.7

million bales during current fiscal year (2009-10). Although, the country has got a

bumper cotton crop, however it is much less than the consumption and not sufficient to

meet the country's demand, which presently stood at some 15.5-16 million bales per

annum.

Now if we improve of crop production by using BT cotton seed we could increase

cotton production up to 20 million bales. It would give us extra 7 million bales to be

processed. The production of yarn was 2,913 million kg in 2008-2009. With the addition

of these 7 million bales the annual production yarn could increase to around 4602

million kg.


57

YARN PRODUCTION:

As explained previously that our yarn can be enhanced up to 4602 million bales by

better production of cotton. These are estimates for the present production facilities of

the yarn. It is quiet evident that we have 30 % extra yarn processing capacity then the

weaving setups we have here. If we operate them at full capacity then we increase our

yarn capacity to 6 million bales. We would stand almost at double production due to

better cotton production and utilizing full production capacity.

Average unit price realization of Pakistani cotton yarn in the international markets is very low

compared to that of its competitors. Average unit price of cotton yarn decreased from $2.34/kg

in 2007-2008 to $ 2.11/kg in 2008-2009. Where as china sells at average price of $ 3.3/kg. Here

we can assume the huge difference of the price levels.

Now the present export of Pakistan textile products with 3000 million bales is around 12 billion

bales. If the cotton production can be doubled, the exports could go to around $ 25 billion. If

add the under price effect then the present setup and production facilities the textile exports can

increase to $ 40 billion.

TEXTILE POLICY 2014:

“ The present government has identified textile as a key priority area and is making all possible

efforts to set the right policies and incentives that encourages private sector investment in value

addition and expansion in a bid to gain wider access to the international markets. We have fixed

an ambitious target of US $ 25 Billion till 2014 in the new five year Textile Policy with 2 times

value addition target “

The figure is exactly the same that we calculated above. Excluding the under price effect

we could raise our textile exports to $ 25 billion.


58

FACTORS EFFECTING THE PRICE OF TEXTILES:

Now the major problem with the Pakistani cotton is collection issue. The dirt content in

a normal cotton production is around 1 % – 2 %, but for Pakistani cotton it is around

7 % – 9 %. It is one of the major factors of the under pricing of our textile products.

Another important factor that affects our textile exports is the production of course

yarns. Course yarn has a almost half of price difference with the fine spun yarn. The

local market is based on course spun yarn while international market is focused on fine

spun yarn.

ESTIMATED POTENTIAL OVER NEXT 10 YEARS:

Textile exporters could bring $25 billion from exports in next four years and $120 billion

in next 10 years, if they are provided level playing field. All those condition explained

above are the key problems with the textile industry.

Pakistan textile exports for U.S and Europe is 44 % & 50 % successively. The U.S market

for Pakistani products is restricted in the form of Multi-Fiber Arrangement (MFA),

restraining the textile and clothing exports to the large markets of Western Europe and

North America. An important change brought out by the agreement on textile and

clothing (ATC) will be the reduction of non-tariff barriers (NTBs). According to one

estimate Pakistan will have an additional market access of about 62 percent and 67

percent for textile and clothing respectively with the eradication of MFA.

Now consider the case of EU where our exports are around 50 % .i.e. $ 6 billion. We are

constantly hampered by anti-dumping duty of 13 %. With all the effects taken into

account this duty rises up to 25 %. Any such duty is not imposed on other exporting

countries like china, India and Bangladesh. The imposition of this duty cost paksitan a

loss of almost $ 10 – 12 billion.

APTAMA (All Pakistan Textile Mills Association) has conducted a research that reveled

following fact.


59

“Textile trade in the world is estimated to be around US$ 300 billion currently. Industry experts

predict that by 2014 when the facilities in the West will close down and they will source their

textiles from more efficient areas of the world resulting in the trade volume of around US$ 800

billion. Pakistan's share of the current trade volume is around 3.5%. If we are to maintain our

current share of this larger pie, our textile exports alone are potentially targeted to reach US$ 28

billion”

SOME RECOMMENDATIONS:

COTTON:

Cotton is the largest exportable crop of Pakistan's economy as exports of cotton and

cotton made products earn 55 percent of total annual export earnings. As such,

promotion of cotton means promotion of exports while failure of cotton crop

tantamount to heavy damage to Pakistan economy. It would be difficult for our textile

industry to compete with textile giants like China, India, Bangladesh, Vietnam and Sri

Lanka in export of textiles when we have to import a larger amount of cotton to meet

shortfall of our cotton requirements.

ENERGY:

Pakistan is passing through the most difficult phase of its history due to the energy

crisis that is a threat to its export-oriented textile units. During the last few years, the

textile exporters have faced serious power crisis in the industrial areas, which caused

million of rupees losses to every year especially from December to July as these months

are considered the peak seasons of textile export. The Country's energy demand has

grown at an annual consumption growth rate of 4.8% that is expected to grow at 8 to

10% per annum till 2010. Therefore, there is dire need to have a sustained growth in

energy supply and infrastructure capacity of 7 - 8% per annum to support the steady

growth in the Country's GDP.


60

MARKET ACCESS:

Market access is critical for economic survival and growth, especially for nations that

have small internal markets, limited domestic resources, and/or rely heavily on intl.

trade for economic survival and growth.

Once in a lifetime history provides a window of opportunity, which if availed, can

change the destiny of nations. The window, available today, is to capture the outposts

which are being abandoned by the Western textiles and which our regional competitors

have already marshaled their forces to capture. Once lodged, it will be almost

impossible to overthrow them. We are positioned to capture them ourselves provided

the required strategies and technical support is in place.

We should focus to retain our position as a leading textile producer and to get greater

market share in the coming years. We have concerns over our ability to continue with

the present rate of growth as long as the region does not provide an even playing field.

We are trying to seek advantages in the quality of our market and access to the leading

consumers of textiles and apparel. In the post quota era, we must use the World Trade

Organization regulations to our benefit and ensure that measures other countries are

taking to boost their respective industries are WTO compliant. Pakistan operates under

some of the lowest tariffs in the region but we must continue to develop bilateral trade

agreements to give us preferential market access. 60% of the world trade is still

conducted under bilateral arrangements.

RECOMMENDATIONS:

1. Pursue the concept of Reconstruction Opportunity Zones (ROZs) with the United

States.

2. Free Trade Agreement (FTA) with the European Union, USA and other Markets.

3. Anti Dumping Duty and other Countervailing Measures to be tackled with a long-

term perspective.

4. New & Non-Traditional Markets to be tapped.


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5. Establishment of Warehouses and Display Centres

6. Preferential Treatment to Regional Competitors

7. Trade Instead of Aid

8. Creation of the Post of Trade Negotiator.

9. GSP Plus issue to be pursued with the European Commission.

MERGER & ACQUISITION:

International trade is getting increasingly competitive in phenomenon of globalization

paradigm shift. For new demanding world, textile sector has stepped in when it has

also reached at its maturity. Maturity promises optimum productivity but it also

requires that the productive system must have been grown in full. Merger and

acquisition is the indication of same economic reality that brings together scattered

parts for collective survival and to exploit the opportunity with the greater strength.

APTMA as a figurehead of textile sector of Pakistan urgently need to build a strategy

where we combine together smaller or weaker units lest they die their own.Benefits /

CHALLENGES:

1. Synergy: To avoid duplication and increase profit margin.

2. Increased Market Share: To absorb a major competitor and thus increase its power to

set prices.

3. Cross Selling: A manufacturer can sell complementary products to the same

customer.

4. Economies of Scale: Geographically contiguous industries can avail the benefits of

economies.

5. Taxes: A profitable company can buy a loss maker to use it for reducing their tax

liability.

6. Resource Transfer: Resources can create value through either overcoming

information asymmetry or by combining scarce resources.

7. Diversification: This may hedge a company against a downturn and investment in

other sectors.


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8. Empire Building: Managers have larger companies to manage and hence more

power.

9. Vertical Integration: The supplier may find more difficulty in supplying to

competitors of its acquirer because the competition would not want to support the new

conglomerate.

COST OF DOING BUSINESS:

Cost of doing business specifically for textiles is subject to a very high operating and

financial leverage. It accounts for 18 per cent of the total credit disbursed in the

economy. During the last recent years, our Country's economic scenario has adversely

affected the viability of the textile industry and retarded its growth and sustainability.

The investment made during the past 5 - 7 years by all sub sectors in textiles ranging

from spinning, weaving, finishing and fabrication is under serious threat.

It is to be noticed that there has been reduction of 12.86% in investment in Textile

Machinery in terms of US Dollar this year as compared to the corresponding period last

year. If inflation is also factored in, the drop in fresh investment in Machinery will be in

the vicinity of 11% to 12%.

This has all resulted because of the slow down in further investment in the Textile

Industry due to high cost of capital borrowing and increased pressure from regional

competition.

The financial viability of the textile sector relies on the following factors:

1. Self-sufficiency in better-managed cotton crop.

2. Viable financial cost for working capital and long-term financing.

3. Availabity of hedging mechanism for commodities. (Cotton hedging).

4. Protection mechanism for Pakistani exporters against the new payment terms being

dictated by Western Customers like D/A, DP and open terms.


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HUMAN RESOURCE DEVELOPMENT:

Development of Human Resource be considered as an asset for the organization

because lesser number of skilled and trained employees are more beneficial for a

company rather than number of un-skilled and illiterate workers. Following measures

should be adopted to enhance the productivity of the company as well its employees:

1. Human Resource Development: Focus on education, training and skill development.

2. Respect for human Rights, gender balance, and eradication of child, bonded labor

and promote dignity of labor.

3. Harmonized labor management relations.

4. Productivity and development based work culture.

5. Vocational training outside all industrial estates.


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BIBLOGRAPHY:

Following references have been used in the completion of this document

- http://www.ptj.com.pk/Web‐2010/02‐10/Dr.Noor.htm

- http://www.ptj.com.pk/Web‐2009/08‐09/Textile‐Briefs‐National.htm

- http://www.ptj.com.pk/Web%202004/03‐2004/global.html

- http://www.aptma.org.pk/CR_print.htm

- http://www.thenews.com.pk/daily_detail.asp?id=216559

Documents

Textile Overview Final