Pakistan's Textile Industry Woes

Pakistan has a diverse economy that includes textiles, chemicals, leather products, food processing, financial services, telecommunications, retail, automobile manufacturing, light and heavy armaments, agriculture and other industries. It is the 45th largest economy in the world in terms of official exchange rates ($144b) and 25th largest based on purchasing power parity ($410b PPP). Its service sector accounts for more than half of its GDP.

Pakistan’s textile industry is a major contributor to the national economy in terms of exports and employment. Pakistan holds the distinction of being the world’s 4th largest producer of cotton as well as being the 3rd largest consumer of the same. In the period July 2007 - June 2008, textile exports were US$ 10.62 Billion and accounted for 55% of the total exports.

As the economies in the US and Europe slow down, Pakistan's key exports of textiles and leather products are experiencing a slowdown in growth as well. According to APTMA, textile exports have declined by about 20 percent in 2008. The industry is bracing for more trouble ahead with continuing crises of electricity and gas, international market access, global economic slow-down,and adverse travel advisories.

According to Pakistan textile industry association, 90 percent of Pakistan's textile industry is losing money losses and facing closure. More than two months of production has been lost due to power cuts and gas shortages.

APTMA, Pakistan's textile industry Association established for the promotion and protection of the textile industry, says that the high cost of finance because of the nation's tight monetary policy has added to their continuing woes.

In order to pave the way for the IMF bailout, Pakistan's central bank raised its bank lending rate in early November by 2 percentage points to 15 percent. Since 2004 interest rates have risen dramatically. Kibor (Karachi Inter-Bank Offered Rate) has surged 261 percent. Likewise, the bank spread, on a weighted average basis, rose from 2 percent to an excessive 7.75 percent. This size of bank spread is among the highest in the world. These high rates were allowed as a policy to restrict money supply to satisfy the IMF conditions.

Federal Textile Adviser Dr Mirza Ikhtiar Baig told the News that Pakistan has a very low share of the international textile market. China tops the US market with a share of 36 per cent followed by Bangladesh 21 per cent, India 18 per cent, Morocco 19 per cent and Pakistan 13 per cent. South Korea has lost 20 per cent of the US market.

In the European market, China tops again with a share of 29 per cent, Vietnam 28 per cent, India 19 per cent and Pakistan only 1.5 per cent while the Philippines had lost 11 per cent of the market.

European buyers have told Baig that Pakistani garment manufacturers could cut their cost up to 45 per cent in sewing by improving efficiency.

“Labor productivity is very low,” said Baig. “Our regional competitors take 75 minutes to complete and produce one piece of cloth whereas we take 133 minutes for the same work. We also waste 30 per cent in finishing and 12 per cent in washing.”

According to a study of Pakistani textile and apparel sector conducted by Werner International, management consultants to the world textile, apparel & fashion industry, some of the garment units were over-staffed by 57 per cent. That was an internal negative factor whereas external factors included no duty-free market access to the EU and negative image and perception of Pakistan abroad.

Baig has asked Werner to submit a proposal for presenting a better image of the textile industry to global brands for achieving collaboration with them. In response, Werner is working on a three-year plan to help Pakistan garment manufacturers.

While Pakistan clearly needs to diversify and increase higher-value-added exports such as sophisticated machinery and high technology products and services, it is essential for it to maintain and enhance the current export levels of textiles, leather and other products for which there is an established export market. The export-oriented industries should get preferential treatment in getting access to necessary inputs of raw materials, financing and energy by government policies. Energy and communications infrastructure, in particular, need much greater focus to enable Pakistani exporters to continue to earn the much-needed hard currency.

Related Links:

Haq's Musings

Pakistan Textile Industry Report

Pakistan Economic Growth to Hit a Five Year Low

Pakistan's central bank expects economic growth will come in between 5.5 percent and 6 percent in fiscal 2008, which ends June 30, down from 7 percent the previous year. This forecast comes on the heels of dire talk of economic "meltdown" by the new leadership that is facing serious political instability amid serious differences in the PPP-PML(N) coalition government. The ongoing unease with new leadership is continuing to accelerate loss of confidence in Pakistan's economy by businesses, investors and consumers.

In a quarterly report released Saturday, the State Bank of Pakistan said the economy was showing "increasing signs of stress" as a result of both homegrown and international factors. A disappointing wheat harvest will likely impact the key agriculture sector, while chronic power shortages - both households and businesses face regular load shedding - have slowed industries including steel and textiles, it said.

With the dramatic rise in international commodity prices, the food and fuel subsidies have contributed to the government's rising budget deficit, which the central bank said would reach 6.5 percent to 7 percent. The deficit was just 4.3 percent in fiscal 2007. With imports rising faster than exports, the central bank said Pakistan's current account deficit will rise between 7.3 percent and 7.8 percent - a record high.

State Bank has raised interest rates from 10% to 12.5%, the rupee is in free fall, the dollar reserves are disappearing and both S&P and Moody’s have cut Pakistan’s credit ratings.

KSE 100 index lost 2992 pts during May 2008 starting at 15122 & ending at 12130. The index lost 879 pts during the week ended May 30th , 2008, at a nine month low.

Credit-default swaps on Pakistan's government debt increased 10 basis points to 530 in Hong Kong, according to Morgan Stanley's prices. That means it costs $530,000 a year to protect $10 million of Pakistan's debt from default for five years.

The impact on the working poor is already apparent from the longer lines of people waiting for free food from charities, according to a BBC report. "Laborers started appearing in the beggars' queues some three years ago, and have now become a dominant element," says Mohammad Azeem, who supervises the distribution of food to beggars at Sabri Hotel in Karachi. According to Mr Azeem, the queues have grown longer during the last couple of months that saw the Pakistani rupee shed nearly 10% of its value, undercutting its purchasing power.

In the crisis situation that exists, strong economic and political leadership is needed to rescue the economy from imminent collapse. Unless the PPP and the PML(N) leadership deal with the situation on war footing, Pakistan could slide back to the near bankruptcy situation that existed in 1999 prior to the Musharraf-led coup against Nawaz Sharif's government.