Pakistan Faces Challenges

The Islamic Republic of Pakistan’s textile industry is of vital importance to the country and is
considered by many to be the backbone of its economy. According to Pakistan’s Ministry of Finance’s
Economic Survey 2011-12, the industry employs approximately 38 percent of the country’s industrial
labor force, constitutes 46 percent of its manufacturing base, generates 54 percent of export
earnings and accounts for 8.5 percent of the total gross domestic product.

Located northwest of India and also bordered by the Arabian Sea, Iran, Afghanistan and China,
Pakistan also has gained recognition as an important market among other textile manufacturing
countries in the region. However, its textile industry is going through one of the most difficult
periods in decades and is in decline. Currently, its textile exports rank 12th globally.


Industry Breakdown

Pakistan’s textile industry broadly comprises a large-scale organized sector, and a
small-scale cottage sector. Its integrated industry consists of subsectors including processes such
as ginning, spinning, weaving, knitting, finishing, and apparel and textile product making-up;
fibers such as cotton, man-made fibers, artificial silk, wool and jute; and end-products such as
carpets, rugs, home textiles, towels, tents, hosiery, apparel and knitwear.

The Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA) reports
that in 2010, the industry comprised 1,260 ginning units processing 20 million bales of cotton; 442
spinning units comprising 10 million spindles producing 2.9 billion kilograms (kg) of yarn; 549
weaving units producing 1 billion square meters (m2) of fabric; 635 finishing units processing 4.8
billion m2 of fabric; 2,550 garment units comprising 450,000 machines producing 670 million pieces;
600 knitwear units comprising 21,000 machines producing 350 million pieces; 400 towel units
comprising 7,500 looms producing 53 million kg of towels; an unspecified number of man-made-fiber
units producing 635,000 tons of fiber; and an unspecified number of man-made fiber fabric
production units comprising 90,000 looms producing 1,478,571 million m2 of fabric.

According to Fakt Exhibitions Pvt Ltd. – organizer of IGATEX Pakistan, a biennial textile
garments, textile machinery and accessories exhibition – Pakistan’s principal textile exports
include ready-made garments and bedware, comprising 28 percent of exports; cotton fabrics, 19
percent; cotton yarn, 19 percent; hosiery, 19 percent; made-ups including towels, 10 percent;
man-made fiber textiles, 4 percent; and raw cotton and cotton waste, 1 percent.

Cotton Still Significant

Cotton textiles and apparel historically have been the focus of Pakistan’s textile industry,
mainly because of the large amount of cotton grown in the country. In 2010-11, Pakistan was the
fifth-largest producer and the third-largest consumer of cotton globally, producing approximately
8.8 million 480-pound bales of cotton and consuming approximately 10.3 million 480-pound bales,
according to U.S. Department of Agriculture numbers provided by PRGMEA. Pakistani cotton is used
mainly to manufacture home textile items, while imported cotton is mainly used to manufacture
garments. Cotton and cotton products represent 61 percent of Pakistan’s export earnings.

According to PRGMEA, Pakistan ranks third among Asian countries for spinning capacity –
having more than 10 million spindles and 200,000 rotors – and accounts for 5 percent of global
spinning capacity. The country exports approximately 25 percent of the yarn it produces, and sends
75 percent to its domestic textile and apparel manufacturers.

According to the German Engineering Federation (VDMA) Textile Machinery Association, German
exports of spinning machinery and accessories to Pakistan in 2010 totaled 7.4 million euros in
2009; 17.3 million euros in 2010; and 19.1 million euros in 2011. However, German exports of
weaving, knitting and finishing machinery to Pakistan decreased in 2011 over 2010.

Trade Agreements

The Pakistani government currently is negotiating free trade agreements (FTAs) with the
United States and the European Union (EU) – its largest trading partners and the top two importers
of its textiles and apparel – to allow Pakistan’s exports greater duty-free access to those markets
and thus help stimulate its textile industry. Together, those two markets receive 91 percent of
Pakistan’s apparel exports, according to PRGMEA: In 2010, Pakistan’s woven apparel exports to those
markets were valued at US$1.29 billion, and its knit apparel exports to those markets were valued
at US$1.82 billion.

In June, the European Parliament approved Pakistan as a beneficiary of Autonomous Trade
Preferences (ATP), a preferential trade deal proposed by the EU Council to help boost Pakistan’s
economy after it was affected by extensive flooding in 2010. The deal allows duty-free export of 75
Pakistani products, including approximately 65 textile and apparel items, to the EU over the next
two years, and is expected to generate a marked increase in Pakistan’s textile and apparel exports
to the EU.

The World Trade Organization’s approval of the ATP should also help clear the way for
Pakistan’s negotiations with the EU for Generalized System of Preferences Plus (GSP+) – which will
provide for reduced tariffs or duty-free entry of eligible products exported by Pakistan to the EU.
If Pakistan qualifies for GSP+ status, it will be able to export products under concessionary
tariff lines duty-free to the EU beginning Jan. 1, 2014. PRGMEA has contended that GSP+ status not
only would help Pakistan increase its exports and its trade with the EU, but also would open up
immense opportunities for the country’s apparel sector.

Energy Crisis & Other Issues

Pakistan’s textile industry is facing some significant obstacles. The global recession and
the eurozone crisis have contributed to a decline in its exports, along with economic factors such
as depreciation of the Pakistani rupee (PKR), double-digit inflation, rising interest rates and
increasing costs of inputs such as cotton and yarn. A reduction in internal demand and competition
in the international market from other developing countries such as China, India and Bangladesh
also are affecting Pakistan’s textile industry, which lacks adequate infrastructure, modern
machinery and technology, research and development capabilities, and skilled manpower. Political
instability and internal security also remain a concern.

However, the increasing cost of production resulting from Pakistan’s energy crisis has been
the textile industry’s primary setback. Due to reduced energy resource availability, the Pakistani
government began implementing rolling blackouts of electricity in 2008, and though the textile
industry was exempt for a while, it now is required to participate, as well as pay soaring
electricity rates. Gas – the industry’s primary energy source – is now in short supply, too.
Various Pakistani media sources report that approximately 40 percent of textile factories have shut
down or are running at reduced capacity because of the gas and electricity shortages, and thousands
of workers have lost their jobs.

Foreign buyers have been reluctant to place orders out of fear that the shortages will hamper
production and Pakistan’s textile exporters won’t fulfill commitments. Indeed, many Pakistani
manufacturers have stopped booking new orders because they are unable to produce backlogged orders
due to reduced productivity. EU buyers in particular have moved business away from Pakistan to
other countries in the region.

The high cost of doing business in Pakistan has caused many of its domestic production units
to shift operations to other countries such as Bangladesh. Continual power shortages and rate
increases will cause others to follow suit. Growing frustration throughout the industry has led to
rioting by thousands of textile workers.

Government Support

Pakistan’s textile industry is in desperate need of government support. The industry asserts
that the administration has failed to take adequate steps to address its issues, seemingly leaving
it waiting on the sidelines while it continues its downward spiral. Specifically, the government
has neither taken feasible measures to ensure a continuous gas supply nor allocated sufficient
funds to overcome the rolling blackout problem. Its promise to install new electricity and gas
plants has yet to be fulfilled.

Textile exporters have long been demanding a cut in interest rates to help boost production.
In August 2012, the State Bank of Pakistan (SBP) lowered the interest rate by 150 basis points to
10.5 percent – a decision hailed as a progressive action in favor of Pakistan’s textile exports,
and one that is vital not only for the textile industry’s revival but also for the overall economy.
However, the interest rate remains high. At a recent meeting with the prime minister initiated by
an All Pakistan Textile Mills (APTMA) delegation to discuss the industry’s future, SBP Governor
Yaseen Anwar pledged his support to the textile sector, and noted that a special committee would be
created to boost the industry’s viability and competitiveness globally.

In 2009, Pakistan’s Ministry of Textile Industry (MINTEX) introduced the Textiles Policy
2009-14 with the goal of developing the textile sector as an integrated chain and reaching an
ambitious export target of US$25 billion. The five-year policy addresses issues of all of the
textile value chain’s subsectors, and contains short- and long-term measures to revive the
industry. MINTEX Federal Minister Rana Farooq Saeed Khan has stated that the government is aware of
the textile sector’s importance and is taking necessary steps to protect and promote the industry.

However, MINTEX requested that the government allocate in the 2012-13 Federal Budget PKR42
billion to the textile and garment sector, with PKR30 billion earmarked for textile exports.
Textile manufacturers and exporters were dismayed when the government ignored the request and
approved only PKR10 billion for the Export Development Fund. (Note: PKR1 = U.S.$0.01042 as of Aug.
30, 2012.)

Recently released numbers from Pakistan’s Federal Bureau of Statistics (FBS) indicate that
the textile industry has been greatly affected by the energy crisis and other aforementioned
issues. Textile exports in fiscal year (FY) 2011-12 (July-June) were valued at US$12.36 billion,
representing a 10.4-percent decrease in value from FY 2010-11 exports valued at US$13.79 billion.
This is the second consecutive FY that exports under the Textiles Policy have decreased: in FY
2010-11, textile exports decreased 9 percent. Textile exports had increased 7 percent and 34
percent, respectively, in the first two FYs of the 2009-14 Policy.

Pakistan’s textile industry has great potential for expansion – in fact, President Asif Ali
Zardari recently stated that it has an export potential of some US$100 billion that has not been
utilized because of the numerous obstacles plaguing it. Unless the government steps up to support
the sector, which is expected to remain vital to the future growth of Pakistan’s economy, it will
be unable to compete with rivals in the international market and will further decline.

July/August/September 2012