Overall exports have shown a growth rate of 28 per cent and stand at $22.422 billion during the first eleven months, July-May, of the last fiscal year. The same value was $17.509 billion last year. The textile sector depicted a remarkable performance of 34.2 per cent contribution in exports during this period. The rising prices in the international markets helped surpass the export target of $19.8 billion.
Textile: Contribution to economy
In total export earnings, the share of textiles was $12.488 billion against $9.305 billion in the same period last year, showing a robust growth of 34.20 per cent, FBS depicted. Knitwear was the largest sector amongst textile exports and grew by 30.04 per cent, reaching a value of $2.074 billion during the current period against last year’s value of $1.595 billion. Readymade garments exports also showed a remarkable growth of 38.26 per cent and earned $1.573 billion while cotton cloth exports grew by 40.59 per cent and stood at $2.317 billion. Bed linen exports were $1.881 billion as compared to $1.586 billion of the last period official, according to statistics.
For enlightenment on the present situation and problems being faced by the industry along with its future prospects, we interviewed Javed Chinoy who is presently the Chairman of Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA). First of all, Chinoy wished to comment on the Federal Budget, 2011-12, which in his opinion was a formality and a constitutional requirement which was fulfilled by the government. “Actually, the budget is anti-industry and anti-trade, in which especially export oriented industries were totally neglected,” he said. While continuing his comments, he said, “How could be the budget called industry and trade friendly when the government has failed to satisfy the whole business community, whether it is that of trade or industry. It was expected that the government will announce some incentives to revive the industrial sector but it totally disappointed the businessmen,” he added.
Analysing the out going year, Javed Chinoy said it was claimed by former Minister for Textile Industry Rana Farooq Saeed Khan, that the textile export target of $25 billion would be achieved at all costs, but now the year has ended and it remained a distant dream, therefore, targets should be realistic and achievable. Referring to the existing economic situation, the PRGMEA Chairman said that the situation is against exporters in respect of cotton prices, gas and electricity shortage, law and order situation and many other issues that the industrial sector faces. These problems have compelled businessmen to close their units, which will ultimately hurt the economy and result in massive unemployment levels.
He proudly said that in spite of many odds total textile exports, during ten months of July-April 2010-11, were $11.22 billion as compared to $8.50 billion of last year, showing an increase of 32 per cent. He observed that readymade garments exports rose by 36 per cent and earned $3.67 billion.
Elaborating the importance of the textile industry in the economy, he said that textile and apparel industry is the economy’s backbone. This industry is export-oriented and its contribution to the GDP is about 8.5 per cent and holds a 55 per cent share in total exports. The industry constitutes 46 per cent of the total manufacturing sector and employs 38 per cent of the total labour force.
Unaccomplished potential
Despite its importance, the industry is still operating below its capacity level due to exporting unprocessed or semi-processed items such as raw cotton, cotton yarn and fabrics, which account for 34 per cent of total textile exports, he added. He recalled that 2010 was one of the most difficult years for our textile and especially for the apparel industry, owing to both internal and external factors. On the domestic front, textile manufacturers and exporters were unable to sell at prevailing export prices because cost of production in the country had tremendously increased.
Other domestic hindrances that affected textile and apparel manufacturing activity were the law and order and prolonged electricity and gas load shedding. The devastating floods, although did not hit the industry directly but 20 per cent of the entire cotton crop was destroyed and its price increased. On the other hand, global cotton prices further aggravated the situation, he observed.
Going on with his analysis, with regards to value added items, he said that Pakistan has a very strong base in bed, bath and kitchen linen, and the industry stands next to that of China. While the woven and knit apparel industry holds the largest share in exports, it has still not been able to match the explosive growth that Bangladesh and Vietnam have witnessed in the sector.
The principal garment exports from Pakistan are denim jeans, cotton trousers, t-shirts, cotton shirts, jerseys, track suits, etc. Most of the units in the apparel sector have 50 machines or less which implies strong concentration in the SME sector, creating vast investment and employment opportunities.He pointed out that a major share of apparel exports is going to the US and the EU, but very little foreign investment in the Pakistani apparel sector has been received. However, in order to maintain its competitiveness, the apparel industry is constantly investing in modernisation and up gradation of machinery from its own resources. This can be seen from the import figures of industrial sewing machines that have increased by 120 per cent during the fiscal year 2009-10. He noted that apparel exports are surging and it is expected that woven garment exports will increase to about 40 per cent and in value terms, they would reach $2 billion. A 30 per cent increase in export quantity is being anticipated for woven garments.
Incentives for exporters
Enumerating the problems, the Chairman of the association said that the local levies and taxes scheme was announced in September 2009 under the Textile Policy 2009-14 and was applicable till June 30, 2011. He said that we have requested an extension of the scheme for the next 3 years. Moreover, our regional competitors including China, India and Bangladesh are also offering similar schemes to their exporters, but at higher percentages. Therefore, PRGMEA requests that the percentage of this scheme should be increased up to 3 per cent for fabrics, 5 per cent on home textiles and 6 per cent for woven or knit garments, which will surely boost the country’s exports.
He said the other problem is that State Bank of Pakistan recently announced that under DLTL, only 14.68 per cent of the total claims will be reimbursed to the exporters while the rest will be deferred. This step is not acceptable as it would create problems for the exporters who are now receiving their claims in small portions and management of such claims has now become a hassle. Going into further details, Chinoy said that under the present scheme it was announced that exporters who achieved an increase of 15 per cent over the preceding financial year will be eligible for an additional one per cent drawback but so far no policy has been made or implemented in this regard. He suggested that the claim percentage as per the original announcement should be implemented in letter and spirit. Research and Development Support Fund scheme was discontinued in 2008 but many exporters have still not been refunded the claimed amount. He requested that all previous pending claims should be cleared as soon as possible. Markup on Export Refinance Scheme is currently very high and banks are reluctant in lending to the textile sector causing a dire need of cash for the textile units. He suggested that markup rates should be reduced to a single digit value.
He observed that a mere 10 per cent share is reserved for Islamic Export Refinance Scheme (IERF) and that this share should be enhanced. Under the IERF, the provision for textile industry is only 30 per cent and should be enhanced. In the Federal Budget 2011-12, tax holiday on equity investment was announced. A detailed policy in this regard should be announced immediately. Furthermore, the procedure of claiming refunds of sales tax is also time-consuming; therefore, it should be made simple and hassle free. He recommended that a 100 per cent sales tax refund should be announced as there is no rationale behind deferring 10-20 per cent of the claimed amount.
Multiple issues at hand
He said that the law and order situation in the country and especially that in Karachi is deteriorating day by day which is discouraging investment and not allowing buyers to visit our country. An example is that at present Pakistan’s major trading partners have put travel restrictions that are hurting the industry. In the apparel sector, buyers want to see the product and also like to visit factories themselves. Visits of buyers would ensure additional buying and better prices. Therefore, improvement in the law and order situation is absolutely essential. Uninterrupted utility supply is the second most important issue of the textile industry. The textile industry consumes 8 per cent of the total electricity generated and 12 per cent of gas production. Disruptions in gas and electricity supplies are putting undue pressure on shipments and compel the curtailment of production. Therefore, the industry should be provided with uninterrupted gas and electricity supply. As Chairman of PRGMEA, he demanded that prices of gas and electricity should immediately be capped at the present level, enabling businesses to control their costs.
Talking about duty free access to US and EU markets, he said it is our right as a front line state in the war on terror. The US should declare Pakistan as a duty free country just like it did with Egypt and Jordan. Moreover, if the EU gives Pakistan GSP plus concessions, it would create about two per cent additional business for Pakistani textile industry. He was worried that Turkish government is planning to impose anti dumping duties on shipments of woven fabrics and readymade garments from Pakistan that will hurt our textile exports. Therefore, government should negotiate this matter with the Turkish government. Chinoy demanded that duty free imports of fabric should be allowed as import of raw cotton and cotton yarn is already enjoying duty free status. This step is important for the development of new product because some types of fabric is either not available in the local markets or is available at very high prices. He strongly demanded that duty free import of fabric should be allowed across the board and for all exporters, except for the DTRE Scheme. “By taking this step, we assure the government that exports will increase by 30 per cent per annum and would be doubled within 3 years and government revenue from taxes will also increase accordingly,” he emphasised. He suggested that an aggressive marketing strategy should be made, referring to the ones Bangladesh, India and China have implemented, by effectively using embassies and commercial sections abroad. Criticising the present role of commercial councilors, Chinoy said their performance is not result oriented, as compared to that of our competitor countries. He suggested that young MBAs from abroad should be hired as Pakistani marketing representatives, so that language and travel barriers can be overcome by our commercial sections.
Presently, Pakistan is in the list of countries perceived as a “cheap source of textiles and garments in the world”. This is the right time for changing this image. To produce quality goods, Ministry of Textiles and the entrepreneurs should conduct vocational training courses for 2-3 weeks, in which the importance of the “Made in Pakistan” label should be taught to workers.
Pakistan’s global role
Citing an example, the Chairman PRGMEA said the global garments industry is worth $362 billion, of which Pakistan’s share is less than one per cent, whereas our share in yarn exports is 35 per cent. These percentages clearly indicate wrong policies of the past that have limited our role as a raw material supplier whereas the garments sector is creating millions of jobs in Bangladesh, Egypt, Vietnam and Cambodia through the production of value added garments.
He advised that low value production units in rural areas should be set up, while high value apparel and garment units should be kept in large cities because they need high-tech plant and machinery along with qualified manpower and huge investments.
Moreover, the government should also set up training centers to impart training on handling different modes of machinery, different type of raw materials such as cotton yarn, synthetic yarn and silk.
He pointed out that in the apparel industry; the best strategy is to utilise the redundant female population by providing them training for seven weeks. It should be noted that in Pakistan, the employment to population ratio for females is just 20 per cent as compared to 33.5 per cent in South Asia.
Concluding his interview Javed Chinoy said that TDAP should provide a 70 per cent subsidy to participants of exhibitions and remaining 30 per cent will be contributed by the exporters. This amount may be arranged from the EDF funds, which are funds of the exporters themselves.
