Effects On Textile Industry Due to Energy Crisis

Contents:Summary:Introduction: History of Pakistan Textile Industry
1. Lack of Research & development (R&D) in cotton sector:2. Lack of modernize equipment:3. Finance Bill to burden industry further: 4. Increasing cost of production:5- Internal issues pose a larger threat for Pakistan’s textile industry:6-Energy crisis: a) Electricity crisis:b) Gas Shortage:7-Tight Monetary Policy:8- Removal of subsidy on Textile sector:9- Lack of new investment:10- United States & EU cuts imports of textile from Pakistan:11- Raw material Prices:12- Export performance of the Textile sector

13- The Effect of Global Recession on Textile Industry:14-Effect of Inflation 15-Unemployment caused by textile 16- Recommendation: These are all the reasons Of Crisis in Textile Industry But we’ll focus on the energy crisis, how energy crisis effect on the textile industry.

Summary:Pakistan’s textile industry is going through one of the toughest periods in decades. The global recession which has hit the global textile really hard is not the only cause for concern. Serious internal issues also affected Pakistan’s textile industry very badly. The high cost of production resulting from an instant rise in the energy costs has been the primary cause of concern for the industry. Depreciation of Pakistani rupee during last year which has significantly raised the cost of imported inputs. Furthermore, double digit

Inflation and high cost of financing has seriously affected the growth in the textile industry. Pakistan's textile exports in turn have gone down during last three years as exporters cannot effectively market their produce since buyers are not visiting Pakistan due to adverse travel conditions and it is getting more and more difficult for the exporters to travel abroad. Pakistan’s textile industry is lacking in research & development (R & D).The production capability is very low due to obsolete machinery & technology. Pakistan is facing high cost of production due to several factors like the hike in electricity tariff, the increase in interest rate, energy crisis, devaluation of Pakistani rupee, increasing cost of inputs, political instability, removal of subsidy & internal dispute. The above all factor increase the cost of production which decreases the exports. Exports receipts decrease from $ 10.2 B to $ 9.6 B. The global recession also hit badly the textile industry. Double digit inflation also caused decrease in production in textile sector which cause the increase in unemployment level. By the removal of subsidy the industry’s production get higher effected which prove as a last strike on industry’s back.Govt should provide subsidy to the textile industry for the survival of this industry. Continuity of 1pc controversial withholding tax on import of essential raw material (cotton & polyester staple fiber) for industry should be withdrawn immediately. This withdrawal would enable the industry to procure some 3m cotton bales annually from outside world in order to meet the shortage and to compete with regional competitors in international market to earn foreign exchange for the country. On imposition of 16% FED on banking and insurance services such advance taxes would play havoc with the growth of the industry in already existing adverse circumstances and needed to be withdrawn immediately. The government should not withdraw sales tax and withholding tax exemption on machinery and parts, as it would add cost besides liquidity problem for the industry.

Introduction:The Pakistan textile industry contributes more than 60 percent to the country’s total exports. The sum of total export is around 9.6 billion US dollars. The industry of textile contributes approximately 46 percent to the total output produced in the country. In Asia, Pakistan is the 8th largest exporter of textile products. The contribution of this industry to the total GDP is 8.5 percent. Moreover, it provides employment to 38 percent of the work force in the country. However, the textile industry currently faces massive challenges. The All Pakistan Textile Mills Association (APTMA) needs to enhance the quality of its products. However, APTMA argues other factors such as high interest rates and cost of inputs, non conducive government policies, and nonguaranteed energy supplies hinder their competitiveness..

History of Pakistan Textile Industry
Increase in the cotton production and expansion of textile industry has been impressive in Pakistan since 1947. Cotton – bales increase from 1.1 million bales in 1947 to 10 million bales by 2000. Number of mills increased from 3 to 600 and spindles from about 177,000 to 805 million similarly looms and finishing units increased but not in the same proportion. Pakistan’s textile industry experts feel that Pakistan has fairly large size textile industry and 60-70% of machines need replacement for the economic and quality production of products for a highly competitive market. But unfortunately it does not have any facility for manufacturing of textile machinery of balancing modernization and replacement (BMR) in the textile mills. We need to think about joint ventures for the production of complete spinning units with china, Italy and production of shuttle less looms with Korea, Taiwan and Italy. Cotton textile industry has been major source of export earning and employment. It also helps in value addition to the manufacturing sector of the economy. During the six years between 1993 and 1998, production of yarn (in quantity terms) registered a steady annual growth rate of 302% in Bangladesh and

405% in India. On the other hand, Pakistan registered a growth rate of 101% per annum in yarn production. It ranked third after China and India in the global yarn production during the same six years. In exports, while Taiwan, India and the republic of Korea registered an annual increase of 18.1%, 27.7% and 5.4% respectively during 1993-1998, Pakistan registered a negative growth of 4.8% one important development was that till 1997, Pakistan was the world’s largest exporter yarn followed by India. However, in 1998, India gained the NO 1 position, leaving Pakistan at NO 2 In the case of cotton cloth production. A large number of Asian countries have been emerging in the international market to compete with Pakistan. These countries are Bangladesh, India, Taiwan, Indonesia, Thailand, Turkey, Sri Lanka and Iran. The above-mentioned discussion of international scenario highlights the adverse position of Pakistan’s textile industry which is likely to continue further following the full implementation of WTO agreement from 2005 onwards. Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchants Association (PCMA) Chairman, Appreciated government’s efforts to encourage new exports and finding new markets, which need aggressive export marketing. The steps taken on the monetary front, such as the frequent devaluation of Pak rupee in terms of dollar could not improve the cost competitiveness of exportable products due to increase in prices of the local and imported inputs of the local textile industry. During the period 1973 to December 1992, some 71 spinning units with 1,136, 835 spindles, 6,600 rotors and 7,329 looms were closed down. In 1992, a foreign consultant form was hired by the government to look into the stagnate conditions in the local textile industry. One of the observations of the foreign consultant was “Pakistan has failed to make real progress in the international market and is being over taken by many of the neighboring competitor countries.

The textile sector which constituted 69% of total export during 2001-2002, believes that enhanced quota by the European Union and Turkey would make this possible to fetch another US$1 billion this year. The rise in export of value-added products from Pakistan was another point of encouragement for the textile sector. “The export of value-added products rose to 57.4% from 53.9% in 2002 which is clear sign that we are moving in the right direction, “said the Chairman of all Pakistan textile mills association. The trade policy is considered an acceptable paper, but in the industry does not fine anything that could lead to a high level exports achievement and remove trade imbalance.
Pakistan’s textile sector earned US$5.77 billion during the 2003 year, compared with US$5.577 BILLION OF 2000-2001 indicating a growth of 0.69%. Industrial. The total exports of textile sector in 2004 were US 5.7 billion which shows 2.5% growth it increase to 4% growth in 2005 as compared to 2004.The textile sector shows 8% negative growth in 2006.The negative growth continue in 2007 also with the value of 5%.The textile sector shows 15% growth in 2008. Now we will discuss the main reasons of crisis in textile industry step by step in detail

Energy crisis:
a) Electricity crisis:As a consequence of load shedding the textile production capacity of various sub-sectors has been reduced by up to 30 per cent. The representatives of the all textile associations presented their serious concerns on the huge losses being incurred due to electricity load shedding and the instant rise in the Electricity tariff. They said that the industry has already been crippled due to record loadshedding during winter months.

The joint meeting of All Pakistan Textile Mills Association (APTMA) & other related organization was held at APTMA House to formulate a joint strategy to address the alarming electricity crisis being faced by the textile industry. The meeting unanimously decided to constitute a joint working group of electricity management for the textile industry in the larger interests of the value chain of the textile industry. The joint working group will meet shortly to design a detailed plan to pursue the following goals; immediate total exemption from Electricity load shedding for the textile industry value chain; Rationalization and reduction of electricity tariff. The load shedding of electricity cause a rapid decrease in production which also reduced the export order. The cost of production has also risen due to instant increase in electricity tariff. Due to load shedding some mill owner uses alternative source of energy like generator which increase their cost of production further. Due to such dramatic situation the capability of

100,000,000,000 80,000,000,000 60,000,000,000 40,000,000,000 20,000,000,000 0 2004 2005 2006 2007 2008 2009
COMPARISON BETWEEN ELECTRICITY PRODUCTION AND CONSUMPTION

PRODUCTION

CONSUMPTION

b) Gas Shortage:Gas load-shedding continues in Punjab and NWFP despite a significant increase in temperature. A spokesman for the All Pakistan Textile Mills Association claimed that 60 to 70 per cent of the industry had been affected and was unable to accept export orders coming in from around the globe. He said the textile industry had already endured over 45 days of gas disconnection over a period of four

months, causing extraordinary production losses and badly affecting capability of the industry. In Punjab, he said, the textile industry's share was over 60 per cent, according to APTMA's study energy supply disruption only was causing an estimated loss of Rs1 billion per day. He regretted that at a time when the export-oriented industry had ready demand in terms of meeting export orders, the policy-makers failed to take prudent steps to help ensure timely execution of orders. In the larger interest of the economy and exports, he suggested, the government should “ensure utility companies provide smooth electricity and gas supply to the textile industry and accord the industry top priority at this critical time.”

Recommendation:
The government is considering curative measures on the recommendations of stakeholders to address the problems and issues faced by the textile industry of the country for enhancing its production and exports. The government is likely to announce textile policy also called National Textile Strategy in the mid of current month to help promote the textile sector of the country, sources told APP. The Textile Ministry has consulted all textile sector associations and the chambers of commerce and industry and taken them board before finalizing the textile policy and the policy would be announced soon, they added. The ministry received recommendations for zero rating on import of textile machinery, zero rating exports, tariff reduction, incessant energy supply to textile units. Issues relating to the market access and quality products with timely delivery and single digit mark up and special power tariff for the textile industry has also been recommended. It has been suggested that textile policy might include the issue like duty free market access to European Union and United States as Pakistan is the largest importer of USA long staple cotton to the tune of $400 million to $500 million every year. Prime Minister Yousuf Raza Gilani has already constituted a Cabinet committee to evaluate the new textile policy, for the provision of incentives for modernizing the industry and making it more efficient. The economic observes believe that the textile sector was passing through a difficult phase due to energy shortage in the country and needed curative measures for promotion. The textile group exports have witnessed negative growth of 9.27 percent during the first ten month of current financial year. Exports from July-April (2008-09) were recorded at $7.898 billion as against the exports of $8.706 billion during the corresponding period of last financial year During the time under review exports of cotton yarn were decreased by 15.98 percent, cotton carded or combed by 1.41 percent, yarn other than cotton yarn by 54.74 percent, knitwear by 6.7 percent, bed wear by 12.19 percent, tents, canvas and tarpaulin by 14.70 percent readymade garments by 14.65 percent, art, silk and synthetic textile by 33.64 percent where as the exports of other textile materials were declined by 15.43 percent. The only two textile groups including raw cotton, cotton cloth and towels witnessed positive growth as their exports were increased by 40.32, o.75 and 3.26 percent respectively during the first ten months of current financial year as against the same period of last year.

Some other Specific Recommendations

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Remedy though FDI Image Building of Pakistan to Attract FDI Focus on Value Addition Technology Up-gradation & capacity building Human Resources Development Need For Improving Textile Production Improvement in productivity Awareness of International Quality Standards Introducing concept of on-the- job-training Introducing efficient management techniques Subsidy removal should be taken a back Interest rate should be low down in order to survive this industry

m- Electricity & gas tariff:Hike in the tariff of electricity & gas cause an increase in production cost which cuts down the demand for Pakistani textile goods in international market due to high cost of inputs. In order to survive the industry government should make electricity & gas cost cheaper.

n- Removal of Energy Crisis:Govt should try to remove the energy crisis in order to save the industry. As the crisis in energy sector cut down the production. By the reduction of production exports are also decreased.

REFERENCES:All Pakistan Textile Mills Association (APTMA) (Various Issues) Annual Report. Challenges for Pakistan. Asian Development Review Pakistan Textile Journal (2009) Pakistan, Government of (2008-09) Pakistan Economic Survey. Islamabad: Ministry of Finance. Textile Industry— Special Report (2009).

ASSIGNMENT
Business Research Development
Submitted To:
Sir Safdar Tahir

Submitted By:
Maryam Nasir 10678 MBA 3 sem(Morning)

Date Of Submission:
08-02-2010

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