Pakistani Textile Industrial Report

Chapter I: Introduction
The research that has been carried out is about is textile industry of Pakistan. In this report the researchers have tried and highlight the problems that are being faced by the Pakistans biggest industry which is Textile Industry. It is known as the biggest sources of export from Pakistans prospect and also has made large revenues for Pakistan. This industry is now-adays in deep troubled waters and the situation is becoming alarming with every passing day. In this report the researchers will point out the problems and also give possible solutions for those problems.

1. i) Objective:
This reports main purpose is to highlight the significance of the Asias 8th largest export industry in context to Pakistan. Also to pin point the problems that are haunting down the revenues and to tell the importance of this industry. Pakistans 8.5% of the GDP is based upon this textile industry and is the biggest industry of Pakistan, also the textile industry of Pakistan is the 8th biggest exporter in whole of Asia. It also provides 38% of the employment to the work force of Pakistan. However, this industry is facing a lot of issues these days due to the negligence of Government and if they didnt do anything about these problems it may turn out to be disasters. The facts speak for themselves, the figures are quite self evident that the textile industry is of great significance.

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1. ii) Scope:
Talking about the scope of this report, Its worth is realized & recognized nationally and internationally. This industry covers up the local as well as the international markets. Its scope is quite vast, National context as we all know that it is one of the biggest industries of Pakistan and internationally in a sense that we export the products of this industry to certain countries and if the exports are cut down then it will also have an impact on other countries.

This shows that large exports are based on the textile industry of Pakistan. This also shows that this report has an international scope as the exports have increased with the passage of time and the problems to the textile industry will also hamper the performance of the countries which are in relationship of export with Pakistan.

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1. iii) Limitations:
The researchers tried to cover the topic in each and every aspect but due to lack of time and scarcity of resources the researchers couldnt sum up the report the perfection so they excuse and apologize for anything that was left over. The researchers made their efforts in order to reach the desirable results and provide facts that were authentic and real enough.

This graph also shows the variation in the export trends as a whole. Out of which, textile has played a vital role in boosting up the GDP of Pakistan and adds a lot to the country. This graph also shows the limitation that graphs of total exports were found where as specific growth of textile industry was not there.

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Chapter II: Background Information

The textile industry has been of great significance since the birth of Pakistan. In 1947 the cotton bales present in the country were limited to just 1.1 million which has become 10 times more by 2000 in 53 years. There were only 3 mills in the start when Pakistan emerged as a separate Nation but now there are more than 650 mills all over Pakistan which are registered. But, at the same times the 650+ mills are not utilized to the full. According to the experts and the recent survey in 2009 about 75-80% of the machines either need to be replaced or updated to the modern international standard. The recent Governments of Pakistan has neglected the importance of this sector and the story of the present Government is pretty much same. We seriously need to think and replace the machines to the modern standards so that we can cope up with the international level industry. We need to sign ventures with the textile industry giants in order to replace this equipment which is not just happening. With the devaluation of Pak rupee and rise in the price of US $ the imports are costing so much to the industry owners which has led to a continuous shut down of the textile industries over the past two decades. Moreover, about 135 spinning units have been shut down from 1990- 2000. This shows the instability in the textile industry and the alarm bells are ringing but unfortunately no one is bothering this fact. According to a survey the researchers have come up with a observation that the neighboring countries has took over the progress and Pakistan has failed to make any serious progress in textile industry recently which is such an embarrassing situation to be in. However, the rise in export of valueadded products from Pakistan was a 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 textile industry we do not find anything that could lead to a high level exports achievement and remove trade imbalance. Moreover, All Pakistan Textile Mills Association (APTMA) has highlighted that the Pakistans textile industry faces tough competition from the Indian, Bangladeshi and Chinese textile industries and local policies have resulted in Pakistani textiles facing a critical condition.

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For instance, Bangladesh, India and China enjoy comparatively low interest rates than Pakistan. The prevailing rates are as following, 8.5 to 9.0 per cent in Bangladesh, 5.25 per cent in India (market rate is 10.25 per cent, however exemption of 5 percent is provided to the textile industry) and 5.58 per cent in China. Meanwhile, in Pakistan, the last three to four years has seen the interest rates to have risen more than 150 percent, to 13.25 percent. The increase has essentially crippled the small time textiles owner, while seriously hindering growth of the textile tycoons. This has led to textile owners accusing the government and banks for maintaining detrimental policies. A coherent plan should be devised by the Pakistani Government that allows some sort of exemption/concession such as in India; the Export-Import Bank was set up for the purpose of financing and facilitating the industries, especially textile. As discussed above, one cant easily quantify the serious challenges faced by the Pakistani industry and no one knows how much more things will add up to the threats regarding this particular textile industry. The Government needs to take certain steps in order to save this industry sector of Pakistan.

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Chapter III: Industry Problems

The textile industry of Pakistan is known as the backbone of the economy of Pakistan but this backbone seems to be having a lot of burden on it. The background has been discussed above and so is the history of this industry. Further, the researchers will like to highlight the numerous problems faced by this industry. The researchers found a lot of problems which are a serious threat to the industry at the moment. The researchers further shortlisted the problems:

3. i) Lack of Modern Machinery:

The use of old and outdated machines in the

textile industries has been a serious threat to the industry. The old fashioned machines limit the production and do not produce the maximum possible production. These old machines also require frequent repair which adds to the cost.

3. ii) Rise in the Cost of Production:

With the increase in the price of goods and

material and with the inflation rate moving into the double figures, the production cost is increasing with an incredible pace which ultimately results in the shutdown of certain mills and plants.

3. iii) Increase in Interest Rate: With the fact that the industries interest rate rises up
to 15%, the industry owners have gone to earn huge profits but at the same time it has shut close the door for the small textiles and home textile industries.

3. iv) Tight Monetary Policy: The continuity of tight monetary policy cause an
intensive increase in cost of production. Due to high interest rate financing cost increases which cause a severe effect on production. The withholding tax of 1% also effects the production badly. The high cost of doing business is because of intensive increase in the rate of interest which has
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increased the problems of the industry. The government should take immediate measures to remove slowdown in the textile sector.

3. v) Lack of New Investors:

Another factor is that with the increase in production

price the new investors have vanished. The internal and external factors have promoted instability and that is why there are no new investors to be found in Pakistan. In order to cope up with the international standard, Pakistan needs new investors but at the moment it is just not happening. We need to promote this industry and bring in new investors in order to meet the export demand.

3. vi) Lack of R & D in Textile Sector: There has been a shortage in fact a serious
shortage of Research and Development plants which require in sub standard cotton which lowers the profit for farmers in the field of cotton. With the decrease in the revenue the farmers are switching to other crops in order to earn a living and support their families and this is because of lack of R & D plants in the country.

3. vii) Removal of Subsidy:

Recently the Government of Pakistan has removed

subsidy from the textile sector which further discourages the investors to enter this sector. Bringing in new investors is a separate thing but by such policies Government is forcing existing investors to back out of the textile sector so it is further making things ugly for this sector.

3. viii) Inflation:

It refers to the increase in prices of certain goods, also known as

consumer price index (CPI). With the increase in prices of commodities the returns are

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decreasing and that decrease has lowered the export rate of textile. Ultimately it effects the production and the export of the textile related goods.

3. ix) Unemployment caused by Shutdown:

As the inflation cause the textile

industries to shut down, the unemployment rate rises. As unemployment is referred is referred to the people who wants to work but are without any work. The employees working in industries lose their jobs because of shutdown of industries and people end up being unemployed.

3. x) Effect of Global Recession on Textile Industry : The term recession

means the reduction of a countrys Gross Domestic Product (GDP) or in normal terms, it is a period of reduced economic activity. Pakistan is 26th largest economy in the world, and 47th largest in terms of the dollar. It is sad to see our economy like this now. Pakistan is actually a very economically diverse country with boasting industries of textiles, agriculture, etc. The main

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reason for this slump has largely been the political instability over the past few years; no proper economic policies were implemented; at least none that succeeded. This caused a very high rate of inflation, which, in 2008, had increased to a whopping 25% as compared to a 7.9% of 2006. What occurred afterwards is what we call the domino effect. The value of the Rupee crashed from 60-1 USD to 80-1 USD in only a month, the prices of commodities soared through the roof, the number of people living below poverty line increased from 60 million to 77 million, and consequently, the working class layman became virtually deprived from basic necessities like water, wheat, electricity, natural gas, and cooking oil; add to all this, the preposterous amounts of load-shedding, and what we get is a nation in shambles. The above all situation of the economy badly affected the textile industry also. The demand for textile product cut down locally & internationally as well. The export order reduced due to unpredictable conditions of Pakistan & political instability. The cut down in the production of textile cause further unemployment level which decrease the living standard of peoples.

3. xi) Export Performance: For the last three years now, the textile industry has failed
to meet the targeted export, this is due to a number of factors mainly because of the increase in production, shut down of firms, energy crisis etc. whatever the reason may be, the fact is that in 2008 we failed to meet the targeted export by 20%, by 26 % in 2009 and by 23% in 2010. Prime Ministers advisor on textile industry blamed poor infra-structure, high production cost, lack of investors, inflations, gas and electricity shortage for such results. At the end of the day, what is happening is that our country is lagging behind our competitors and also losing its image in the export market. If this continues, the export of this industry will gradually shrink to the lowest rate possible which will be a nightmare for our economy.

3. xii) Prices of the Raw Material:

As discussed earlier, the increase in inflation

has had a huge impact not only on the export but also on the local demand. With the increase in the raw material prices and inflation, the production cost has increased and so is the price of all
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the goods related to the textile industry. The prices of the end products has gone way up then it was so the demand in the local market for the products also decrease by a great extent, Government has to take serious steps to come up with a solution to this problem before its too late.

3. xiii) Internal Crisis and Political Instability: Pakistan has been in crisis, all
sorts of crisis for quite some time now, the internal crisis such as terrorism, lack of security, poor infrastructure and moreover, the political stability that is on the rose has hampered Pakistans performance greatly. Eventually, Pakistans textile industry is also going through one of the toughest period in decades. The global recession which has hit the global textile really hard is not the only cause for concern. 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 raised the cost of imported inputs. In addition, double digit inflation and high cost of financing has seriously affected the growth in the textile industry. Pakistan's textile exports have gone down during last three years as exporters cannot effectively market their products since buyers are not visiting Pakistan due to adverse travel advisory and it is getting more and more difficult for the exporters to travel abroad. All these internal factors and the facts that weaken the industry of Pakistan as investors see themselves at risk while investing in Pakistan.

3. xiv) Energy Crisis: Last but not the least threat and problem faced by the textile
industry is of energy crisis. It has just gone on to increase over the last few years. There has been a shortage of both gas and electricity in the country.

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Pakistani Textile Industrial Report - Electricity Shortage:

The biggest and urgent problem is right now of the electricity

shortage. It has sucked the life out of the Pakistan. Its surely a manmade disaster and the current problems are adding to the woes. In Pakistan electricity is now Rs 7 per unit and it will be increased after every two months due to the American IMF policies.

This graph makes it clear that the consumption or demand is so high and production is so low which has a great impact on the industry sector. This cuts short all the production and employees dont have any work to do. At the end of the day, the textile industry owners have no other options but to quit. There are simply no incentives what so ever for the new investors to enter this industry.

Gas Shortage: The gas load-shedding continues in Punjab and NWFP despite a significant
increase in temperature. A spokesman for the All Pakistan Textile Mills Association (APTMA) 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, energy supply disruption only was causing an estimated loss of Rs1 billion per day. 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 which doesnt seem to be happening. They are simply not paying any attention to the fact that gas and electricity shortage can seriously affect the production and the growth of textile industry.

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Chapter IV: Recommendations:

The researchers have come up with possible recommendations to all these problems. As it is very important to tackle the problems faced before its too late. Some of the remedies are as under: Cheap and less costly production sources and improvement in productivity, Government need to find sources by which they can improve their productivity. Government should also explore and find new export markets and should link up with new countries to increase the export and should meet the targets. We need to create a better image of our country in order to promote foreign investment to cope up with international standards. Government should put back the subsidy that they removed from the industry sector recently as soon as possible. Reduction of business set up cost in Pakistan should also be done in order to promote investment. Further, the machines should be upgraded on urgent basis and the quality of production should be increased. Gas and electricity shortage should be removed on immediate basis at least for the industry sector. Interest rate should be cut down to some lower rate which is necessary for this industry sector at the moment. International quality standard should be met to come at par with other countries and to give them a tough time. On-job training should be introduced in order to motivate the employees working at the industry.

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Efficient management techniques and managers need to be adapted in the industries in order to produce efficiently. Human resource management needs to be promoted in order to manage the scarce resources at the moment.

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Chapter V: Conclusion
Pakistans 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 Pakistans 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. Pakistans 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 industrys production get higher effected which prove as a last strike on industrys back. Government should provide subsidy to the textile industry for the survival of this industry. Continuity of 1% 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 3 million 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.

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Bibliography:
Economic Review - NBP( 2009) Pakistan and Gulf Economist. http://www.epb.gov.pk http://www.fpcci.com.pk PAKISTAN CLOTH MERCHANT ASSOCIATION (PCMA) http://www.pakboi.gov.pk http://www.wikipedia.com http://www.google.com.pk

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