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Department of Economics University of Karachi “Performance of Textile Sector”

Submitted by: Muhammad Usama Abbasi Seat no: EP0805056 Submitted to: Dr. Abdul Waheed 27 September 2011

I would also indebted to my friends and family. I become able to complete this research. However “To Err is human”. and criticism is necessary for better work. Thanks With best regards M. I have prepare my project with full consideration and high efforts. Acknowledgement By the grace of Almighty Allah. I would appreciate those who identify my mistakes and make comments on my project for betterment. by whom motivation and guidelines.Usama Abbasi Author of Project 1 . I become able to prepare research on Pakistan‟s textile industry which will help to rectify some crises in this sector.

who bestowed me with the courage by his unmatchable style and by best possible teaching. Abdul Waheed. 2 .Dedication I dedicate this to my Beloved Parent for all their love & attention which has made it possible for me to make it up to this point and as well as my professor Dr.

Research also indicates that there are some issues which directly or indirectly harmful on textile sector. Issues are energy crises in a country ( in form of fuel. some suggestions are recommended for the improvement in Textile industry in Pakistan which should be implemented on the priority basis. facts and figures were collected from economic survey. The report focuses on the challenges faced by the country in implementing its WTO commitments and the challenges faced during energy crises in country and challenges during global financial crises. In the end after conclusion. obsolete technology usage and inefficient production. electricity). Apart from suggestion on how to deal with the internal challenges. Statistics. the report also take into account what kind of strategy and action Pakistan should adopt to strengthen this Sector which is also a backbone of Pakistan economy. 3 . During analysis I found that the major threat to Pakistan‟s textile sector are sustaining its competitive place against its competitor place and keep its target market as well as improve its share in whole world export. statistic division of Pakistan along with WTO statistics in textile oriented import and exports of Pakistan to analyze problems and issues in textile industry of Pakistan. lack of skills.Abstract The purpose of this report is to identify and analyze issues and problems which is being faced by Pakistan in the area of textile sector of the economy.

Review of literature………………………………………………….. 16-18 4 . 6-7 2. Conclusion ………………………………………………………………. 1 3-15 4. Introduction……………………………………………………………….BRIEF CONTENTS 1. 7-12 3. Analysis ……………………………………………………………………. Recommendations ………………………………………………….. 1 5-16 5.

LIST OF ABBREVIATIONS WTO APTMA EU SMEDA WB NAFTA LDCs World Trade Organization All Pakistan Textile Mills Association European Union Short and Medium Enterprise Development Authority World Bank North American Free Trade Area Less Developed Countries 5 .

Pakistan is the 4th largest producer and 3rd largest consumer of cotton in the world. Germany. Sweden. Textile industry in Pakistan seems to be main driving force for the economic growth of country that there is no substitute for this industry which can help in earning such a big amount of foreign exchange. the industry contributes around 46 percent of the total output produced in the country. To cater to the rising demand and challenges the industry is in urgent need of financial and technological investments. Cotton is the basic raw material for textile industry which plays vital role in the growth of this industry.Textile industry of Pakistan is currently passing through crucial stage and is facing several challenges such as it also unable to meet local 6 . The top buyers of Pakistani textile goods are: USA. In Asia.5 percent of the GDP and employs 38 percent of the workforce in the manufacturing sector. All Pakistan Textile Mills Association (APTMA) is the principal organization that determines the rules and regulations in the Pakistan Textile Industry . Pakistan is 8th largest exporter of textile products. UK. and Australia. France. the Pakistan‟s textile industry contributes almost 60 percent of the country‟s total exports. Norway. Canada. Saudi Arabia.Performance of Textile Sector Introduction: Textile Industry is one of the prime and mature industry in Pakistan. Gulf region. Hong Kong. Italy. EU. According to recent economic survey of Pakistan. Korea. the Industry is losing its competitiveness to other countries especially to South East Asian countries. Turkey. Japan. It ranks amongst the top 5 textile industries in the world. Despite its inherent strength. The textile industry of Pakistan contributes 8.

and international demand due to currently prevailing energy crises in the country also the economic and social condition of country is not good. China and Bangladesh. they should assure all forms of energy to the textile sector of country. The government should emphasizes on energy crises. Review of Literature: Textile industry has been the bulwark of Pakistan‟s economy. Bangladesh and India. The only country in this region without strong engineering base is Pakistan and our dependence upon outside engineering industry keeps our cost of production higher with low engineering skills The Industry shows remarkable growth in last 4 decade before 9/11 but has faced downfall in last decade with various textile mills and industries fails to contribute in economy of Pakistan and sustain profitability because of increase in raw material prices and due to power shortage in country. accounts for 46% of the total manufacturing and provides 7 .. Germany. Also there is lack of efficient training and development program. Pakistan imported its Textile machinery mainly from countries like Switzerland. China and Belgium. Also there is shifting of mills to Bangladesh due to energy crises and law & order conditions in the country. causes unemployment and shifting of customer preferences to other South Asian countries like India. There is also a big need of improving the quality of its products by value addition in it‟s products. All these thing caused closure of textile mills in Faisalabad. It contributes more than 60% of the total export earning of the country. Our main competitor in primary textile products with the advantage of large engineering segment in this region are China. Japan.

8 . Even though. textile industry requires investment in technology for meeting the new challenges. an increase of $ 5. the Textile sector is exposed to extreme competition after the phasing out of quota besides facing resistance from developed countries in the name of Social Compliance.employment to 38% of the manufacturing labor force. inflation and bank refinancing rate on exports. In particular.12 billion in value term or by 93% and it still have the potential to beat this rate of growth in future. but due to continuous rise in cost of doing business resulting from enhancement in the cotton prices. AntiDumping. cotton. Textile Industry of Pakistan is indeed passing through a very crucial juncture due to the prevailing socio-economic and political climate.5 billion in the year 2003-04 i. Muhammad Iqbal Ibrahim) in his annual review 2007-08 tells in his speech that “Export of textile products has reached $ 10. To increase competitiveness and quality of products. utilities. There is continued downward pressure of unit prices of textile goods. Over the last few years the textile sector has invested about US$ 6. while the raw material prices and cost of doing business are increasing drastically.e.0 billion in modernization and higher value addition.62 billion in the year 2007-08 from $ 5. The question is what we need to do to maintain or improve the growth of this industry? The way international trade is evolving is neither free nor fair. Counter-Veiling and Safeguard Accusations. The availability of basic raw material for textile industry. Although there is so much issues about textile growth bu Chairman of APTMA (Mr. Pakistan is becoming uncompetitive and loosing share in the international market. has played a vital role in the growth of the industry (SMEDA 2006). Environmental & Effluent Treatment Plants.

As the premier industry association of the country. we see that these are not new. Brazil and a few South American countries. When we talk about issues and evaluate them.I strongly feel that the time now is to address questions like why our Industry is vulnerable to these cyclical downturns. modern and efficient spinning and weaving industry as well as the availability of man power are the strong pillars of the industry in Pakistan. As a consequence. Being major cotton producing country and having a large. they have been in existence since a very long time now and relates to fundamentals of the textile business. The economic meltdown was a wakeup call for the value-added industry that survival was for the 9 . We have helped to set up and support two institutions of technical excellence in textile engineering and design namely National Textile University & Textile Institute of Pakistan and also contribute towards agricultural research vis-à-vis cotton.” Altaf Katchi (CEO of Axa International Pakistan) stated in his article “Pakistan's Textile Industry Gearing Up for Growth” that “Pakistan's textile industry is emerging as a major player after the global economic meltdown in 2008. why can't we sustain growth and economic performance on a sustainable basis. The financial and economic meltdown has resulted in a permanent closure of many mills not only in the EU and the US but also in textile producing countries like Turkey. APTMA is very well aware of its commitment to act as a partner in national development. The foundations for the industry in Pakistan have always been very strong. this has brought great opportunities for the textile sector in developing countries like Pakistan. We need to chalk down a strategy to diagnose and solve issues with a longterm perspective to meet the challenging tasks of the textile sector.

It is crucial that all the components of the textile sector be encouraged and should be appropriately satisfied that they have been adequately backed by 10 . The Zubair Motiwala Commission developed and presented a broad-based package for the Prime Minister‟s decision. 2006 the ECC of the Cabinet announced the Rs 25 billion textile package. Further progress was made by the SBP decision and by the efforts of the Textile Ministry to broad-base the R&D subsidy regime. Textile products originating from Pakistan may have been viewed in the past as “cheap” or “low cost” products. the textile industry faced immense pressure from all fronts that added up into a precarious position resulting in demands for a level-playing field vis-à-vis regional competitors and when these demands reached a crescendo. The textile sector of Pakistan appreciated and acknowledged the sagacious and far-reaching decisions by the government to boost the textile sector and assist in its rehabilitation and its capability to sustain itself in the global market. The industry found openings in the higher-end products that were no longer produced in the West. but that perception is changing fast. Majyd Aziz Balagamwala (Ex-chairman Karacahi Chamber of Commerce and Industry) stated that „‟The new government must now become very pro-active in the promotion of textiles. Resultantly.fittest. the textile sector continued to face difficulties since the regional competitors went a step ahead to maintain their position and their status. the government set up a committee of stakeholders for finding a plausible and workable package to get the textile industry out of the quagmire. When a couple of years ago. on July 15. Inspite of these incentives and measures. both in the domestic market as well as in the global marketplace.” Mr. it also opened up new opportunities left by the closures in other parts of the world.

more exports. the government has not only set out a development road map but has provided necessary support without which accelerated progress of textiles in Pakistan is not possible. The vision that Pakistan would be a major player in the global textile market would then surely be a reality. specially of all those associated with the textile sector to seize the opportunities enshrined in the policy and endeavor to achieve our collective and individual goals. Shaheed Benazir Bhutto. representing “TEXTILE POLICY 2009-14” stated that “The Textiles Policy represents a new beginning for the textiles sector. The recently elected government is at a vantage position to ensure that Pakistan‟s textile industry continues to be the economic engine and propel the nation into a prosperous country.” 11 . labor and all others affiliated with this industry to transform the policy vision into reality. This would definitely ensue into more employment. This alone will give reality to the dream nurtured by our beloved leader. It is essential that we depend on our own resources and neutralize the debt burden.the government. and more industrialization. social and political place in the comity of nations. The exports target of $25 billion is ambitious but not beyond our potential. Textiles offer a unique and realistic opportunity to strengthen our economy for its sustainable growth.” Rana Muhammad Farooq Saeed Khan (former Minister for Textile Industry) in his textile policy speech on 12th August 2010. for Pakistan to earn its rightful economic. exporters. I appeal to our collective nationalism. It is now the responsibility of the private entrepreneur and the business leaders. Through this policy. It is therefore imperative that the government must resolve on a priority basis the residual issues that still impact negatively on these components of the textile sector.

Despite severe losses to the cotton crop by 2010's floods. which doubled and peaked at $2.77 billion in exports last year.8 billion and $13.Pakistan Textile journal in its September 2011 edition reported that “Textile exports is expecting to $13.” 12 .0 billion in 2011-12. said industry officials. the value of Pakistan's textile exports in 2010-11 rose 35% to $13. Cotton prices.9 million tonnes for the year. have since fallen to less than half that level. who expect the country's textile exports to total between $12. valued at $1. despite an expected bumper crop. citing a significant fall in Christmas demand because of cotton price volatility and Pakistan's chronic energy crisis making foreign buyers reluctant to place orders. say the impact of the turmoil from the US downgrade on Pakistani textile exports would not be much.0 billion in 2011-12. fear exports will drop further.22 billion the previous year.80 billion from $10.27 per pound in the first quarter of 2011 on tight supplies and robust demand. mainly because of globally high cotton prices.Weak demand and higher output has depressed world cotton prices and will cost Pakistan more than $1 billion in key textile exports for the fiscal year 2011-12. Some industry officials say the increased volume will offset some of the negative impact of a price fall. Pakistan is expecting a bumper crop of more than 15 million bales. The International Cotton Advisory Committee said world cotton production would rise 8% to 26. where they remain. The extra production is expected to drive down prices. Analysts. Pakistani manufacturers of ready-made garments.

This is mainly because of global financial crises in late 2007. Ministry of Textile. exports.0 billion in 2000 to US$ 613. Pakistan exported textiles worth US$ 6.I collected basic information and data on basic variables like imports. Economic survey of Pakistan 2011. APTMA.3 billion to US$ 250.The weaker demand in the developed economies limited the expansion of global trade. GDP & openness of Pakistan Economy.Analysis: To explore my hypothesis.1 billion in 2008 but it contracted to US$ 527.9 13 .7 billion in 2000 to US$ 316.0 billion in 2009.Moreover. The textile & clothing trade globally increased from US$ 355. I took a collected data and statistics from WTO website. Pakistan Textile Journal ( various editions).5 billion and clothing worth US$ 3.2 billion and US$ 3.1 billion in 2009 due to global financial crises.0 billion in 2009.2 in 2008 but contracted to US$ 211.0 billion in 2009 as compared to textile worth US$ 7. World Clothing trade is growing at a faster rate as we can see that it increases US$ 197. and Federal Bureau of Statistics Pakistan for the period of 11 years (2000-10). World Textile Export stretched out from US$ 157.

500 or around US$ 1. Domestically power and gas outages and ever rising cost of doing business have deteriorated capacity utilization in domestic textile and clothing industry.80% due to global financial meltdown. flood driven crop failures in these countries. The global shortage in availability of cotton was due to floods in big producers and consumers of cotton country like Pakistan and China.23% in 2005 but contracted to 1. the fiercest competitor of Pakistan in the world market.in 2008. However demand of imported cotton soared after flood damaged crops. Currently prices range is of the Rs.5/ Lb. which caused problem by increasing demand domestically. 14 .We shared 1. the raw cotton prices as per KCA spot rate have varied from Rs. The prices of the raw cotton globally have increased and touched 2$/Lb.9 percent. Foreign demand of Pakistan yarn has risen exceptionally. Based on the high cost of cotton all textile goods fetched high price resulting increased in Textile products export from US$ 7664 in 2009-10 to US$ 9956 in 2010-11 implying an increase of 29. Chinese.7.88% of world trade in 2000 and reaches at peak as 2. 12.475 /40 Kg maximum. have acquired huge quantities of yarn from Pakistan.10.116 /40 Kg minimum to Rs.

electricity). The Textile sector is bared to intense competition after the phasing out of quota besides facing resistance from developed countries in the name of Social Compliance. my point of view is at present the major threat to Pakistan‟s textile sector are sustaining its competitive place against its competitor place and keep its target market as well as improve its share in whole world export. Textile industry invested substantially in BMR for improving production quality and for value addition. Issues are energy crises in a country ( in form of fuel. But after 2005 we see that there is declining in investment in machinery which may be because of less knowledge about latest technology or may be due to prevailing energy crises in country which caused shifting of industries to our competitor like Bangladesh.5 on textile machinery in July. We can see that 2001 to 2005 import of machinery increased every year and during 2004-05 a very huge investment in textile sector in shape of value addition of technological machinery. Textile trade in world is estimated around US$ 300 billion currently. Industry experts predict that by 2014 when the facilities in the West will close down and they will source their textiles from more proficient areas of the world resulting in the trade volume of around US$ 800 billion.6 shows the Import of textile machinery during 2001-11 in Pakistan. If we are to maintain our current share of this larger pie.Above table 3.March 2010-11. lack of skills. obsolete technology usage and inefficient production etc.5%. Conclusion: From my analysis and findings. But there are some issues which directly or indirectly effects injurious on textile sector. Pakistan's share of the current trade volume is around 3. our textile exports alone are potentially targeted to reach US$ 28 billion. Environmental & 15 . But in 2010-11 due to „‟TEXTILE CITY‟‟ project and due to „‟TEXTILE POLICY 2009-14‟‟ by ministry of Textile we can see investment of US$ 365.

So government should emphasizes on power generation in priority basis because due to power crises industries are bearing heavy loses every year also mills owners are shifting their business to other regions like China & Bangladesh because of energy problems. An arrangement needs to be finalized on a war footing basis to introduce culture of Bt Cotton Seed in Pakistan with the target to increase production of Cotton up to 20 million bales in next 3-5 years. To tackle above cited problems & issues following suggestions are recommended for development and revival of whole textile sector. Recommendations:  To get better-managed cotton by introducing latest technology in seed breeding to produce crossbreed and immediate arrangements to be made to replace the present poor quality deteriorated seed by new and capable ranges of seed. Counter-Veiling and Safeguard Accusations.  Have all restrictions and blockages removed to make Wahga an resourceful point for cotton imports from India  Implementation of modern technology for harvesting of cotton crop to minimize losses. textile industry requires investment in technology for meeting the new challenges. Anti-Dumping. which is great threat for its export oriented textile units.  Pakistan is passing through most difficult phase of its energy crises. 16 .Effluent Treatment Plants. To enhance quality of products and its competitiveness.

 Subsidies to be announce on Power and energy for Industrialist in Faisalabad city which is also a biggest textile center of a country and also for Karachi city which is Economic hub. government and different textile bodies should arrange meetings monthly or quarterly basis to check.  Training center in garment for women should be established as our more than 50% population consist of women.  Shift to the production of high quality and give more attention to value addition rather than raw form. USA and other Markets. maintain and identifying weak and strong points. Government should ensure greater access for women to the textile training and 17 .  There is a lack of communication between different stakeholders. Preferential Treatment to Regional Competitors Government should announce exemption on some export income on those products which has competitiveness such as cotton yarn and abolishing the tax incentives will promote the supply of cotton yarn to high value added sectors.  The gas tariffs for textiles units should be freezed at the current level for atleast next 3-5 years. they can play a vital role in textile growth.    We should rely on Trade Instead of Aid. Coal based power generation to be explored on a priority basis.  There should be a Free Trade Agreement (FTA) with the European Union. utilizing the abundant availability of coal reserves.

9. 18 . Ministry of Textile website.President Karachi Chamber of Commerce and Industry) article „‟Pakistan‟s textile Industry Needs Resurrection‟‟ 2011. 7. if there is mutual understanding between farmers.(Monthly) Government of Pakistan.  Banks & government should enhance flow of financing from large units to medium and small sectors because their contribution is more.educational programs with a focus in the areas of fashion designing. Federal Bureau of Statistics 2000-10. SBP) from SBP website. 6. Muhammad Iqbal Ibrahim 2007-08 3. The above cited objectives can only be achieved. 10.11. International finance corporation (IFC) 2011. Altaf Katchi (CEO of Axa International. 2. knitting and sewing techniques.) “Pakistan's Textile Industry Gearing Up for Growth” December 2010. EPB . Economic Survey 2010. Majyd Aziz Balagamwala ( Ex. imports and exports (BOP. World Trade Organization (WTO) website. garment manufacturers and government.Annaual report on textile fabrics. 4. knitting units. weavers processing. (2011). Chairman‟s Review by Mr. Export bulletin. References: 1. APTMA. 8. spinning mills. Government of Pakistan. 5. State bank of Pakistan. grinners. (various editions). Pakistan.