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From Market Woes to Energy Shortages, Problems Plague Pakistani Textile Industry
By Manik Mehta
These are critical times for Pakistan's textile industry, which apart from facing a downturn in its traditional markets in the West, is also confronted with the grim prospect of rising raw-material prices and energy shortages.
Pakistan's textile industry is important for the country's economy as textiles are the mainstay of Pakistan's exports. In an interview with the Apparel magazine at the Heimtextil 2012 show of Frankfurt, Rizwan Tariq, the Karachi-based director of the Trade Development Authority of Pakistan (TDAP), the country's trade promotion agency, underscored the textile industry's significance: "Textiles account for roughly 55 percent of Pakistan's exports. Its importance should be quite clear."
Avoiding the use of the term "crisis" when describing the state of Pakistan's textile industry, the TDAP director said that the industry was passing through "uncertainties" attributed to the global economic downturn and other factors.
"Earlier, Pakistan's cotton crop was destroyed because of the flooding but we maintained sufficient cotton stocks, thanks to the bumper crop harvested earlier. The cotton produced in Pakistan is good for home-textile articles such as bed linens and the like, but the cotton used for manufacture of garments has to be imported. Pakistan imports much of its cotton from China and, to a less extent, from India," Tariq explained.
The Pakistan textile industry's malaise is further aggravated by production bottlenecks created by energy shortages. "But our main strength is quality, which allows us to compete against the low-value products from China, Vietnam and elsewhere," Tariq added. "Our bed linens, usually, sell well at Frankfurt's Heimtextil show. Our global annual bed-linen exports worldwide amount in value terms to roughly $2 billion. Pakistan-made curtains, drapery, etc. are also popular."
Asked why some Pakistani manufacturers were migrating to low-cost producing sites in Bangladesh, Sri Lanka, etc., Tariq said that they wanted to benefit under the generalized scheme of preferences (GSP) allowing these countries to export without attracting duty in the importing market.
Foreign buyers avoid visiting suppliers in Pakistan
Pakistani suppliers are, however, irked by foreign buyers' hesitation to arrange visits with an eye toward placing orders. Many Pakistani exporters therefore meet their buyers in neighboring countries — a cumbersome process causing dissipation of time and resources. Tariq emphasized that Pakistan is a "very safe and hospitable place," though Pakistani textile and apparel exporters told a different story.
Polani Textiles of Karachi, which manufactures terry towels, bathrobes and made-ups which are shipped mainly to Europe and the United States and, to a lesser extent, to the Gulf countries, succinctly summed up Pakistan's problems.
"Besides facing energy shortages, Pakistan has a serious law and order situation. We need buyers to come to our country, which they are avoiding because of security concerns. Many agree to meet us for an hour or so in places like Dubai, which is quite cumbersome for us," a representative of Polani Textiles told Apparel at the Heimtextil 2012 show in Frankfurt.
Meanwhile, Pakistan's exports of textiles and clothing declined sharply in January 2012 for the fourth consecutive month from a year ago, attributed to the continuing downturn in demand in Pakistan's major markets in Europe and the United States.
Textile and clothing exports in January 2012 amounted to $982.42 million, down 16 percent from $1.180 billion from the year-earlier period, according to the Pakistan Bureau of Statistics. Indeed, the overall volume of textile and clothing in the first seven months from January to July dropped to $6.936 billion, down 6.73 percent from $7.436 billion over the year-earlier period.
Pakistani textile exhibitors interviewed at Frankfurt's Heimtextil show confided that they expected a decline of at least 25 percent in exports to Europe this year because of the Eurozone debt crisis. Many Pakistani experts had hoped that the Pakistani rupee's 12 percent depreciation would make Pakistan's textile and clothing exports cheaper and halt the downward trend in exports to Europe and the USA.
The decline is conspicuous, particularly, in the exports of cotton yarn, cotton cloth, made-up articles, knitwear, bed requisites, towels and other value-added products. On the other hand, export of raw cotton, tents and yarn, other than cotton yarn, increased in January over the year-earlier month.
However, one Pakistani exhibitor, insisting on anonymity, told Apparel that the modest growth in garment exports was due to late shipments of the products in January for which orders had been placed prior to October 2011. This growth, he added, would also be reflected in the February statistics.
Pakistan pins hopes on EU's duty exemption on Pakistani textiles
Most Pakistani exhibitors at Frankfurt's Heimtextil pinned hopes on the projected exemption of duty on some 75 Pakistan-made textile base and finished products by the European Union. They also called on the EU to grant a generalized system of preferences for Pakistani products, a move that could see exports to the EU rising in the future.
The EU, Pakistan's biggest market, absorbs nearly 30 percent of its exports; the prospect of EU allowing duty-free imports of Pakistani textiles and garments has raised Pakistani hopes of increasing exports to the EU which agreed to honor the World Trade Organization's decision recommending a waiver as an unprecedented concession to help Pakistan recover from the floods.
Pakistani textiles currently attract 7.19 percent import duty in the EU. The waiver will apply until end 2013. Reacting to the news, Shehzad Salim, the chairman of Pakistan Ready Garments Manufacturers and Exporters Association (PRGMEA), said that the exemption would "bring life to our dying industry". However, many industry experts believe that this would help increase textile exports only by a modest 1.5 percent. The package of 75 duty-exempt items includes over 30 products of non-value added textiles such as gray cloth, cotton yarn and fabric, 23 of textile garments, and the rest made up of home textiles, value-added leather, footwear and other non-textile products.
Meanwhile, Pakistan's textile suppliers are worried by a possible EU crackdown on the suspected use of toxic azo dyes in Pakistani textile, apparel and leather products. Azo dyes can release certain amines that can pose cancer risks. German importers said during the show that some Pakistani textile processing mills were still using the banned azo dyes.
Pakistan's U.S. exports drop in volume but increase in value
While Pakistan's textile and apparel exports to the United States have reportedly risen by 3 percent in 2011 in dollar value, the volume has declined by 18 percent in the same year, according to a Pakistani Readymade Garments Manufacturers and Exporters Association (PRGMEA) study.
In 2010, apparel exports to the US had increased by 14 percent in value and 9 percent in volume. Pakistan's apparel exports to the US constitute some 49 percent of its total textile exports, a volume that is lower than that of India (58 percent), Bangladesh (97 percent), China (73 percent) and Vietnam (93 percent).
According to the PRGMEA, the export of cotton-based products to the US in 2011 is expected to have increased by 2 percent in value while the quantity volume is said to have declined by 21 percent. Pakistani experts say that the market for manmade fiber products is expected to grow considerably in the coming years as opposed to cotton-made products. According to the PRGMEA's estimate, manmade fiber product exports in 2011 rose by 38 percent in value terms. Manmade fiber exports in 2010 had amounted for $126 million.
Pakistan's textile industry hopes that the U.S. and Pakistan cement a free trade agreement, enabling greater access to the vast and valuable American market. Pakistani textile machinery importers complain of high duties on imports. They urge the government to eliminate or reduce the layers of duties imposed in various forms on machinery imports so that the industry can have a competitive edge in the international markets.
Pakistan's textile industry loses share of global market
Pakistan's garment exports, growing at a rapid pace in the past, have been steadily declining since 2008.
The garment sector lost export orders for a variety of reasons, including last year's floods which disrupted deliveries and affected production in many units. The last quarter of 2011, usually a busy time for suppliers of garments and textiles because of the Christmas and New Year orders from the European Union and North America, saw as much as a 20 percent decline in export orders.
Pakistan's government has asked the EU to grant the so-called GSP-Plus status — Generalized System of Preferences (GSP), a preferential tariff system extended by developed countries to developing countries involving reduced tariffs or duty free entry of eligible products exported by beneficiary countries to the markets of donor countries. But Bangladesh and Cambodia have objected to granting Pakistan a GSP status because both fear they would lose their market shares.
Pakistan's textile industry, which accounts for more than 55 percent of the country's total exports, is likely to face a decline of over $3 billion, as Ziad Bashir, the chairman Landhi Association of Trade and Industry (LATI) and a director of Gul Ahmed Textile Mills, Karachi, has been telling journalists. The export decline is attributed to the recession in major markets, internal security concerns, energy crisis, and higher production costs.
Some experts say that Pakistan's overall textile exports were likely to hover between $10 billion and $11 billion this fiscal year, which stood at $15 billion last fiscal year.
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