Value addition: on a string

A mainstay of Pakistans industry and exports, the textile sector has long been considered the backbone of the entire economy- or so we have always been told. Chock-full of problems including inefficient business models, poor capacity building endeavours and a generally recalcitrant attitude towards accepting newer industry standards, the local textile industry is sitting at the edge of its own grave- one that it has dug with its own hands.
The Economic Survey of Pakistan reports that textile exports declined by 9.6 percent during the period between July-April 2011-12 as a consequence of negative growth in quantities exported across a majority of textile categories. And while a majority of lobbyists and the industrial giants would have you believe that the government alone is to blame for whatever goes wrong with the industry, the industry players themselves are not entirely blameless.
Even though the last decade has seen a 35 percent increase in the total output of the cotton crop-standing at 14.8 million bales as of 2012 - Pakistan has essentially been unable to make use of this growth in terms of generating any substantial revenue in lieu of value addition.
On the one hand, while countries such as Bangladesh have realised that the true potential of the textile industry lies in the value it adds to raw material, Pakistan remains at a standstill, with the industrys major players content to wallow in self-pity - secure in their own firm standings.
Data released by TDAP highlights this fact, reporting negative growth across all major categories of textile exports. During 2011-12, garments, cloth (both woven and knitted) as well as home textiles managed to show a retardation of 12, 6 and 16 percent respectively, while the export of raw cotton earned revenues of 462 million dollars, up a staggering 27 percent from 365 million dollars recorded last year.
Statistics reveal that while the export trends for value-added textile products have remained mostly stagnant throughout the last decade; sometimes dipping below average, but never rising, export of raw cotton has been on a consistent rise. Industry sources maintain that a power struggle between manufacturers and raw material suppliers has meant that suppliers are much more willing to sell to foreign buyers instead of selling to locals who refuse to pay fair prices for their produce.
Consequently, with the economies of scale against them, smaller manufacturers are unable to build a sufficient cotton reserve which is essential if they are to survive under the shadow of the handful of the local textile giants.
As a result, the smaller RMG, bed wear and hosiery manufacturers- most of which are small to medium scale industrial units made up of 50 or less machines- are the primary beneficiaries of the inelastic economic conditions which do not allow them to expand despite a high profit margin in the sector.
Additionally, faced with a slew of multi-dimensional problems including energy curtailments, inefficiently high borrowing costs that negate the benefits of capacity enhancement and a general lack of endeavour has meant that the smaller industry is pinning away while the industrial giants are thriving.