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The demand for textile apparel in the world reached $860 billion at the end of FY19 and it is projected to increase at a CAGR of 4.4% during the next 4 years, but Pakistan's textile industry has not captured a sufficient level of this demand, given its potential. The textile industry is faced with countless opportunities to capture greater market share, but reforms in energy, technological upgradation, diversification and value addition will be necessary in order to enhance the potential of the sector and facilitate economic growth at unprecedented levels. Meanwhile, regional competitors such as Vietnam have been recording textile growth rates of over 15% per annum for the past several years, and continue to grow.

===================================================
Year                     Textile Exportsin Pakistan
                                    (CAGR of 11.5%)
===================================================
2020                                          $13bn
2025 (Projection)                             $26bn
2030 (Projection)                             $52bn
===================================================

Despite having been acknowledged as the backbone of the economy since early on, the textile sector has suffered through a period of weak policy support over the years. Past issues such as high manufacturing expenses, frequent power shortages, flawed strategies and lacking government support led to an overall textile contraction of 10% from the year 2011-2017. The progress of the textile sector had remained static at $12.3 billion for the fiscal year 2019. Now that we are on the brink of 2021, we must take this fresh start as an opportunity to amend the missteps of the past and strategize for a more effective textile vision in the coming decade.

It is important to note that the textile sector had its order books full for much of 2020, despite the countless setbacks of the year due to external challenges - lockdowns and COVID-19. By identifying key setbacks and garnering policy support and facilitation from the government at unprecedented levels, the sector emerged successful in meeting a majority of the demand, increasing its output and improving its logistics network. These results have been tangible and had a great bearing on the economic growth projection for the coming year.

The ready-made garments industry has emerged as one of the most important small-scale industries in Pakistan, with a sizeable demand both at home and abroad. For rapid expansion of this sector, we have planned to set up 100 new textile garment units in the next few years, and are actively supporting this initiative. In terms of quality, Pakistan's products can greatly benefit from technological upgradation. Advancements in equipment and e-manufacturing can exponentially improve our exports and facilitate an entry into high performance apparel and MMF. This will also allow the sector to meet its needs in terms of value addition and diversification of the export bundle. The categories (cotton, synthetics, wool) within Pakistan's textile exports and their relative proportions are pictured below.

Pakistan is the 4th largest producer and 3rd largest consumer of cotton worldwide. This fact necessitates the need to provide greater support to the cotton sector by ensuring direct support to farmers to reduce their input cost. Cotton sector reforms must cater to the vertical and horizontal growth of cotton, with the acquisition of high yield cotton technology and seeds. Furthermore, there needs to be broad-basing of sustainable cotton production (BCI & CF cotton).

Other South Asian economies have diversified their export baskets to not only capture an abundance of untapped markets, but to increasingly tap into high-tech, high-value-added products. The demand for MMF-based apparel has grown exponentially, owing to the convenience it affords. Furthermore, cotton and textiles in Pakistan suffer from a lack of quality research and application.

Pakistan must reduce its focus on primary commodities, and make the much overdue shift towards secondary and tertiary sectors - manufactured, non-traditional goods and value-added services.

With that said, the textile sector is highly sensitive to energy outages, so given Pakistan's troubled energy sector, these matters ballooned into a large-scale hindrance in its growth and made it difficult to meet costs, let alone achieve much needed revenue targets that could allow for modernization and expansion. A long-term Energy Tariff Policy (i.e. USD 6.5/mmBTU and 7.5 cents/kWh for power) with a clear billing mechanism is an essential component to be ensured moving forward, so that the performance of textile sector can be rid of the problems created by an unstable and uncompetitive energy supply.

More specific issues to be addressed include the issues of grid connected electricity; quality, transmission and availability issues, system inefficiencies, increasing circular debt, and an expensive energy mix. The exporting industry cannot pass on incidentals of taxation & institutional inefficiencies to international buyers. 5-7% of incidences of various local, provincials & federal taxes are not zero-rated on exports. On the topic of competitiveness, the table below provides a detailed comparison of energy and other costs/factors that impact textile production at home, alongside our neighboring countries/competitors.

=============================================================================================================
Elements                                        India        China        Bangladesh     Vietnam     Pakistan
                                                           (Xinjiang)
=============================================================================================================
Electricity Tariff Cents/KWh                        7          7.5           7.5            7               9
Gas Tariff US $/mmBTU                               7          N.A          *5.2          4.5             6.5
Minimum Wage Rate USD/Month                       140          240            95          140             106
Land cost, Leasing Price (US $/SQM)                80        40-80           N.A          140           20-50
Raw water Cost (US cent/m3)                        46           45            30           48              18
Steam (US cent/kg)                                1.3         1.64           N.A          1.2             1.1
Transportation (Diesel Rate US Cents/Liter)
(08th April-2019)                                  96           94            77           74              87
Exchange rate 1 US $/local currency
(10th-April 2018)                                  69         6.71          84.3       23,259           141.5
=============================================================================================================

Sustainability is a crucial aspect of economic growth through enhanced exports. To achieve a sustainable growth rate while remaining cognizant of environmental concerns, the measures that we seek to implement include the setting up of CETPs in major textile industry clusters, establishment of integrated Textile Parks, and policy support to meet international compliances.

This brings us to a critical paradigm for the expansion and modernization of the textile industry - marketing, for which the Textile Policy for 2020-2025 proposes important strategies that go hand-in-hand with changing consumer behavior and technological upgradation. The goal is to target leading brands and retail chains of the world, via fashion shows and meetings with their Presidents/CEOs in order to exhibit the potential of our textile sector. The plan also suggests holding the dedicated textile exhibition 'TEXPO' every year rather than alternate years, and expanding it to other countries. Efforts to upscale value addition and secondary manufacturing will cater to the end goal of bolstering our world ranking in exports of fashion wear.

Digital marketing has already played a vital role in showcasing textile products and attracting new business. The Textile Wing, Ministry of Commerce has created a one stop E-Portal for this purpose. Furthermore, the Ministry of Commerce is also in negotiation with developed and developing economies for market access. Competing textile economies have opened up their markets, thereby securing major market shares. Following this strategy, Pakistan must formulate its trade policies with a view to increasing market access, on a reciprocal basis whereby Pakistan's market openness would also have to increase.

With our first-ever e-commerce policy under implementation, the objective of giving open access to textile manufacturers/exporters worldwide will allow us to tap into countless new business opportunities. By 2030, we hope to have made great strides in climbing up the value chain into original brand manufacturing (OBM) and original design manufacturing (ODM). Furthermore, the industry must streamline its collection of relevant and updated data. Hiring skilled youth with expertise in trade and textiles, e.g. NCA and IVS graduates, would allow the industry to effectively gauge emerging trends and adapt to new technologies.

There must be a dedicated effort to promote private investment in the industry, which is naturally contingent upon interest rate support, as well as a reputation for never compromising on quality. Export-oriented industries in Pakistan are 25 percent more productive than non-export oriented businesses, and their productivity increases with an increase in economic activity. However, systemic inefficiencies cannot be exported, so these must be mitigated from all inputs before results can be seen. Since exports in Pakistan are labour-intensive, expansion in this industry is a surefire way to ensure large-scale job-creation, as well as an increase in foreign currency to pay for required imports. The problem has not been a lack of policy development, but rather the implementation of policies to mitigate the disadvantages that have persisted over the years. With a greater focus on implementation of reforms, there can be a tangible impact in terms of sustainable development and economic growth, greatly enhancing the position of the textile industry and Pakistan's exports by 2025.

Copyright Business Recorder, 2020

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