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Pakistan Deaths
Pakistan Cases
4.9% positivity

EDITORIAL: There is a dichotomy in textile exports growth and the textile recording in the Large Scale Manufacturing (LSM) index. Textile exports are up by 7.8 percent in value during Jul-Nov 2020 while the LSM is showing a growth of 2.4 percent. The problem with LSM is that within textiles, it only records cotton yarn and cotton cloth. The value-addition is simply not recorded in the LSM. Then the measurement of LSM is also patchy and there are variations in LSM recording by Pakistan Bureau of Statistics (PBS) versus industry numbers in many other sectors. In the case of textile, PBS takes data from mills; and where exports are concerned, there are instances where middlemen take products from industrial players categorized as non-mills for onward exports or even for domestic use. These are not recorded in the LSM.

Within textile, there is a shift taking place in exports. The growth is primarily in the value-added sectors while the exports of cotton yarn and cloth is falling. The exports of cotton yarn and cloth are down by 26 percent and 8 percent, respectively, in Jul-Nov 2020. Some commentators question that since yarn and cloth exports are falling, how is the recording not falling in LSM? It is important to note that recordings are almost unchanged in Jul-Nov. The reality, however, is the other way round. The growth within textile is in the value-added sectors. Knitwear, bed-wear, towels and garments exports are up by 16 percent, 17 percent, 18 percent and 6 percent, respectively. Yarn and cloth are being consumed locally and being exported after value addition. However, LSM, is not recording that value addition at all. Even the numbers of yarn and cloth in LSM have to be seen with a pinch of salt.

According to a leading vertically integrated textile house, one piece of knit garment uses 1.3 pounds of yarn. The value of yarn is computed at $1.6 (at a given price) and it produces 0.6Kg of cloth at a value of $2.6. The price of one piece of knitted garment produced from it is at $4.2 - 2.6 times yarn’s value. The math of denim garment is even more attractive. One piece of denim is valued at 3.6 times that of the yarn it processes. This value addition of over 2.5-3.6 times is not recorded in the LSM. And growth in it is simply missed by the growth in LSM. The LSM methodology is flawed while the data collection questionable. PBS is cognizant of this fact; but they are recording on the basis of 2005-06 base. The new base is in the making and it is hoped that this would incorporate the impact of this key value addition.

The contribution of yarn and cloth in the textile exports was 23 percent in Jul-Nov 2019 and that ratio has fallen to 18 percent in Jul-Nov 2020. The ratio was 35 percent in FY14. Value addition is growing, which is a healthy development. A value-added sector not only churns more dollars but it creates more jobs. Yarn is energy intensive and employs less workers. While the energy usage in the value-added products is much less, they create a higher number of jobs.

Policies in the past were largely focused on promoting low value-added sectors. The benefits mainly given to textile were for them. All Pakistan Textile Mills Association (APTMA) as a body is dominated by yarn manufacturers, whereas big textile vertically-integrated players are in a minority. The subsidized energy inputs for textile mainly supports yarn players as 40-50 percent cost component of yarn is energy. In value-addition, energy cost component is 5 to 10 percent. But it requires skilled labour and efficient quality controls. The lopsided incentives discouraged value addition. Whereas Bangladesh with no competitive advantage of home-grown cotton leaped forwarded in textiles by focusing on ready-made garments.

The formation of a ‘garment city’ was supported by PML-N and now by PTI. The government now is limiting the energy subsidy support to yarn which may promote value-addition in the country going forward. It is about time PBS corrected its methodology, stopped discriminating between so-called mill and non-mill data and incorporated the value-addition in it. One way to do that is to have surveys in line with what State Bank of Pakistan (SBP) is doing in collaboration with Institute of Business Administration (IBA) on Business Confidence Index.

Copyright Business Recorder, 2021


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