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The textile sector continues to steer Pakistan’s economy through difficult conditions, consistently outperforming other sectors and adding value. Textile and garment exports increased by 23 percent year on year to $15.4 billion in 2020-21, and are expected to go up to $20.5 billion by the end of FY22.

There has been particularly impressive growth in higher-value bedsheets, knitwear, and woven garment exports, coupled with a decrease in lower-value exports. Seventy percent of textile exports were of items that had undergone extensive processing to make value-added products. This indicates a new paradigm of demand for higher value addition that has taken over textiles globally, and in which Pakistan is still playing catch-up.

Despite its immense potential, Pakistan is currently under-represented in the high value garments and fashion sector. There are several measures that need to be taken in order to accelerate the required paradigm shift. The current production of yarn and greige cloth that is not converted into higher value products can add $12 billion per annum if converted into garments.

In order to take advantage of this opportunity, the textile industry needs to setup 1000 garment plants with each plant consisting of 500 stitching machines at an investment of $7 million. Each plant would be able to produce garments for exports of $20 million, while generating employment for 700 workers. The total investment would be US $7 billion generating annual incremental exports of $20 billion and providing employment to 700,000 workers. 1000 garment plants could be established near major textile producing cities — Lahore, Karachi, Sheikhupura, Faisalabad, Kasur, Multan, Sialkot, Rawalpindi and Peshawar.

However, enhanced exports rely heavily on continuous and uninterrupted supply of gas and electricity to the entire value chain at regionally competitive energy tariffs – which is the main reason why Pakistan’s entry into these markets has been laggard. New projects and expansions have not been energized since November 2021 due to non-provision of energy. The 50% gas supply is completely insufficient to run the business normally, and as a result, 20 to 25% capacity is closed.

Power supply quality to textile industry is largely compromised and a serious concern for the industry. Given that sophisticated machinery is involved in production, inordinate shutdowns, breakdowns, fluctuations and interruptions have wreaked havoc and resulted in huge losses to the industry and to the national exchequer. The output of textile units operating on electricity is therefore hovering at less than 80% of installed capacity.

It is essential for the government to ensure regionally competitive energy prices across Pakistan throughout the value chain, restore the priority of the textile sector in supply of gas and no-load shedding, and fast track the applications of pending industrial electricity connections.

This is not to say that things have not been improving — growth despite the absence of a supportive environment has actually been quite impressive. From 1947 to 2018, Pakistan could only achieve $13 billion in textile exports, but in just the last four years, textile exports have doubled. By the end of FY23, we are hoping to achieve textile exports of at least $ 25 billion.

The textile sector invested $ 5 billion last year through TERF/LTFF, which has added to the export potential by at least $5 billion per annum. As a result of this investment, additional capacity of 1.25 million spindles, 6000 air jet looms, and 3 million square meters was installed.

If the private sector is enabled to step in and take charge of the shift to higher value-addition, it will be a game changer for Pakistan. For this to materialize, intermediate products must be available at affordable and internationally competitive rates. The LTFF scheme would have to be extended to entire value chain since the whole value chain requires upgradation and modernization to meet export targets. Turnover tax must be reduced to 0.5 percent and turnover tax loss should be carried forward.

Furthermore, the implementation of the Textile Policy 2025 is absolutely essential to create the policy environment in which exports can thrive. The Textile Policy 2025 was developed through extensive consultations with the entire industry and provides a comprehensive framework for the sector to expand exports rapidly to enable a sustainable economy.

Coming back to the ultimate goal of value-addition, it is important to emphasize that the international Man-Made Fiber (MMF) to cotton ratio is 70:30, while in Pakistan it has remained at 30:70 for the past several years, making it difficult to increase our share of international textile trade significantly.

We cannot dream of higher economic growth without moving into value-addition, particularly in the highly productive textile sector, where the predominant focus is on cotton. Textile millers need to prioritize the use of specialized yarn and tap into the growing market for sportswear and athleisure. Relying on short staple fiber raw cotton is a myopic approach that essentially centers a shrinking market while neglecting the high demand for MMF products. Meanwhile, the MMF tariff regime prevents Pakistan from aligning its products in tandem with the rest of the world. The demand for MMF has grown exponentially owing to the convenience it affords as a cheap material used in the production of the ever-relevant active-wear trend.

However, the duty protection given to obsolete plants in Pakistan is denying the Pakistani industry any chance to compete in this booming market, internationally or domestically. This brings us to the issue of polyester staple fiber, a raw material of the industry upon which it would be unreasonable to apply any duties. Alarmingly, at present there is a 7% customs duty on the import of polyester staple fiber. This racks up the total import duties, which subsequently fall in the range of 20% including antidumping duty. This must be abolished if our industry is to have any chance of being competitive.

As the Anti-Dumping Duty (ADD) is now applicable on imports through DTRE, etc., the overall impact of the PSF duties is that our exports will be limited to cotton products only while the world now seeks high performance and innovative apparel which are only possible through the use of MMF material.

As for cotton, Pakistan has potential and capacity to produce 20 million bales annually. Under these circumstances, we are unable to understand that why we should be spending $ 3-4 billion on import of cotton every year when this can be grown domestically. A focused high-powered commission on cotton must be established immediately.

The sector’s zero-rating must be reinstated, given 80 to 90 percent of its products are exported, as the collecting and refunding costs are more than the sales tax yields. There is a total collection Rs 18 billion, while exporters suffer in the form of delayed, deferred and pending refunds. According to a recent IMF report, the cascading impact of GST has significantly harmed Pakistani exporters’ competitiveness.

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, structural inefficiencies cannot be exported, so it is essential to first mitigate them from all inputs. Since exports in Pakistan are labor-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 does not lie in a lack of policy development, but rather in the implementation of reforms. With a greater focus on implementation, there can be a tangible impact on sustainable development and economic growth, thereby greatly enhancing the position of the textile industry and Pakistan’s exports by 2030.

(The views expressed in this article are not necessarily those of the newspaper)

Copyright Business Recorder, 2022

Dr Gohar Ejaz

The writer is the Patron-in-Chief & Group Leader of All Pakistan Textile Mills Association (APTMA)

Comments

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samir sardana Jun 22, 2022 07:03am
That Text cannot export more,due to capa constraints,of Oil & Gas is a sin Ideally the Tex companies can form a JV to set up an IPP,to WHEEL POWER TO TEXT ZONES,OR DIRECTLY FEED TEXT UNITS -VIA A SEPARATE GRUD - AS PAKISTAN GEOGRAPHY,CAN ALLOW A SPECIALISED & SEPARATE GRID. BUT THEN COMES IN THE CAPA CHARGES,OF THE EXISTING IPPs SO THE ONLY SOLUTION IS TO DIVERT POWER TO TEXT BY 3 WAYS 1 - OBVIATE STOLEN POWER FROM GRID - BY LETTING THAT PART OF THE STEP DOWN TRANSFORMERS DECAY & COLLAPSE - & DO POWER CUTS etc to KILL THE RESIDUAL DEM = SO THIS POWER WILL FEED THE TEXT & WILL BE PAID FOR - & SO,LOWER THE CIRCULAR DEBT. 2- KILL CONSUMER DEM, AS THOSE WITH ACs GENERALLY DO NOT PAY MOST OF THE BILL.SO TAX THE ACs - & DIVERT THIS POWER TO THE TEXT (THESE ARE GREY MARKET ACs - NO VAT - & THE GRID CAN EASILY TRIANGULATE THESE ZONES,WITH SURGE IN PEAK LOAD POWER USAGE,& NO PAYMENT. 3 - TEXT UNITS TO IMPROVE POWER EFFICIENCY & QUALITY OF POWER CONSUMPTION.dindooohindoo
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Fouzi Jun 23, 2022 06:45pm
The issue of sales tax refund has hit massively to the small exporters as they are not manufacturers and do not get refunds, practically they are out and those who get refunds are paying hafty price in the form of bribery. Estimated loss if exports is around 3-5b usd
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