‘We need a long-term plan and a well thought out strategy for exports’
Fawad Anwar is the Managing Director of Al-Karam Textile Mills (Pvt) Limited. He is a lifelong entrepreneur and an accomplished business leader with a passion for excellence and a vision for a sustainable textile future in Pakistan. He officially took over the role of Managing Director of Al-Karam Textile Mills in 2010 and holds key positions on the board of governance of several other companies. Under his corporate leadership, Al-Karam Textile Mills today is one of the largest vertically integrated textile company of Pakistan.
He is also the Vice Chairman of Pakistan Textile Council (PTC). Mr. Anwar holds an MBA degree from United States.
Despite the periods of deflated economic growth, tighter monetary policies, recessions and geo-political risks, Al-Karam Textile Mills under the direction of Mr. Anwar has experienced an accelerated growth with regards to revenue, product innovation, R&D processes and overall business transformation with a strong focus on sustainability. Following are the edited excerpts of a recent conversation BR Research had with him:
BR Research: FY21 was a good year for the textile sector in terms of cotton gains, exports, and investment, however the decline in the sector’s performance in FY22 could be explained by the demand shift due to global inventory buildup. But FY23 continued to see weak textile performance amid incoming capacities whereas growth soared in our peer countries like Bangladesh and India. How would you explain these dynamics?
Fawad Anwar: Globally, there was a significant increase in demand post-COVID, and the domestic textile industry wanted to bring that growth home and invest in the sector’s capacities to meet the global demand. And I believe that the TERF facility was a great initiative at that point and people started investing.
The whole thing started with the US-China trade war., while there was an announced shift in production by retailers out of China to other countries like Bangladesh, India, and Pakistan. Vietnam has a lot of Chinese investment and had grown tremendously over 5 years, so it was not among the top choices for Western retailers. As a result, we saw a lot of programs being shifted from China to Pakistan.
However, our problems started when we started facing problems and restrictions with LCs opening. This gave out a negative perception about our supply chain, and we saw many programs being shifted to India. Today, because of that shifted demand India’s textile performance has been phenomenal.
This was the best time for the textile sector as in the larger scheme of things, the US wants to take production out of China. However, Pakistan still faces supply chain threats due to unstable currency, economic volatility, and political instability, which is a key hindrance in getting orders from the West.
At the micro level, our problems are due to the cost of doing business like Interest rates, and the cost of energy, which are making us globally uncompetitive and will continue to do so unless something changes dramatically. Exporters from Pakistan lose out when they have to compete individually with e.g. Indian industry as a whole supported by its government.
Two costs are pulling down the sector: the interest rates and the energy costs are not making it possible for us to compete with any country in the world. We cannot export our inefficiencies, lack of governance, and mismanagement to the world. Unless there is a well-thought strategy with continuation, we cannot get out of this mess. For exports, we need a long-term plan.
BRR: Which association can help the textile sector in this individual exporter versus the government argument? And how?
FA: APTMA exists for a very long time and has been representing Pakistan across the globe. Since most of the textile players are into spinning, the majority of the APTMA member are spinners. That’s the reason we thought we needed a platform for the value-added sector and formed Pakistan Textile Council. Pakistan Textile Council was formed not to ask for money but to assist the government with our research, arguments, and numbers of value-added textile exports.
Pakistan Textile Council is representing Pakistan in the GSP plus case. We have hired lawyers and consultancies in Europe; we are also considering hiring a lobbyist in the US as well. Our purpose is to correct our perception and indulge in discussions with the government to make it understand the sector. We might have kicked the can as far as supply chain issues are concerned, but it is still difficult to sell this to our buyers and retailers abroad. This is the perception that we want to change, and this is what our organization is working on with the government. We understand that Pakistan does not have the fiscal space for any kind of monetary programs and we are ready to pay ourselves. But at the same time, we need government support in discussions.
BRR: There is resentment in the media and masses for industrialists as rent seekers and money-makers. How do you counter this argument?
FA: If that was the case with the textile sector, you would have seen investors from abroad coming in and setting up textile export companies in Pakistan. While there have been none in the textile sector, several players have come in the telecom sector and the power sector IPPs because that’s where the money is. The number of exporters in the textile sector has fallen to 40 percent from what we were 5 years ago because the environment is not conducive at all and there are no returns. On the other hand, there have been companies from China, Korea, Europe, and other countries setting up companies in Bangladesh and Vietnam.
We need to respect businessmen who are making money and reinvesting in the domestic industry. We need to change the perception that everyone is making money in the wrong way. If wealth creation stop, the investments won’t come, and the middle class won’t grow.
BRR: There is a difference in the mindsets of traditional textile players and the new local players that have come in. How would you explain that?
FA: You are right. Some of the new players that have come in are doing phenomenal in terms of setting up the company, systems, and professionalism. This has been lacking in the textile companies from Faisalabad as well as Karachi. Exporters from Karachi especially have not been able to grow into new product lines, and this is because of their mindset and professionalism.
BRR: Also, Pakistan textile exporters have not been able to get into man-made fiber and other areas that are witnessing growth.
FA: The investments in the textile sector are very specific to what is being produced. Plants are designed for that specific products, for example, bed linen. With smaller investments like stitching investment, the problem in Karachi is the price of land. It has become impossible to buy land in Karachi. And secondly, the cost of energy again makes new investments unviable. Even today, exporting knitwear itself is not difficult. Incorporating the cost of land, energy, and capital makes it undesirable. Again, it all boils down to the cost of doing business. Even an old player cannot make a new investment in the country on these grounds.
Talking about Alkaram, our capacities are designed to export bed linen. But I am ready to export other products that have been seeing growth. However, it is not possible at the current cost of business. We are diverting towards readymade garments as well. But the easiest way for textile exporters is to grow in their field, and this is what most exporters did with the TERF facility they availed. But I know people are willing to invest and divert but not at the current prices. Rationalizing the cost can let the country increase exports by $5 billion in a year, because people are willing to invest, and Pakistan has the capacity, quality, and skills to do so.
BRR: What’s your outlook for FY24 given that we have been increasingly importing cotton, but we are also eyeing a bumper crop this year?
FA: Numbers are showing that the quantity of cotton will be brilliant. Cotton crops could touch 12 million bales provided that the weather remains favorable and we can manage all supply chain issues. Surprisingly, the quality of cotton too is excellent – the best in the last five years. This gives the advantage in exports. Again, the advantages of cotton can be somewhat offset by the cost disadvantages, which need to be tackled.
How will the textile export be affected? It depends on how the demand grows especially in the West and EU where the inflation is high and habits have changed tremendously over the last couple of years after COVID where people are spending less on home textiles and apparel, and more on travel and leisure. I do see an improvement of one billion dollars - other factors remaining constant – for FY24. We were growing and investing, and again I would like to highlight that had the cost of doing business been lower, we could have easily touched $21.5 the next year. However, it will now take at least three years for us to gain that ground.
You can say that we are losing foreign exchange worth $5 billion in export due to inefficiencies and another $5 billion in remittances.
BRR: Tell us about Alkaram in the domestic market. We have recently seen significant changes in Alkaram’s retail presence and increased focus on readymade textiles.
FA: The domestic market is very interesting. It’s a very competitive business with high price elasticity. Over the last decade, 10-12 brands have established themselves as leaders in the market as there has been a shift from standalone retailers to branded stores. This transition has been taking place over the last few years and almost all domestic brands have grown 30-40 percent last year in not just the big cities but also second-tier cities. Malls are changing how people shop, and this is why every city has a couple of malls where people go for shopping and recreation, and this is why brands are growing.
An interesting fact about the domestic market is that sales of rural shops have risen much more than those of urban shops. This is because, amid rural inflation, the high price of crop production has been able to increase the incomes of the rural people drastically.
As for our focus, there is a general shift towards ready-to-wear (RTW) especially among all age brackets and specifically younger and working women. We believe the future is in RTW. We have increased our retail space across the country as well. You will see more changes and upgrades to our stores and we will be bringing more products soon too.
BRR: What is your domestic versus export sales mix?
FA: Our exports are 80 percent and domestic is 20 percent. We also have a strong online presence now and 14-15 percent of our domestic sales revenue comes from e-commerce, and we plan to take it up to 20 percent.