APTMA’s ambitious proposal

There has been much hue and cry by textile players against adverse policies of the government recently. The most pressing demand has been the provision of gas to the Punjab based textile industry at Rs600/mmbtu, which is almost half of the currently applicable rate.

However, the All Pakistan Textile Mills Association (APTMA) also has other measures that it would like the government to adopt in its long term policies for the sector. The body has traditionally been thought of as the “spinner’s lobby” but in a recent interview with BR Research, APTMA chairman Aamir Fayyaz, dispelled that impression.

According to him, APTMA has proposed to the government to provide financing under the Long Term Financing Facility (LTFF) to set up 1000 garment factories in Pakistan to encourage value-addition. It believes this will result in $20 billion in export potential in a year. There are currently less than 200 garment factories which possess export quality production capabilities whereas Bangladesh has more than 4000.

At the moment, LTFF only provides for machinery financing which accounts for a smaller fraction of the total cost of setting up a garment factor. Almost 65 percent of the cost is infrastructure which is not covered under the LTFF scheme.

APTMA believes that in order to facilitate the establishment of these garment factories, the government should provide 80 percent financing of the required $7 million to set up a factory under the LTFF with the remaining 20 percent to be borne by the investor.

However, at the same time it is necessary to first make the playing field level for aspiring entrants in the field. Unless there is a certain element of profitability in setting up a textile venture, there will be little interest by any private sector player.

Textile players have also asked the government to extend duty drawbacks for five years rather than extending them on a yearly basis so that there is assurance to potential entrants that the incentives are in place for a longer period.

Another area where the shoes pinch for textile exports has been their pending sales tax refunds. At the moment, the government owes the sector Rs120 billion in pending sales tax refunds which has resulted in a liquidity crunch for many smaller players in particular.

Even though, the proposal to set up 1000 garment factories will go a long way in boosting value-added exports, the actual implementation and necessary concessions by the government are what will eventually determine the success of this ambitious plan by textile body. However, the unanimous acceptance by both the government and private sector to boost value-addition is at least a promising start.