Policymakers must stop treating textile as yesterday’s industry

Pakistan’s textile industry has changed dramatically over the last decade. Yet much of the policy discourse remains stuck in the past.

The sector that policymakers and commentators often criticize today is not the same as one that existed 10-15 years ago. Back then, textiles were dominated by low-value exports of yarn and greige cloth.

The industry relied heavily on subsidized inputs, while value addition and employment generation remained limited.

That structure has changed. The share of value-added products in textile exports such as knitwear, garments, bedwear and made-ups has increased from around 62 percent in 2014 to roughly 86 percent in 2025.

The share of yarn and cloth exports has steadily declined. Pakistan’s textile industry has moved up the value chain despite facing one of the most difficult operating environments among competing exporting countries. This transformation deserves greater recognition because it carries important implications for growth, employment and exports.

The old criticism of textiles was that the sector consumed subsidies without generating sufficient economic returns. There was some truth to that argument when low-value products dominated exports. But the economics of value-added textiles are fundamentally different.

Garments and knitwear are labour-intensive industries. They consume less energy than spinning, require relatively lower capital investment, and generate significantly more jobs per dollar of exports.

Labour can account for more than a quarter of production costs in garment manufacturing, meaning a larger share of value addition remains within the domestic economy rather than flowing abroad through imported fuel and machinery.

A typical garment manufacturing unit may require an investment of around $15 million, create approximately 3,000 direct jobs and generate annual exports of nearly $40 million.

Few sectors offer such a combination of export earnings and employment generation. This is precisely why countries such as Bangladesh, Vietnam and, increasingly, Egypt have built national industrial strategies around garments and value-added textiles.

Pakistan, however, continues to treat the sector as if it belongs to the old economy. Today’s textile exporters are not operating on subsidized energy or concessional financing. In fact, they are paying for inefficiencies embedded in the broader economy. Energy tariffs remain among the highest in the region. Financing costs have historically been elevated.

Taxation is complex and often punitive. Yet exporters must compete internationally against firms operating in countries where governments actively facilitate industrial growth.

These costs cannot be passed on to foreign buyers. Exporters absorb them and compete anyway. The labour cost differential illustrates the challenge. Pakistan’s minimum wage has risen to around Rs40,000 per month, which is understandable, given inflationary pressures.

However, once mandatory contributions and other charges are included, the total employer cost exceeds Rs60,000 per worker, or roughly $220 per month. In Bangladesh, the comparable cost is closer to $140.

That difference matters. It directly affects investment decisions. It influences where global buyers place orders and where manufacturers establish new facilities. It also helps explain why Pakistan has struggled to capture a larger share of fast-growing segments such as active wear and man-made fibre garments.

The missed opportunities are becoming increasingly visible. As global supply chains adjust and buyers diversify away from China, billions of dollars worth of garment orders have shifted to competing countries. Bangladesh, Vietnam and Egypt have emerged as major beneficiaries.

Pakistan has largely remained on the sidelines despite possessing an established textile base and significant manufacturing capacity.

The policy response required is neither complicated nor expensive. At the provincial level, governments should consider targeted employment support for value-added textile industries.

Labour-intensive manufacturing generates substantial economic spillovers and creates opportunities for large-scale job creation, particularly for women. Bangladesh’s experience demonstrates how garment-sector growth can transform labour-force participation and household incomes.

At the federal level, the priority should be facilitating imports of raw materials used in value-added exports, particularly man-made fibres.

Many small and medium-sized exporters face significant hurdles in sourcing inputs from international markets. Lengthy procedures, cumbersome compliance requirements and delays in refunds and duty drawbacks increase costs and reduce competitiveness.

Administrative reforms in these areas would yield immediate benefits. Another concern is Pakistan’s GSP Plus status with the European Union. This remains one of the country’s most important competitive advantages in export markets.

However, as more countries secure preferential access to European markets, Pakistan’s relative advantage is narrowing. Maintaining and strengthening this position requires sustained policy attention.

The broader economic context makes these issues even more important. Pakistan needs sustained growth of at least five to six percent annually to avoid recurring balance-of-payments crises. Such growth cannot be achieved without a meaningful increase in exports.

Much of the current policy focus is directed toward IT and services exports. That focus is understandable and should continue. However, policymakers often overlook the scale of the textile sector. IT and business-process exports may reach around $6 billion this year. Knitwear exports alone are approaching $5 billion.

Yet the policy treatment of the two sectors differs significantly. Services exporters enjoy a one percent tax regime, while textile manufacturers face the standard corporate tax structure, super tax and numerous additional levies. Both sectors generate exports. Both create employment. Yet only one receives consistent policy preference.

There is also a practical consideration. Expanding the technology workforce requires years of investment in education and skills development. Expanding employment in garments and value-added textiles can happen much faster.

The sector has the capacity to absorb large numbers of workers, including women, whose labour-force participation remains among the lowest in the region. The economic and social benefits of such expansion would extend far beyond export earnings.

Many critics continue to view textiles through the lens of the past. They see an industry dependent on state support and resistant to change. That perception is increasingly disconnected from reality. The textile sector has already undertaken the difficult transition toward value addition. It has modernized production, diversified exports and remained competitive despite high domestic costs.

In many ways, exporters have absorbed the burden of broader economic inefficiencies while continuing to generate foreign exchange and employment. The industry has done much of the heavy lifting itself. The question now is whether policymakers are willing to recognize that reality.

Global supply chains are being reshaped. New investments are flowing into competing countries. The factories being established in Bangladesh, Vietnam and Egypt today will determine export market shares for years to come.

Pakistan has the industrial base, entrepreneurial capacity and workforce to participate in this shift. What it lacks is a policy framework that recognizes where the textile sector stands today rather than where it stood a decade ago. The industry has grown up. It is time for government policy to do the same.

Copyright Business Recorder, 2026