EDITORIAL: Insofar as the enormity of Pakistan’s economic (balance of payments and manufacturing) challenges is concerned, one of the worrying factors is that exports in general and textile exports in particular are falling. One cannot blame the demand factor from the West as there is an uptick in textile exports for countries like India and Bangladesh.
There are some Pakistan-specific factors, which are hurting the competitiveness of exporters such as a massive rise in energy prices, growing working capital cost and supply-side bottlenecks. Buyers are also reluctant to offer business to Pakistan due to the country’s woefully fluid macroeconomic position.
It is important to note that in FY22, as per the central banks’ payment data based on export receipts, Bangladesh’s textile exports (net of textile imports) were not much higher than those of Pakistan. Bangladesh’s net textile exports were of $15.7 billion while for Pakistan the number was $12.7 billion.
Textile imports to exports ratio was 39 percent in Bangladesh versus 31 percent in Pakistan in FY22. Thus, Pakistan has a higher conversion of imports to exports in value terms.
However, in gross valuation, Bangladesh’s textile exports were much higher at $32.7 billion versus $18.3 billion of Pakistan. And if we take Bangladesh’s Export Promotion Bureau’s statistics, textile exports were $46.7 billion as compared to $19.3 billion recorded by Pakistan Bureau of Statistics.
This difference has widened in FY23 - especially in the last six months. Bangladesh recorded a growth of 11 percent in textile exports (Bangladesh’s Export Promotion Bureau data) to $42.6 billion in 11MFY23 while in FY23 Pakistan’s textile exports are down by 15 percent to $16.5 billion – the deceleration is higher lately.
There are some notes one should take. One is that historically, the net exports from Pakistan were in line with those of Bangladesh in value terms.
Bangladesh mainly imports its raw material and processes it to exports while Pakistan traditionally used domestic cotton and had higher conversion of dollar imports to exports. The other factor is about composition of exports. Bangladesh’s textile exports comprise readymade garments — knitwear and woven garments.
However, Pakistan’s reliance is on varying products — low value-added products such as cotton yarn, cotton cloth and towels; and higher value-added products like readymade garments and knitwear.
The competitiveness is hit owing to higher reliance on low value-added products because of availability of low cost energy and cheap cotton to our exporters. Now energy is getting expensive and local cotton is becoming dearer and unsuitable for higher counts, and that is making these low value-added items less attractive.
And one must blame the lack of imagination of our textile exporters as well who never really worked towards fully exploiting the potential in garments made from cotton and also manmade fibers.
Many of our exporters even invested the TERF (temporary economic refinance facility) money in spinning rather than in higher value-added machinery or products. Interestingly, those who have ventured into readymade garments and knitwear are accruing dividends.
Even in FY23, there is an uptick in quantity (volume) exports of knitwear and readymade garments from Pakistan while all other categories (cotton yarn, cotton cloth, towels and bedwear) registered a decline.
Thus, in those areas where Bangladesh is present and growing, the performance of Pakistan’s exports is not bad at all. However, some of the exporters in the high value-added segment could not utilize the capacities fully.
One big exporter in garments lately had almost 50 percent idle capacity, and now due to aggressive marketing they are confident that from October onwards, their factory may run close to 100 percent.
Pakistan is largely missing the shift of textile from China where India and Bangladesh are aggressively covering the turf. This was supposed to be a part of CPEC (China Pakistan Economic Corridor) Phase-II by shifting labour-intensive industries such as textiles from China to Pakistan in special economic zones (SEZs).
However, SEZs are yet to kick-start. Buyers are not bullish in the long term on Pakistan as they are more comfortable in other jurisdictions.
At the same time, Pakistan’s exporters did also lock the capital in low value-added sectors. Having said that, one good factor is that Pakistan has positioned itself in higher value-added items within readymade garments and knitwear while Bangladesh is more focused on basic items. Overall volumes are much higher in Bangladesh while the higher value is extracted by Pakistan.
This trend needs to grow, and more capacities are required in these areas along with a focus on manmade fiber. We hope that sooner rather than later the policymakers and exporters of the textile chain would engage in deliberations to address the irritants and focus on maximizing textile exports and enter the high-end global market for textiles and generate a high multiple of exports on every dollar of textile import.
Copyright Business Recorder, 2023