Dr. Omer Javed |
When the PTI government took office, it inherited a huge current account deficit, and it was assumed that it would take strong measures to enhance exports to curtail this gap primarily between yawning imports and dwindling levels of exports, especially when it outrightly exhibited dissent towards seeking an IMF program. Unfortunately, the latest exports data show virtually no growth in exports. This is indeed a big policy lapse from the government; severe carelessness to say the least.
While not much effort was placed on developing new sources of exports, the traditional ones were not also provided with a supportive policy. While some relaxation on energy tariffs were brought for industry in general, not else in terms of broad policy, especially the subsidy component, was announced, in particular for those sectors like the textile industry, which still could not become competitive and value-adding enough to compete with even the regional giants, and contribute to the foreign exchange reserves, and in creating employment opportunities.
The latest exports data show virtually no growth in exports. This is indeed a big policy lapse from the government; severe carelessness to say the least.
It is therefore, high time that the government announces an active textile policy, in terms of a complete package from the macroeconomic initiatives of providing necessary tax cuts, loan subsidization, and coming with skills training programs and social welfare programs for improving the quality of life and output of labor involved in this important sector for the economy.
Importance textile sector holds for Pakistan
The importance of the textile sector has traditionally been immense but since the overall quantum of export earnings is quite small, therefore, even when it contributes to 50-60 percent of the total earnings, the amount is far less than if it were producing higher value adding products; given Pakistan is one of the leading producers of cotton.
Read more: Textile sector of Pakistan
The low quality of labor also means that while the textile sector employs 40 percent of the total labor force, the productivity of labor, especially towards producing high-end products, is quite modest when compared to workers from Thailand and Bangladesh, for instance. The lack of potential reaching situation of this sector could be highlighted from the fact that in overall world textile exports, Pakistan’s share is a paltry five percent; with annual growth of the textile industry hovering around only three percent on average since 1990.
In the very first, at the back of employment of inefficient and redundant picking, cleaning, and ginning techniques, the quality of cotton produced in the country is not only well below international standards, but there is a lot of variation between high and low varieties produced. The efforts of the government set in the ‘Cotton Vision 2015’ could not be met in a broad way– where, for example, a) the cotton production target of 21 million bales, b) 1,060 kg per acre cotton yield, c) improvement in cotton yarn recovery to 92 per cent– could not be met, and it was being hoped that the PTI government would come with a plan to fix these issues. Sadly, this has still to materialize.
The textile sub-sector would involve moving the processes involved to modern techniques and training, imparted both at the stage of managers and master trainers.
Steps to improve Textile sector
Other broad issues that the PTI government needs to target resolving in its textile policy should include, firstly, improving the process of ginning by, for example, (i) upgrading the non-operational installed ginning units, (ii) bringing in an efficient ginning control and monitoring process to shift away hand-picking of cotton, (iii) upgrading obsolete ginning technology, which in some instances dates from the time of 1940s and 50s, and (iv) introducing proper standardisation.
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Secondly, improving the dyeing, printing, and finishing sectors, so that the currently poor quality of garments/home textiles produced could be enhanced. Lack of supportive policy over the years has meant that the share of finished Pakistani cloth in world production has remained around three percent, which is indeed very low, on account of a) inefficient processes involved, b) lack of controls and monitoring to ensure that a lower proportion of orders from international buyers– from the current high level– faces either re-work or rejection, and c) low capacity utilization, and also around half of the installed capacity is around 40 years old! Water provision in terms of both quality and quantity is also inadequate here, which negatively impacts the highly water-dependent processes involved.
Thirdly, the spinning phase, that is instrumental in determining the textile quality, needs to be improved, including enhancing the capacity, which is currently only five percent of the world capacity. This important phase of the textile value-chain has little product diversification and low proportion of high value-adding yarns among the total yarns produced. Among other initiatives, enhancement of this textile sub-sector would involve moving the processes involved in modern techniques and training, imparted both at the stage of managers and master trainers.
Pakistan has a very small apparel textile sub-sector when, as it stands at a paltry level of 5,000 garments units, and is only one per cent of the global apparel market.
Fourthly, these initiatives are also important for the weaving section, along with shifting to computer-aided manufacturing here in particular. This sub-sector, in the past enjoyed economies of scale at the back of integrated units, which over time due to lack of supportive taxation and labor market policies have fragmented, and therefore need restoration.
Export value to the country
This sector is important for exports, given its potential for supporting the production of high value-adding textile products, chances of which in a significant way could be improved by shifting from the traditionally produced and exported low value-adding fabric to exporting high value-adding blended fabric. For this to materialize, among other things, the textile policy should envision a way forward to move to artificial staple and synthetic fibers.
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Fifthly, textile made-ups require betterment in both processing and marketing, whereby a) towel exports should shift to higher tiers, b) bed-linen quality needs to improve to meet international standards more successfully and to get into high-end bed-linen market, at the back of improving technology and enhancing the skills of labor, and c) better knowledge base of global trends/fashion needs to be collected and analyzed.
These initiatives are also important for the weaving section, along with shifting to computer-aided manufacturing here in particular.
Sixthly, Pakistan has a very small apparel textile sub-sector when, as it stands at a paltry level of 5,000 garments units, and is only one percent of the global apparel market. The textile policy needs to make an effort to increase both the number of units, but more importantly to gear the garments units to produce modern lines for enhancing the value-addition of this sub-sector.
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Overall, it is also important that the Textile Ministry provides technical and legal assistance to help the textile sector gain its rightful place in the global market, and also is cognizant of all the international standards/laws it needs to meet under the World Trade Organisation regime.
In addition to the above, the Ministry should also ensure, among other initiatives, that a) proper provision of electricity is made available to the textile sector and at rates that keep it regionally and globally competitive, and b) significant increases are made in the subsidy with regard to both supporting research and development in the sector, along with enhancing both the amount of mark-up subsidy on loans, and extending the scope of this subsidy beyond the spinning sub-sector to the whole sector. Lastly, proper implementation of a taxation regime needs to be adopted for the sector, both reducing the number and level of indirect taxes involved, and in applying a well-thought-out value-added tax and income tax regime across the entire textile value chain.
Dr. Omer Javed holds a Ph.D. in Economics from the University of Barcelona, Spain. A former economist at the International Monetary Fund, his work focuses on institutional and political economy, macroeconomic stability. This article was first published in Pakistan Today and has been republished with the author’s permission. He tweets at @omerjaved7. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space.