Role of the Textile Industry in the National Economy

Textile products are the basic human requirements next only to food. This industrial sector in Pakistan has been playing an important role in the national economy. Its share in the economy, in terms of GDP, exports, employment, foreign exchan 1.1. INTRODUCTION:

The present Global Scenario of Textile Industry with particular reference to the position of Pakistan in the International Textile Market is given here for the interest of our readers. The textiles demand in the world is around $18 trillion, which is likely to be increased by 6.5% in 2005. China is the leading exporter of textile in the world’s total exports of US$ 400 billion in 2002. Country wise major market shares of the textile exporting countries are: China: $ 55 billion, Hong Kong: $ 38 billion, Korea: $ 35 billion, Taiwan: $ 16 billion, Indonesia: 9$billion. Though Pakistan has emerged as one of the major cotton textile product suppliers in the world market with a share of world yarn trade of about 30% and cotton fabric about 8%, having total export of $ 7.4 billion which accounts for only 1.2% of the overall share. Out of this Cotton fabric is 0.02%, Made-ups are 0.18% and Garments is 0.15%. This is mainly due to the laxity towards the promotion of value added sector. Pakistan should be learn lesson from Bangladesh, which, by importing yarn and fabrics from Pakistan and other countries, has increased the export volume of Textiles made ups. If we desire to achieve the target of Textile Exports as envisaged in Textile Vision 2005, we will have to promote Value added sector in Textiles.

ge earnings, investment and contribution to the value added industry which make it the single largest determinant of the growth in the manufacturing sector. Textile share of overall manufacturing activity is 46%, export earning is 68%, and value addition is 9% of GDP and as a provider of employment 38%. In spite of the government’s efforts to diversify exports as well as industrial base, the textile sector remains the backbone of industrial activity in the country.

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TEXTILE VISION 2005:

Textile Vision-2005 has been directed towards an open market, innovative, market driven and dynamic textile sector, which is internationally integrated, globally competitive and fully equipped to exploit the opportunities created by the Multi Fibre Arrangement (MFA). At present Pakistan, holds 8th position in textile exports in Asia. Pakistan can achieve the 5th position in Asia in the textile exports as has been targeted in the Textile Vision-2005.

THE FUTURE OF TEXTILE EXPORTS:

After nearly four decades of discussions in GATT and imposition of quotas, unilaterally, bilaterally, multilaterally and voluntarily, the trade in textiles will be integrated into GATT on 1/1/2005, meaning there will be no quota restraints on textile products, except possibly in some categories for China’s exports to the USA and EU as a result of China’s terms of accession to the WTO.

STRENGTHS AND WEAKNESSES OF PAKISTAN?

The global export share of the textiles and clothing accounting 6% of global exports, is estimated at $370 billion for 2003 of which the share of clothing is $210 billion or 57%. This compares with 67% of the Pakistan’s exports being accounted for by textiles and clothing valued at $7.4 billion for 2002-2003, having only 30% share for clothing. Yarn and cotton and MMF fabric alone accounted for 34%.

The major players, Vis-a Vis quota are EU and the USA. How will Pakistan and other competing countries fare post-quota regime depends on the attitude, mainly of USA and the EU.

The 15 EU member states are to take in additional 10 members on 1st May 2004. These countries are also relatively cheap textile manufacturers where the EU companies have traditionally sub-contracted or relocated their units. While the EU 15 accounts for 20% of world’s import (second only to USA at 24%) it is also the world’s second largest textile and clothing exporter accounting for 11% and second only to China.

The EU textile and clothing sector accounts for 4% of EU manufacturing and accounts for 7% of manufacturing employment in mainly 177,000 SMEs. With the enlargement, the EU’s employment in this sector will touch 2.5 million people.

Another potential threat to Pakistani exporters in 2006 or earlier if the EU loses its case in the WTO is the withdrawal of 0% duty presently granted under the EU’s GSP Scheme.

In the USA nearly one million people are employed in 5117 textile companies and 6134 textile plants. The Southern States, particularly North and South Carolina, Georgia, Virginia and Alabama are strongly lobbying for protection of textile sector in USA. Since the Asian crisis and WTO’s ATC, over 250 textile plants shut down and the USA lost around 200,000 jobs with 30,000 jobs lost

Since January 2002, mainly in the 5 states mentioned above. Thus one cannot expect easy ride into the USA after 2005 without resistance. The major likely trend for USA for 2004 can be summed as following:

Net yarn exports and imports may be approximately $1.3 and $1.7 billion respectively; in fabric imports may be $8 billion with exports less than $6 billion; in made-up articles, $9.5 billion may be imported, with less than $2 billion exports and in apparel, $7 billion of exports against more than $63 billion of imports.

Like the EU, the USA will also concentrate on high tech textile products like non-woven, particularly hygiene products like diapers, wipes, feminine hygiene and adult incontinence and high end fashion, particularly for women’s wear. The USA and the EU will demand better market access for their textiles and also wants the implementation of WTO bindings, particularly in tariffs and intellectual property rights and enforce strict rules of origin, while on the other hand the buyers will make more demands for compliances. Pakistani exporters will have to be ready particularly on account of chemicals and dyes, labor and environment compliance issues.

In case of USA, the security compliance may also put Pakistani exporters at a disadvantage. The opportunities for Pakistan will be quota on China and Vietnam beyond 2005, closure of some EU and US companies dealing in basic textile, disadvantage to countries like Bangladesh and Sri Lanka who thrived due to quota regime and finally, the biggest advantage to Pakistan will be its vertically integrated cotton textile industry.

Pakistan’s export of textile and clothing is expected to cross the $8 billion mark in 2003-2004 from previous year’s nearly $7.5 billion exports, present high price of cotton not withstanding. If the Pakistan government and the private sector cooperate, the net balance is in favors of Pakistan. Supply of yarn and fabric to exporters, both within and outside the purview of DTRE should be treated as deemed exports for all purposes, production of MMF/Synthetic should be encouraged, private sector be encouraged to stock-pile and have buffer stock of cotton. The Government on the other hand should agree in the WTO to lowering of duties as it is difficult for Pakistan to have FTAs/RTAs with any relevant countries and blocs.

Pakistan will also have to concentrate on decreasing of its cost of doing business for which the Ministry of Commerce and the State Bank has reportedly undertaken studies. Finally, the three weakest links in Pakistan’s textile chain, viz, ginning and dyeing and marketing initiatives will have to be improved to take maximum advantage of its potentials.

There is every likelihood that quotas on safeguard categories will be in force beyond 2005 for China and Vietnam. This will provide a breathing space to exporters in other developing countries as well. For Pakistan, the competitor will not only be China and Vietnam but also countries whom USA has given preferential treatment like NAFTA, CBI, AGOA, etc. The USA has signed TIFA with Pakistan but it will not translate into preferential duties for Pakistani textiles in the near future

BOOM IN PAK TEXTILE EXPORTS IN THE MAKING:

In international market there is sharp propaganda against Pakistan regarding a stiff challenge of quality and competitiveness of Pakistani textile products, in the backdrop of abolition of textile quotas from January 2005, the textile sector in Pakistan has surprised all, by maintaining its global share of exports and get some additional foreign exchange through a modest increase in exports after the launching of quota-free regime.

The details gathered by The Nation’s Money magazine revealed during January to May 2005 (four months after beginning of quota free world trade of textile), the country has gain over US$3.6 billion through exporting textile products, showing over 10 per cent growth over the corresponding period of last year. The textile analysts and experts have the opinion that during January-June 2005 (the second half of 2004-05 fiscal year), the textile exports of the country are expected to increase nearly of US$5 billion while the total exports of textile in 2004-05 would be well over US$8.5 billion for the first time.

In 11 months of 2004-05, the textile industry of the country had already gain $7.70 billion worth of foreign exchange through exports, showing the significant increase to compared with the 7.40 billion exports in the corresponding period of last fiscal year. In May 2005 the textile exports of the country increase at $830 million to compare $650 million in April, which depict the pleasant trends in growth.

The textile manufacturers are optimistic in nature and want to increase the international share, and they have target of US$10 billion textile exports which would be achievable if the industry is steadily increasing its share after the abolition of textile quotas. They claim that Pakistani textile products such as, yarn, fabrics, cloth and bed linen are the most competitive items in the world and these items have a lion’s share in overall textile exports. They believe it that all the leading textile producers and exporters in the world especially China, Bangladesh, Sri Lanka, Germany are buying these items from Pakistan and convert them into high value-added items and highly fashion garments.

After few months of establishing the quota-free global trade of textile, the knitwear and readymade garment sectors in Pakistan faced a pressure, but now these two sectors of the textile are also showing improvement while all the other sectors like yarn, fabrics, bed linen, clothing are doing well before and after new WTO regime. Since 1999 a sizable investment of nearly $5 billion has paid well to the local textile industry but the textile industry in the United States and Europe faced crises.

The spinning sector in Pakistan has contribute` 46 per cent of the reported investment, weaving 24 per cent, textile processing 12 per cent, made-ups 8 per cent, knit wear/garments 5 per cent while 5 per cent investment has been made in the synthetic textile sector. The textile industry is expected to receive the further investment of nearly $6 billion by the year 2010 due to increase in the demand, capacity building and impending growth in exports.

Acting Chairman All Pakistan Textile Mills Association Tariq Mahmood told Money magazine that a boom in Pakistan’s textile exports is due to the quota-free and advanced textile machinery. The exports of textile have shown an encouraging growth of over half a billion dollars in 11 months , the industry is at the verge to see a real boom in its exports.

He said, that the US curbs on Chinese textile exports are motivating the leading buyers of textile products to divert towards Pakistan. The importers from the United States, and Europe are inquiring about the capacity of textile manufacturing in Pakistan because they want to check the capacity for the bulk import orders. At present the United States and the Europe are the major markets of Pakistani textile products.

After the launching of quota-free global trade of textile, Chinese started marketing their textile products vigorously in the US, Europe and other major consumer countries, which hurts their textile industries, that did not like the US, European policy makers, which ultimately became the reason of the ‘trade war’ with China and want to subsequent restrictions on import of textile from later country. For the last few months a tug of war is going on between the US and China on the re-evaluation of Yuan, dumping and the textile products tariff, and this war was going into the favors of Pakistan and other textile exporting countries.

Another big edge for the Pakistani textile exporters are getting is the Tsunami factor, which caused heavy losses of textile industry in India, Bangladesh and Indonesia.

He said, that the re-location of the textile industry in the United States and Europe is proved the blessing in disguise for Pakistan textile industry as the relocation increased the US and Europeans importers more dependent on imported textile products. The main textile manufacturer said that the Pakistani textile industry had equipped itself very well at the beginning of quota-free trade regime and invested sizable money on textile sector. During last four to five years the industry has invested more than four billion dollars in the shape of the import of advanced machinery, construction of infrastructure, expansion, modernization. Communications facilities and rehabilitation. The industry is believed that to have injected about US$4 billion investment in last four to five years which comfortably meet the upcoming challenges of producing quality, competitive and fascinating products which became the reason of the addition to capacity building, expansion, modernization of infrastructure, communication, manpower and designing.

He said, after the abolition of textile quotas, the Pakistani exporters are getting more orders to compare with past and ‘I am optimistic that the textile sector will improve its performance and position in the international markets in future. The acting head of APTMA elaborate the domestic problems which faced by the industry and said that the industry was now facing increase in input cost because of a sharp increase in inflation, interest rate, prices of petroleum, gas and electricity.

He added that “We have urged the federal government to ensure a fair reduction in the interest rate and the cost of energy so that the manufacturers could comfortably maintain the edge of competitiveness in the international market.

Pakistan producing the 14 million bales of raw cotton annually which supported the growth in the textile exports. The industry is believed to consumed about 16 million bales this year, 14 million bales of domestic cotton and two million imported bales this year.

All Pakistan Textile Mills Association has said the federal government to promote cotton research and development program which have the objective to ensure the bumper production of this major cash crop and to introduce diseases-free varieties.

The textile industry intends to enhance its exports $16.4 billion by the fiscal year 2010. In other words the industry is preparing itself to double its exports, from $8.3 billion in 2003-04 and expected $8.5 billion in 2004-05 to $16.4 billion, in next five years.

BOTTLENECKS & DEREGULATION STRATEGY FOR INVESTMENT:

Poor infrastructure facilities in the country

Poor management by the different governmental agencies

Bad governance and poor law and order condition’s in the country

Bad image of Pakistan portrayed by the international media and international agencies.

Adverse traveling advice by the foreign countries to their citizens discouraging travel to Pakistan.

Pakistan sign’s international agreements, providing protection to intellectual property rights and international arbitration agreements.

Lack of communication required to meet challenges of

the advanced world.

Non-availability of good quality of soft water for the textile industry.

Severe electricity shortfall in the country

Financial instability in the country which became the reason of the decrease in foreign investment

Our utilities rates are the highest in the region which increases the poverty.

Lack of arrangements to provide Insurance guarantees to U.S. investors on their investment in Pakistan

Delay in sales tax refund causing serious cash flow / liquidity problem to the industry.

Energy crises in the country (crises in natural gas/ crises in the availability of petrol).

Negative impact of SRO’s culture.

1.2. MOTIVATION OF RESEARCH:

There is a need to explore the factors influencing the overall productivity and development of the textile industry of Pakistan and the problems faced by the textile industry of Pakistan, so that it can help the policy makers to shape the different policies to tackle with the various issues of the textile industry, and it can only be done with the help of the research.

There is a need to conduct study on this topic so that it can be beneficial for the individuals as well as the Pakistan’s economy. The issues faced by the textile industry at current need to be studied and can only be solved through proper policy implications.

There is a need to explain the various factors affecting the textile industry of Pakistan so that the policy makers have an idea to explore the responsiveness of the textile industry due to current trade policies which will in turn help them to identify the different policy measures to enhance the textile industry in our country.

1.3. RESEARCH QUESTION:

It is believed that the textile industry acts as the backbone of any economy, and the development and prosperity of the economy depends largely on the development of this sector. Here in this research, an attempt is made to study the effect of textile industry on the growth of the economy before and after the establishment of WTO (1995) from 1947 till current. The basic research question arises from the discussion is that whether the textile industry contributed positively towards economic growth in the country? The research tries to find out the accurate answers of this question by using econometric models.

1.4 RESEARCH OBJECTIVES:

The textile industry acts as the backbone of any economy, and the development and prosperity of the economy depends largely on the development of this sector. This study was conducted how the textile industry is contributing significantly towards economic growth

HYPOTHESIS

H0 Textile industry does not directly related to the development of the economy.

H1 Textile industry directly related to the development of the economy.