The global cotton and textile communities are facing historically
volatile times, regardless of which part of the supply chain they belong
to. Without question, the problem our industry faces are significant -
but they are by no means insurmountable. In this new era, success will
require a level of communication and transparency greater than we have
ever had in the past, and this is an opportunity that we can take
advantage of. The Textile Ministry by developing closer ties within the
business organisations and inter-industry platforms, both upstream and
downstream, can do much more than simply survive these dangerous times:
It can proactively build a better, healthier and stronger national
textile industry that can benefit the economy and sustain long-term
export growth, once the current period of market turbulence subsides.
This is a time where it is of paramount importance that by regularly
discussing strategies with the stakeholders, the authorities ensure that
the national cotton trade functions more smoothly in all sectors, so
that we can ensure to not just successfully ride the present crisis, but
also manage ourselves in a way that we can possibly avert one in
future.
Neighbouring India, even after an extreme slowdown, is still growing at more than 6 percent per year; whereas, Pakistan’s growth average during the past four years has been barely 2.50 percent. At least two million new workers enter our labour market every year, which means that if we cannot match this with corresponding growth, the problems with unemployment and poverty will compound. The sad reality at present, however, points to a climate where our industry is instead operating at about 30 to 40 percent below capacity. The textile sector accounts for approximately 38 percent of our entire labour force and an operating level of 60 percent basically means a job loss in this sector alone of about one million workers.
Ironically, in textiles, not international demand or global management, inefficiencies have been the main culprits, but the sheer choking of power (electricity) and energy (natural gas) has forced closures resulting in the loss of global market share. Comparing this with 2007, when the industry was operating on full capacity, it means: Whereas, in four years an extra 3.20 million fresh young employable workers should have been absorbed in the textile sector, it is at present accommodating one million than its peak back in 2007! Running an industry per se is becoming untenable, especially in Punjab, where it is forced to close for nearly 170 days a year for want of power and energy.
Little wonder that our textile exports are falling, rather than registering an increase. Based on the figures recently released by the Ministry and verified by the respective Chambers, if we compare January 2011 to January 2012 in quantity terms, the total textile exports have registered a decline of 15.37 percent, and the sector wise decrease reads as textiles and clothing by 16.81 percent, knitwear by 34.79 percent, bed wear by 30.24 percent, towels by 21.76 percent, readymade garments by 24.46 percent, art silk and synthetic textiles by 44.29 percent and other made-ups by 28.16 percent.
Even more disturbing is the trend that the exports of higher value items have fallen at a much higher rate than the less valued ones and, alarmingly, the products that in competing manufacturing economies are regarded as ‘raw materials’, have actually gained their share of exports! For example, raw cotton exports have registered an increase of 397.42 percent, cotton yarn one percent and yarns other than cotton yarn by 2,287.50 percent. Value addition as we know has been a weakness of Pakistani textile exports, as we continue to operate at one of the lowest per kilogram values amongst the principal textile manufacturing countries of the world.
And it is this very weakness, which our Textile Ministry needs to guard against and strategise to somehow overcome. The Indian Ministry as we know goes to great lengths in policy formation to ensure that the operational framework supports a culture where the industrial potential of value addition gets maximised - in spite of no real global or domestic shortage of cotton, we saw India place a ban last month on its cotton export to see to it that priority lies with conversion of the basic commodity into finished cum made-up goods - this in order to generate both additional foreign exchange revenues and employment. At our end, one is not too convinced that our policymakers are even thinking through this aspect of our trade dynamics. Recent key decisions on enhancing trade with India seem to have been taken in haste and without ensuring the fair element of reciprocity. While it is understandable to grant the MFN (Most Favoured Nation) status to India, in doing so we needed to protect our industrial strengths by guaranteeing fair access to the Pakistani products where we add good value and enjoy a competitive edge over India, e.g. home textiles, towelling, cement, sports goods, surgical instruments, specialised consumer products, processed meat, livestock, etc. Even the EU concessions’ package does not seem to be that exciting when one takes into account that the majority of their concessions apply to items that fall in the category of feeding cheap raw materials to the European manufacturing, instead of promoting value addition in Pakistan. Also, the strong growth items for us like bed linen, bulk of home textiles, towels, etc have either been excluded or have been placed under the ceiling of tariff related quotas.
So what is the way forward? First and foremost, we (the Pakistani textile industry) in guidance from the policymaker (the Textile Ministry) need to be more proactive in our decision making by focusing on long-term positioning, instead of current or short-term profit taking. Turkey, India and China started basing their textile policies on such a premise, way back in the 80s and see where they are today. Their textile sector continues to grow in all its dimensions and the sheer strength of product value addition over time has supplemented the development of their domestic markets and in helping them to evolve as leading textile machinery suppliers of the world. Pakistan in this regard still has a long way to go. Further, going forward our industry needs enhanced transparency, predictable government policies, better supply chain management and an awareness, both within the government and the private sector, of using the newly developed global hedging instruments to achieve stability in cotton and MMF (Man-made Fibre) supplies, boost production, and to alleviate possibilities on future tight stock situations.
Second, all participants in the industry can show leadership by advocating that the government/Ministry does a better job of statistical reporting. Companies can also lead by participating in surveys of production, consumption and stocks when such data is requested. Common use of metric measures can help all stakeholders to speak one language of statistics that the bureaucracy can understand.
Third, we need to remember that there have been notable improvements in the efficiency of trade in textiles since the ending of the Multifibre Arrangement (MFA) in 2005, and attempts by anyone (association, lobby group, etc) to take it backward through requests to the government for trade protection should be strongly discouraged.
Finally, the Textile Ministry should take its cue from their Indian, Chinese and Bangladeshi counterparts by actively collaborating with the World Bank to make use of its initiative to deliver training to industry managements, trade associations and the regulatory body on how to effectively use various hedging mechanisms and devise intra-industry policy frameworks to ensure smooth and long-term functioning of the entire industry’s supply chain process.
Neighbouring India, even after an extreme slowdown, is still growing at more than 6 percent per year; whereas, Pakistan’s growth average during the past four years has been barely 2.50 percent. At least two million new workers enter our labour market every year, which means that if we cannot match this with corresponding growth, the problems with unemployment and poverty will compound. The sad reality at present, however, points to a climate where our industry is instead operating at about 30 to 40 percent below capacity. The textile sector accounts for approximately 38 percent of our entire labour force and an operating level of 60 percent basically means a job loss in this sector alone of about one million workers.
Ironically, in textiles, not international demand or global management, inefficiencies have been the main culprits, but the sheer choking of power (electricity) and energy (natural gas) has forced closures resulting in the loss of global market share. Comparing this with 2007, when the industry was operating on full capacity, it means: Whereas, in four years an extra 3.20 million fresh young employable workers should have been absorbed in the textile sector, it is at present accommodating one million than its peak back in 2007! Running an industry per se is becoming untenable, especially in Punjab, where it is forced to close for nearly 170 days a year for want of power and energy.
Little wonder that our textile exports are falling, rather than registering an increase. Based on the figures recently released by the Ministry and verified by the respective Chambers, if we compare January 2011 to January 2012 in quantity terms, the total textile exports have registered a decline of 15.37 percent, and the sector wise decrease reads as textiles and clothing by 16.81 percent, knitwear by 34.79 percent, bed wear by 30.24 percent, towels by 21.76 percent, readymade garments by 24.46 percent, art silk and synthetic textiles by 44.29 percent and other made-ups by 28.16 percent.
Even more disturbing is the trend that the exports of higher value items have fallen at a much higher rate than the less valued ones and, alarmingly, the products that in competing manufacturing economies are regarded as ‘raw materials’, have actually gained their share of exports! For example, raw cotton exports have registered an increase of 397.42 percent, cotton yarn one percent and yarns other than cotton yarn by 2,287.50 percent. Value addition as we know has been a weakness of Pakistani textile exports, as we continue to operate at one of the lowest per kilogram values amongst the principal textile manufacturing countries of the world.
And it is this very weakness, which our Textile Ministry needs to guard against and strategise to somehow overcome. The Indian Ministry as we know goes to great lengths in policy formation to ensure that the operational framework supports a culture where the industrial potential of value addition gets maximised - in spite of no real global or domestic shortage of cotton, we saw India place a ban last month on its cotton export to see to it that priority lies with conversion of the basic commodity into finished cum made-up goods - this in order to generate both additional foreign exchange revenues and employment. At our end, one is not too convinced that our policymakers are even thinking through this aspect of our trade dynamics. Recent key decisions on enhancing trade with India seem to have been taken in haste and without ensuring the fair element of reciprocity. While it is understandable to grant the MFN (Most Favoured Nation) status to India, in doing so we needed to protect our industrial strengths by guaranteeing fair access to the Pakistani products where we add good value and enjoy a competitive edge over India, e.g. home textiles, towelling, cement, sports goods, surgical instruments, specialised consumer products, processed meat, livestock, etc. Even the EU concessions’ package does not seem to be that exciting when one takes into account that the majority of their concessions apply to items that fall in the category of feeding cheap raw materials to the European manufacturing, instead of promoting value addition in Pakistan. Also, the strong growth items for us like bed linen, bulk of home textiles, towels, etc have either been excluded or have been placed under the ceiling of tariff related quotas.
So what is the way forward? First and foremost, we (the Pakistani textile industry) in guidance from the policymaker (the Textile Ministry) need to be more proactive in our decision making by focusing on long-term positioning, instead of current or short-term profit taking. Turkey, India and China started basing their textile policies on such a premise, way back in the 80s and see where they are today. Their textile sector continues to grow in all its dimensions and the sheer strength of product value addition over time has supplemented the development of their domestic markets and in helping them to evolve as leading textile machinery suppliers of the world. Pakistan in this regard still has a long way to go. Further, going forward our industry needs enhanced transparency, predictable government policies, better supply chain management and an awareness, both within the government and the private sector, of using the newly developed global hedging instruments to achieve stability in cotton and MMF (Man-made Fibre) supplies, boost production, and to alleviate possibilities on future tight stock situations.
Second, all participants in the industry can show leadership by advocating that the government/Ministry does a better job of statistical reporting. Companies can also lead by participating in surveys of production, consumption and stocks when such data is requested. Common use of metric measures can help all stakeholders to speak one language of statistics that the bureaucracy can understand.
Third, we need to remember that there have been notable improvements in the efficiency of trade in textiles since the ending of the Multifibre Arrangement (MFA) in 2005, and attempts by anyone (association, lobby group, etc) to take it backward through requests to the government for trade protection should be strongly discouraged.
Finally, the Textile Ministry should take its cue from their Indian, Chinese and Bangladeshi counterparts by actively collaborating with the World Bank to make use of its initiative to deliver training to industry managements, trade associations and the regulatory body on how to effectively use various hedging mechanisms and devise intra-industry policy frameworks to ensure smooth and long-term functioning of the entire industry’s supply chain process.
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