LAHORE, Pakistan — The most detrimental fallout of this year's increased political instability in Pakistan for its textile industry is the reluctance of foreign buyers to visit mills in the country.
There have been an alarming number of suicide attacks and bomb blasts in Pakistan this year as a repercussion of July's Red Mosque incident in which the military government violently came down on Islamic militants that had barricaded themselves in a mosque in the erstwhile peaceful capital city of Islamabad. Earlier in May, a judicial crisis, since resolved, had prompted demonstrations in the country and a three-day strike in Karachi, bringing all activity in the port city to a halt.
Adil Mehmood, chairman of the All Pakistan Textile Association, said since foreign buyers are reluctant to visit Pakistan because of the deteriorating law and order situation, it would hinder 2007 and 2008 exports. Pakistan textile exports in July were $1.7 billion as against the target figure of $1.86 billion, according to the Pakistan Export Promotion Bureau. This poses a serious challenge for a developing country that has 67 percent of its total exports consisting of textile products.
However, Samir Saigol, chairman of the All Pakistan Textile Mills Association, said: "We have learned to function through disruptions caused by political turmoil. Entrepreneurs have the necessary tools in their kit to deal with this. We continue to enjoy linkages with buyers despite the hiccups."
Levi Strauss & Co.'s senior director of sourcing South Hub, Khalid Tiwana, who is responsible for procurement and sourcing of $100 million of textile products annually out of Pakistan and is based in Lahore, said: "Foreign buyers that were beginning to show interest in visiting were prevented during the May-June seasonal buying period due to the violence in Karachi on May 12. Again, during October-November when buyers will be placing orders for 2008, the situation in Pakistan will be tense due to the upcoming November general elections. Orders will definitely show declining trends as they are inherently dependent on buyers visiting to inspect the mills and to touch and feel the products to gain confidence."
Nadeem Saigol, vice president of operations at Matrix Sourcing, based in Lahore, said, "Travel advisories have always been there. Companies that are more corporate are more sensitive to these. However, companies engaged in importing from Pakistan for more than five years have buyers who come here repeatedly or have opened offices here with local staff. In fact, U.S. importers are returning to Pakistan after a two-year low now that Chinese and Indian prices have started increasing due to higher value of their currencies and increased domestic consumption. Though China still makes 70 percent of the world's apparel, there is a small shift toward Pakistan."Saigol said Nike Inc.'s buying from Pakistan is growing as is home textile firm West Point Stevens. He noted that Canadian company Gildan Activewear is buying one million garments annually from Pakistan and is looking for joint ventures with local mills.
"There is a spillover of Chinese orders," he said. "Orders that are hard to place in China due to price or delivery are also finding their way here. When we are visiting U.S. importers, sometimes Pakistan is referred to being Al Qaeda-centric during meetings and we can only cringe at that. The July Red Mosque story taking precedence on news channels globally certainly affected new buyers. J. Crew backed out of placing orders here immediately afterward. Twenty-five percent of our time is spent on new buyers and it becomes difficult to get a large corporation to change sourcing patterns. Operationally, though, we were not affected at all. There has been no general unrest and Karachi routinely has about two strikes a month for which we automatically make provision."
Najeeb Malik, managing director of Master Textile Mills Ltd., said: "U.S. importers are more worried about travel advisories than Europeans. Travel insurance becomes difficult."
Master Textiles, a vertically integrated mill in Lahore that was established in August 2006, is already supplying to Calvin Klein, urban brand Mecca and Red Snap.
"It is not political instability that has affected our business, but Chinese pricing of their goods," Malik said.
Tiwana, who is responsible for Levi's operations in India, Bangladesh, Sri Lanka, Bahrain, Jordan, Egypt and Kenya, said the Pakistani textile mills are geared toward the U.S. market and are especially suited to producing cotton bottoms.
"There was a 44 percent year-to-date jump in the country's cotton bottoms export to the U.S. in May 2007," he said. "Levi's sourcing is highest from Pakistan from the region. Pakistan mills, like Artistic Milliners, Siddiqsons and Indigo in Karachi, and CBL Nishat, Kohinoor and Sapphire in Lahore, have good denim fabric capability. Pakistan has more vertically integrated mills than the Far East, so lead times are shorter and there is more production control."
Speaking of 2008, Tiwana said, "The (Reconstruction Opportunity Zone) bill will transform the Pakistan apparel industry."The bill has been proposed by President Bush as a way to create zones of economic opportunity to replace zones of instability. Duty free access into the U.S. market will be provided for certain goods produced in stipulated areas for a period of 15 years, creating significant employment opportunities there and preventing these areas from becoming a breeding ground for insurgents, terrorists and drug production. The areas that will be a part of the zone under the current bill are the tribal areas that neighbor Afghanistan and the provinces of NWFP, Jammu and Kashmir, where the devastating earthquake of 2005 occurred, and parts of Baluchistan.
Only one-step value addition needs to be carried out in any of these areas to enjoy duty free access to the U.S.
"Levi's is pushing the list of products to include 100 percent cotton bottoms in the list of items to enjoy duty free status," said Tiwana. "To take an example, the Jordanian apparel industry that got ROZ grew from only $53 million in 1993 when it got duty free status to $1 billion in 2007. Quotas and duties are artificial barriers to the market. On Jan. 1, 2009, Chinese quotas to the U.S. will go and Pakistan needs to have an artificial advantage over China and that should be duty free access to the U.S. market."
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