LAHORE, Pakistan — Pakistan is set to give its struggling textile industry a major financial boost.
A comprehensive textile industry policy has been formulated by the federal government for the first time and will be introduced next month, Pakistan’s federal minister for textiles, Rana Muhammad Farooq Saeed Khan, told WWD in an exclusive interview.
“In the budget of 2009-10, 40 billion rupees [about $500 million at current exchange] has been allocated for the development of industry here, and a significant portion of this has been earmarked specifically to help the textile industry,” Rana Farooq said. “This is because the year-on-year figure of the country’s textile exports has dipped from $11.01 billion in July 2006 to June 2007 to $10.3 billion in 2008 to 2009.”
Pakistan is the world’s fourth largest producer of cotton, but is only the 12th largest exporter of cotton products. Fifty percent of the country’s cotton exports are value-added products, but most are at the lower end of the price spectrum, while the rest is raw cotton, yarn or greige fabric, he noted.
Looking at how much the governments of other regional competitors fund their textile industries — China gives a 17 percent rebate on textile exports and India gives an estimated 8 to 9 percent in the form of disguised subsidies — the government has prioritized the textile industry in the budget of 2009-10, said Rana Farooq, and set an ambitious target of $25 billion in annual textile exports within five years.
From research and development aimed at creating better strains of cotton to ensuring the provision of clean, graded cotton to lowering the cost of operating mills to help attain greater access to the U.S. and European markets, short-term and long-term goals are included in the new policy, Rana Farooq noted.
Under the plan to be unveiled next month, premium payments will be given to growers of high-grade, clean cotton. Setting up of new ginning mills will be encouraged by the government by giving cash subsidies, similar to India’s technology upgrade fund. For example, it costs about $65,000 to set up an average-size ginning mill here and the government will make a cash transfer to the mill once it is established.
Similarly, investment in new textile machinery has declined drastically since last year because of higher financing costs, the lack of reliable energy supplies and the recession. The goal is to reverse the trend by lowering financing costs and providing capital subsidies.
Noneconomic costs of infrastructure and skilled workers also figure in the plan. In the short term, subsidies for gas and electricity provided to household consumers at the expense of industrial users are being removed. In the long term, adequate supplies of power will be guaranteed by the government.
Furthermore, benchmarks have been developed by employing the consultancy firms Gerzi and Werner International for each subsector of the industry and the goal is to raise standards throughout the production cycle. At the moment, there are substantial productivity gaps.
According to a Werner report, Pakistan’s productivity figures are about half the global averages. To improve on this, optimal machinery configurations and processes will begin to be developed. In addition, 100,000 stitchers will be trained each year over the next five years with the help of vocational programs designed by the United Nations Development Program and conducted in partnership with existing mills, Rana Farooq explained.
Targeted for removal are small taxes, like the Sindh infrastructure tax charged at the rate of 0.75 percent of the value of goods, that are counterproductive and discourage industrial growth and exports.
“The key ministries, such as ministries of finance, investment, agriculture, water and power, as well as the prime minister, have been consulted, as have mills in Lahore, Karachi and Faisalabad,” said Rana Farooq after his trip last week to the three textile cities to discuss the upcoming policy with key private stakeholders. Mills were enthused and hope the government can deliver on its promise, as their survival depends on it.
It has been reported that more than 350 textile mills here shut down in the last two years, while 99 knitwear mills closed just in 2008, according to the Pakistan Hosiery Manufacturers Association.
Naseer Butt, director of Ayesha Knitwear, a medium-size mill here supplying brands such as Abercrombie & Fitch, compared Pakistani mills with the upcoming regional contender in the apparel manufacturers’ race, Bangladesh, saying: “Bangladesh’s textile sector gets 5 percent rebate from its government and the salary is only a third [of what] it is here.”
So, while Pakistan apparel export figures to the U.S. for the first four months of the year were only $195 million, as opposed to $207 million in the first four months of 2008, Bangladesh achieved $1.2 billion, versus year-earlier exports of $1 billion.
“However, given our advantages over Bangladeshi mills — indigenous raw material which Bangladeshi mills import from here, positive quality parameters in mills here, less compliance issues, the lead time for local mills is on average 15 days less than for Bangladeshi mills and mills here produce more value-added fashion garments compared to the more basic Ts produced there — if the government allocates adequate resources for the industry to level the playing field with the regional competitors, then we are on the road to recovery,” Butt said.
Speaking of disruptions due to frequent bomb blasts in the country and military action taking place in the North-West Frontier Province near Afghanistan and tribal areas, Butt said: “There are no disruptions in our work in the mills. In the three industrial cities it is life as usual, and where transportation is concerned from the cities of Punjab, Lahore and Faisalabad to the port city of Karachi on the Arabian Sea, there is minimal delay involved. Normally, we try to ship goods five days in advance, so as to avoid any unforeseen difficulties.”
Rana Farooq said, “Pakistan’s economic fortunes are connected with its textile industry and the next July-to-September quarter will show if the policy is taking effect.”