Pakistan's textile coronavirus

Written by Afifa Iqbal 7:00 pm

Pakistan’s Textile Industry in the Shadow of Coronavirus

This paper analyses the impact of the coronavirus on trade, GDP growth, and the textile industry of Pakistan. It concludes that the textile industry of Pakistan has suffered a reduction in its production because of the decline in trade due to the coronavirus.

Introduction

In the face of a rapidly growing COVID-19 pandemic, economists are making different estimations to analyze how this pandemic will affect the global economy. Currently, there are 5,919,464 confirmed cases of COVID-19, as of May 30th, and there are no signs of vaccines being available anytime soon (Johns Hopkins University & Medicine, n.d.; Sample, 2020). Every country is taking extreme measures to reduce the spread of COVID-19, namely lockdowns and social distancing measures (Kaplan et al., 2020).

Many developed countries, even America and China, are running short of medical equipment needed to control the spread (Manjoo, 2020). In an unpredictable future, countries are facing difficulty in deciding whether to end or continue the lockdown. This unpredictability has also made it very hard to draw any confirmed estimations about the global economic loss. With every new analysis, the estimates of the financial cost occurring world-wide keeps on increasing (Chidambaram, 2020).

According to the Asian Development Bank (2020), the estimated global economic loss is around 5.8 trillion as of May. The lockdown has resulted in an economic downturn as countries tried to contain the pandemic and hence decided to halt many ongoing projects and activities. It is said to be the “worst economic downturn since the Great Depression” (Gopinath, 2020). All the economies around the world, both developed and developing countries, are in a recession.

The per capita income in almost 170 countries is estimated to shrink due to this pandemic (Gopinath, 2020). A few of the major sectors that have taken the biggest hit due to COVID-19 are trade, tourism, oil industry, unemployment, and automobile industry (Jones et al., 2020). All of this has resulted in a disruption in the supply chain of the economy, and it has led to the downfall of international trade like never before (Espitia et al., 2020). 

The United States has suffered many losses and it has raised questions about its economy that has already gotten worse by the COVID-19 (Tan, 2020). Thirty million U.S. citizens have filed for the unemployment benefits since the outbreak of this pandemic. The U.S. economy is forecasted to suffer a recession because of the oil prices that turned negative for the first time. The federal bank has been trying to keep the economy and stock markets together, but things are not getting better any time soon (Jones et al., 2020).

In China, five million people lost their jobs only in January and February (Tang, 2020). The manufacturing sector in China has started to reduce the number of employees as the demand for exports from China has reduced (Tang, 2020; Bloomberg News, 2020). This decreased employment and decline in trade has led to the negative GDP growth of China, making the economy suffer, as compared to the last 30 years (Cheng, 2020).

This slowdown in the wealthiest economies of the world has also impacted the struggling economy of Pakistan as well (Asian Development Bank, 2020). Pakistan reported around 47,000 confirmed cases and 1000 deaths on 20th May (Geo News, 2020). Now, only in 10 days, there are a total of 66, 457 confirmed cases as of May 30th (Government of Pakistan, n.d.). This sudden spike happened because Pakistan tried to ease the lockdown.

Analysts recently found that the rate of the reported cases in Pakistan per day was more than that of Spain and Italy (Hayder, 2020). Many sectors are suspended temporarily as a preventive measure to stop the spread of the disease, which, in turn, has resulted in the delay of many ongoing projects. The quarantine of cities has led to disruptions in the domestic supply chains (Salik, 2020).

According to the ADB (2020), the GDP growth of Pakistan decreased to a value of 2.8 as of 28th March. A forecast of 2.6% has been made for the fiscal year 2020 due to COVID-19. The total loss expected to be suffered by the economy of Pakistan is around $16.23 million in the best-case scenario (Rana, 2020). The shutdown of the industrial and service sector has led to a loss of jobs for 3 million people at the moment, but the Pakistan Institute of Development Economics has projected about 18 million job losses.

It has made the government concerned about the surge in poverty due to this pandemic (Dawn, 2020b). By the end of 2020, 86 million more children will be suffering from poverty as a result of this slowdown in the economy (OCHA, 2020). Many sectors will not be able to assist the economy due to this pandemic. The most prominent industries that will fail to help are trade, textile, and tourism. The tourism industry of Pakistan will not be able to contribute to the economy this year as many international and domestic flights to and from Pakistan come to a halt.

Tourism usually contributed about US$5 million every year (Afzal, 2020). As there are disturbances created in export demand, it is expected that Pakistan will suffer a loss of up to 4% in its GDP only because of the trade loss (Salik, 2020). The reduction in exports is reducing the revenue, and Pakistan being unable to import many inputs is making it difficult for different industries to continue their operations (gasworld, 2020).

Literature Review

According to an article published by Rogoff (2020), the financial crisis caused by this pandemic is more severe than the financial crisis of 2008-2009, and he notes that “economists cannot even begin to predict the end of the recession.” The countries around the world are in a recession worse than the Great Depression (Gopinath, 2020). Many economists are trying to approximate the effect of this pandemic on the Asia Pacific region.

Nigel Brett (2020), the director of the International Fund for Agricultural Development (IFAD), mentioned in his recent article that the financial crisis due to COVID-19 in the Asia Pacific region is worse than any faced before. He stated that the effect on the Asian countries “will significantly exceed the impact of both the global financial crisis of 2007–2008 and the Asian financial crisis in the late 1990s.”

The Asian Development Bank (2020) reports that 68 million people are likely to lose their jobs as a result of this pandemic in Asian countries. According to the International Monetary Fund, Asia is going to have a GDP growth of zero in 2020, which is the worst growth rate in the last 60 years. This study has attributed this slowdown of the Asian economy to two main factors, among others. “The Global Economic Slowdown” is the first reason for this economic downturn, as it has led to a reduction in the trade of the region with its most significant exporters such as the United States and Europe.

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Secondly, it talks about the slowdown of factories in China and how this effect will translate to the economy of Asia (Rhee, 2020). Different sectors and supply chains are analyzed to assess the impact of this pandemic. According to the articles published on the Center for Strategic & International Studies, two main channels are hitting the economy of Southeast Asian countries very seriously; the first is trade and investment on which many of these countries relied. Whether it was palm oil from Indonesia or textile from Cambodia, the demand for these exports has fallen sharply and so has the economic growth of these countries.

The second channel is tourism that has been severely disturbed by the COVID-19. Thailand has an economy which has one-fifth of its GDP dependent on this sector and thus will be suffering the most (Searight, 2020). It entered this crisis with an economy that was struggling hard in 2019. According to the projections made by the Asian Development Bank for Malaysia and Singapore, both countries are going to have a zero-growth rate in 2020 (Searight, 2020).

The overall impact of the virus is different for different countries, subject to the structure of each economy. In India, the industries hit severely were of diamonds, automobiles, and steel (Naureen & Waqar, 2020). Whereas in Bangladesh, the people employed in the industrial, construction, and transportation sector are bound to fall under the poverty lines. The daily wage earners will also fall into the poverty trap due to this pandemic (Ahmed, 2020).

Pakistan, too, is suffering from an economic crisis because of the pandemic. Express Tribune published an article that stated that Pakistan’s economy would suffer a loss of around $16.23 million due to the halt in the functioning of the economy (Rana, 2020). A bulletin published by the Pakistan Institute of Development Economics (PIDE) has reviewed the impact of COVID-19 on the labor market, with Punjab having the highest number of vulnerable workers who may lose their jobs due to COVID-19.

Whereas sector-wise, the agriculture sector has the highest number of vulnerable workers with an estimation of around 10.4 million job losses (Faraz & Nasir, 2020b). “The Gulf traders have asked us to wait until May15,” a farmer said in the hope that the government tries to find a solution to the problem of trade restrictions (Jamal, 2020). Faraz and Nasir (2020a) have looked at the impacts created by the disruptions in the trade on Pakistan’s economy.

Pakistan imports mostly from the US and China. Both of these countries are under shut down to control the pandemic, and this has brought a halt to importing many intermediate and capital goods (Tan, 2020). It has made several Pakistan industries worried as they fail to continue their functions without these imported inputs (Faraz & Nasir, 2020a). Pakistan exports have reduced by 54 percent in April, as compared to last year.

Pakistan’s textile industry is one of the sectors that has suffered heavily due to coronavirus. In the month of April, a study concluded that around one million workers in the textile industry lost their jobs due to this crisis (Naqvi, 2020). One single factory alone has fired more than 15,000 workers as of May 27th (Toppa, 2020).

A research study published in June 2011discussed the impact of the global financial crisis on the textile industry of Pakistan; it gathered cross-sectional data from 25 industries randomly to calculate the effect, and it was found that the global financial crisis had led to a decrease of 20 percent textile-related exports due to decreased demand (Shaikh et al., 2011).

However, in another paper, published by Sumra and Mehrunisa, it was argued that the global financial crisis did not play a significant role in the decline of textile exports in 2009. Other factors, such as electricity shortage and internal instability, had led to a decrease in the trade of the textile industry. This paper has used sampling methods to gather data and has arranged different interviews with the targeted audience (Mughal & Chaudhary, 2014).

Methodology

This section discusses the method used, describes the data gathered, and explains the variables studied in this paper. As mentioned earlier, the disruptions in the global economy have disturbed the trade of Pakistan with other countries. As a result, there is a decline in the economic growth of Pakistan. This study focuses on three main variables: coronavirus, trade of Pakistan with other countries, and Pakistan’s textile industry.

The paper uses the meta-analysis approach to find answers to the research problems of study. The exact values related to the variables were taken from the Punjab Bureau of Statistics and State Bank of Punjab to draw out more precise and accurate results. A few of the bulletins published by the Pakistan Institute of Development Economics have been used to find the answers to the research problems.

Most of the research in this paper is based on the pre-existing datasets which have been gathered from the official websites of the Government. Companies in the textile industry that rely on exports and imports for manufacturing and sales are used as the target audience. There is relatively little data found on the effect of the pandemic of the textile industry.

To cover up this gap, different research studies were gathered related to the 2008-09 financial crisis to see its effect on the textile industry. Then these studies were compared with the current situation to analyze the expected effects of the present crisis, as a result of this pandemic, on the textile industry. The limitation of this study is the collection of statistical research data.

Analysis

The economy of Pakistan has been dependent on international trade since the mid-1980s (Haq et al., 2014). Currently, international trade contributes to 29% of Pakistan’s GDP (Nordea, 2020). The sectors that play a huge role in the exports of Pakistan are textile (17.1% of total exports), cotton (14.9% of total exports), and knit or crochet clothing (12% of total exports).

These sectors when summed together produce revenue of 10.5 billion yearly (Workman, 2020). The few countries that export an enormous chunk of these products are the United States, China, the United Kingdom, Afghanistan, and Germany (Workman, 2019). Table 1 provides the percentages of these vital partners in the total trade of Pakistan.

Table 1

The Percentage of the Major Export Partners of Pakistan

Export PartnerPercentage of Total ExportsUS Dollar Value
United States16% 3.8 Billion
China7.7%1.8 Billion
United Kingdom7.3%1.7 Billion
Afghanistan5.7%1.4 Billion
Germany5.5%1.3 Billion
UAE4.2%996 Million
Source: (Workman, 2019)

Due to the disruptions in global trade, the future of Pakistan exports seems to be uncertain. The countries around the world have been shutting down their borders to control this pandemic (Tan, 2020). It implies that it will drastically impact the demand for exports from Pakistan as these economies try to minimize the impact created by this crisis (Nakhoda, 2020). Given the importance of these countries in the export structure of Pakistan, the negative impact of the decline in trade on Pakistan’s GDP is clearly evident.

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According to the estimates made by the PIDE, if there is a decline of 20% in the overall trade of Pakistan, the GDP will suffer a negative growth rate of 4.64%. If this decline is assumed to be 10%, the growth rate of GDP will decrease by a factor of 2.3 (Faraz & Nasir, 2020a). Whatever the case is, it would be very difficult for Pakistan to manage these economic losses with an already struggling economy.

Table 2

Exports of Pakistan with Major Partners

CountryMarch FY20 RMarch FY19April FY20 PApril FY19
United States342,510334,073 254,012349,863
China118,955153,324112,473174,591
United Kingdom138,079146,832105,904143,271
Afghanistan61,121108,27519,20899,793
Germany124,91299,70380,084111,822
Source: (State Bank of Pakistan, 2020a)
Note: R refers to revised values and P means provisional values. All the values in the above table are in US thousand dollars. 

The monthly analysis of the data for the exports has shown that disruptions in trade are reducing the foreign revenue coming in the country. The revenue projected from the US in April FY20, as compared to March FY20, has decreased by 89 thousand dollars in one month. Afghanistan is exporting minute amount in April FY20 in comparison to March FY20. Such abrupt and sudden losses in the revenue will make it quite burdensome for Pakistan to recover.

Figure 1

Yearly Export Analysis

Source: (State Bank of Pakistan, 2020c)

After analyzing the provisional export values for FY20 data with the FY19, it can be seen from figure 1 that the change in the values is very negligible, but this difference in values is bound to widen in the coming months. The total exports of Pakistan in FY20 is observed to have a negative growth rate of 0.024% as compared to that in FY19.

This figure seems to be very small, but for a country like Pakistan that is already fighting to keep its economy working, it is a significant loss to its revenue. This loss in export revenue is going to contract the GDP growth of Pakistan in the coming months by 4% (Salik, 2020). Similarly, Pakistan imports most of its intermediate and capital goods from a few countries.

Figure 2

Composition of Pakistan’s Imports

Source: (Faraz & Nasir, 2020a)

The U.S. provides 56% of Pakistan’s imports while China is responsible for 25% of the imports. Other countries such as Germany, the United Kingdom, and UAE collectively provide 11% of Pakistan’s imports (Faraz & Nasir, 2020a). While these countries are under lockdown, importing the inputs has become a struggle for Pakistan.

Many industries in Pakistan have halted due to the pandemic, and the unavailability of the inputs has brought their functioning to a slower rate. These industries use these intermediate and capital goods to produce the final products, which are then exported to other countries.

Figure 3

Major Import Groups

            Source: (State Bank of Pakistan, 2020d)

After looking at the exports and composition of Pakistan’s imports, the decline in the imports of Pakistan is analyzed. The data provided by the State Bank of Pakistan shows that the import of goods by Pakistan in March FY20 declined by a negative rate of 0.18% as compared to that in March FY19. This decline in imports is bound to translate its effect on the functioning of many industries.

Figure 3 shows the five major groups of commodities in Pakistan that have the highest number of imports. The imports of FY20 (Jul-Apr) are compared with the FY19 (Jul-Apr). The petroleum group is suffering the most due to the disruptions in the trade followed by the agriculture group. The textile group is the third group that would be facing disruptions in continuing its activities since it faces difficulties in importing many materials.

As discussed above, the textile industry of Pakistan is one of the biggest sectors responsible for the highest amount of exports to other countries. It is responsible for almost 70% exports of Pakistan producing the revenue for around 9% of Pakistan’s GDP. The second largest industry of Pakistan that employs most of the workers, after agriculture, is the textile and apparel industry. Out of the total industrial workers, 45% of them are employed by the textile industry (Toppa, 2020).

Pakistan is the sixth-largest importer of raw cotton (Shah, n.d.). The textile industry is dependent on these imports to prepare the final product and then export it to other countries. Now, if there is a decline in imports from other countries, the production of the textile industry is bound to get affected by it severely (Faraz & Nasir, 2020a).

Table 3

Textile Product Production in March FY20 and FY19

ProductUnit measuredMarch FY20March FY19
Cotton YarnTonnes209,900287,500
Cotton ClothSq. M64,19087,650
Knitting WoolTonnes68133
Woolen & Carpet YarnTonnes202199
Upper leather000 Sq. M1,5942,540
Source: (Pakistan Bureau of Statistics, 2020)

In the Year-Over-Year (YOY) growth impact analysis by the Pakistan Bureau of Statistics, the change in the textile industry was measured by comparing the production of the year 2019-20 (Jul-March) to the year 2018-19 (Jul-March). It was observed that the textile industry suffered a negative growth rate of -6.03 monthly and -0.66 cumulatively. This decline in production will affect the exports of this industry and revenue. This pandemic has changed the future of the textile industry, of its exports, and other related projects.

The CEO of Elite Denim Mills mentioned that there was rarely any production of denim fabrics in the month of March (The News International, 2020). The industry has managed to obtain an exemption from the lockdown by the government with strict guidelines (The News International, 2020). Although the industry has started to resume, the fallen demand amidst the crisis has resulted in the loss of many projects and thus a decline in the exports by the textile industry.

Figure 4

Textile Export Analysis (yearly)

Source: (State Bank of Pakistan, 2020b)

Figure 4 shows the major export items of the textile industry. The export values of March and April, taken from the State Bank of Pakistan, are compared to show the decline in the said values only in one month. The same trend of decrease in exports is observed in all the other items of the textile industry. This data implies that, in the coming months, the production of the textile industry would be affected more severely due to the disruptions in the global trade. It, as a result, will lead to a decline in the exports related to textiles.

Conclusion

The study concludes that the textile industry of Pakistan has suffered a reduction in its production because of the decline in trade due to the coronavirus. The lockdown in several countries has led to a fall in Pakistan’s exports at the international level. It has also been observed that the imports of Pakistan with other countries have reduced. Lockdowns have created a critical obstacle for different sectors, especially the textile industry, to continue their operations.

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In the monthly analysis, it had been observed that it was just in March that Pakistan’s textile industry suffered a loss from which it will make it unable to recover smoothly. It has led to a decline in the economic growth of Pakistan because of its significant role in it. There should be extensive research on analyzing the impact of the virus on the biggest factories of the textile industry. Data can be gathered from these industries to examine the detailed and precise loss for Pakistan’s economy. 

References

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About the Author(s)

Afifa is a second-year student of economics with data science at Information Technology University (ITU). She works remotely at Amalitech Tech Ghana as a research assistant. She also interns at Safer Society for Children at ITU. She loves to volunteer at different places and has been doing it for the last two years.

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