Mr. Bilal is an agronomist student at the University of Agriculture, Faisalabad. He has been writing blogs on national and international politics and international relations since 2017.
The significance of Pakistan’s textile industries can be illustrated by the fact that cotton and cotton-related products account for 10% of Pakistan’s GDP, 55% of Pakistan’s foreign reserves, and more than two-thirds of the total Pakistani exports. According to the Economic Survey 2021-22, Pakistan’s exports of goods and services witnessed an increase of 39% during FY2022; 61.24% of these exports came from textile industries.
According to the data released by the All-Pakistan Textiles Mills Association (APTMA), Pakistani textile exports experienced an increase of 28% in July-May of the current fiscal year. In the same months of last fiscal year, Pakistani textile exports were recorded to be $13.76bn, which has now increased to $17.67bn.
The Finance division attributed this increase mainly to the Export Facilitation Scheme 2021, which was implemented parallel to the existing export facilitation schemes; the existing schemes will be replaced by EFS-2021 in the next two years. ESF-2021 addressed nearly all the concerns raised by the exporters in the previous months. It reduced the percentage of domestic sales from 30% to 20%, improving the ease of doing business. This scheme also cut the cost of tax compliance and minimized liquidity issues of exporters, by eliminating sales tax refunds.
In addition to the Export Facilitation Scheme 2021, experts have also highlighted other factors behind this growth in Pakistani textile exports. SBPs concessionary schemes, competitive energy prices, and global and domestic rise of cotton prices are some of these factors.
However, despite these positive indicators, Pakistan’s textile industry has not been producing the outcome up to its true potential. Despite being the 4th largest cotton producer in Asia, Pakistan ranks 8th when it comes to textile exports. Multiple factors are responsible for limiting the growth of Pakistan’s textile industries. Some of these factors are: impediments in cotton production, lack of skilled and trained labor, insufficient energy reserves, lack of technological innovation, and no value addition in the textile industries.
Impediments in Cotton Production
The success of any manufacturing industry lies in the cheap and abundant availability of raw materials. In this context, cotton is the backbone of Pakistan’s textile industry. However, its production has witnessed a sharp decline over the years. National Cotton production has fallen from a peak of almost 14 million bales during 2014-15 to 8.3 million bales in 2021-22. These figures imply a 60% yield reduction in the last eight years. This sharp decline in cotton production has multiple factors behind it.
Failure of Bt Cotton Seeds
During the 1990s, cotton seeds were genetically modified by introducing genes from the soil bacterium Bacillus thuringiensis in plants, to develop resistance against different bollworm species. Bt cotton was first commercialized in the United States in 1995. By the 2000s, conglomerates like Monsanto were pushing their product to Pakistani markets, suppressing the locally developed transgenic varieties. These monopolistic practices of market institutions and the government’s lack of interest failed to develop a dynamic cotton seed sector in Pakistan.
Bt cotton was originally developed for temperate climates where pest infestation had not been high. It was only successful under certain conditions; the most important condition for the success of Bt crops was to grow non-Bt crops on at least 20% land so that bollworms do not end up developing resistance against the gene in the long run. However, countries like Pakistan and India have small land holdings; farming communities cannot afford to dedicate one-fifth of their cotton crop to bollworms. Therefore, despite the research practices by both public and private sectors, Bt cotton faced failures in this region, especially in Pakistan.
Moreover, the Bt cotton only showed resistance against American bollworms; it didn’t have resistance against white fly insects and pink bollworms. This selective resistance proved to be a decisive factor in the failure of Bt cotton crops, decreasing the national acreage and production drastically.
Fortunately, under the leadership of Dr. Idrees Ahmad Nasir, the researchers at Punjab University’s Centre of Excellence in Molecular Biology (CEMB) have developed CEMB-Klean cotton triple gene varieties. They are not just American and Pink Bollworm-resistant but also glyphosate-resistant. Weedicides like Roundup can be easily sprayed on them, without damaging the cotton plants.
Moreover, out of 786 local and 4 multinational seed companies operating in Pakistan, most companies have untrustworthy research practices. Furthermore, the national regulator of the seed sector i.e., the Federal Seed Certification, Research, and Development Authority (FSC&RD), has also failed to ensure the quality and purity of seeds being sold through both formal and informal market channels.
Pakistani Textile Exports and Climate Change
Climate change is also hitting the agriculture sector in every possible direction. Due to their high sensitivity, high-temperature ranges can cause morphological, physiological, and biochemical alterations in cotton crops, ultimately affecting crop performance and seed yield. Droughts caused by climate change also prove to be destructive for cotton crops as heat stress invokes higher irrigation demand. In a similar context, uneven and unpredictable rains caused by climate change also have the potential to affect the global supply chains and domestic markets.
In the current season, canal water shortages and increased diesel prices have severely impacted the cotton crops, especially in South Punjab, which is the major cotton-growing region. Moreover, it is expected that Punjab may miss the cotton sowing target for this year by 340,000 acres, meanwhile, the sown cotton crops are also under stress due to heat and droughts.
Competition From More Profitable Crops
Cotton crops are also facing acute competition from other crops that are more profitable e.g., sugarcane. According to the Economic Survey of Pakistan, cotton acreage has shrunk from 2.7 million hectares in 2017-18 to 2 million hectares in 2020-21. This implies that cotton acreage has reduced by almost 2% in the last three years. Sugarcane accounts for just 0.7% contribution to the GDP, but successive governments have failed to introduce crop zoning, especially in Punjab.
Increased Fertilizer Prices
In addition to the above-mentioned factors, increased fertilizer prices have also contributed to the decreased cotton production in the last few years. Last year, DAP’s price got doubled in a very short time. Till now, its price has increased by around 30%.
Unless the government addresses these issues on an emergency basis, sufficient cotton production required for the efficient working of Pakistan’s textile industry, cannot be ensured.
Lack of Trained and Skilled Labor
The next major factor responsible for limiting Pakistani textile exports is the lack of a trained and formerly skilled labor force. According to the situational analysis of Demand and Supply of Skilled Labor in Pakistan’s Textile Sector, conducted by the National Vocational & Technical Training Commission (NAVTTC), Punjab and Sindh share 80% and 20% of the skilled workforce in the textile sector, respectively. In this skilled workforce of the textile sector, the share of TVET Graduates is only 9% and 12% in Punjab and Sindh, respectively. Despite the high demand for skilled labor, there is a significant shortage of formally trained individuals. This is mainly due to the imbalance between the graduates coming out of technical institutes and the massive availability of work-based learners in the informal sector.
Unavailability of Energy Inputs
The most distressing factor behind the inability of the textile sector to grow to its actual potential is the high cost and insufficient availability of energy inputs (electricity and gas). Despite the economic progress and development of massive hydropower projects in the 1970s and 1980s, electricity shortages grappled the country in the 1990s. Political instability, lack of political commitment, no upscaling of power generation, rampant urbanization, population growth, and no new hydropower projects over the years rendered the shortfall to peak at 8500 megawatts by 2012. Due to this, we saw major textile manufacturers shifting from Pakistan to Bangladesh.
In the coming years, PPP and PMLN shifted their focus to thermal and coal-based power plants for short-term political gains. Considering the lack of funds, they had to invite the private sector, despite seeing the negative results of establishing IPPs in their previous terms. The 2013 Power Policy outlined 10,000 MW projects. Most of these projects were related to thermal power. Other than these thermal power projects, it also included the expansion of the Mangla, Tarbela, and Neelum-Jhelum Hydropower Projects. However, this policy was revised in 2015 and these targets were amended.
CPEC and the establishment of IPPs helped the government to manage the energy crisis only for a short time. While resolving the issue of electricity shortfall, they created other problems like expensive electricity, circular debt, and capacity issues.
In 2018, the government had to introduce the Regionally Competitive Energy Tariff Policy (RCET), since the export-oriented industries cannot possibly afford tariffs that are inconsistent with regional prices. According to this policy, the government offered regionally competitive LNG tariffs at $6.5/MMBtu and electricity tariffs at 7.5 cents/kWh, which were later revised in 2020 to be 9 cents/kWh. In its initial stage, this policy boosted Pakistani textile exports by 30%.
However, in 2021, a new mechanism of Duty Drawback of Local Taxes and Levies (DLTL) was proposed by the government, to directly support the export-oriented units. Against the expectations of the government, experts criticized this policy by declaring it alien to the ground realities. It proves to be quite inefficient as the firms have to wait for 10-20 years to receive their rebates. In this context, the lack of vertical integration also renders upstream manufacturers more vulnerable.
According to the agreements signed by the PMLN government, payments to IPPs were to be made based on their capacity, and not their supply; this implies that they are a burden on the economy if they are idle. Therefore, the government needs to curb the genie of circular debt and capacity charges by eliminating power theft and technical losses, through the use of modern technologies. This year, the ousted PTI Government renegotiated the terms with IPPs, with the aim of saving Rs120 billion/year by lowering capacity charges and introducing rupee-based returns instead of USD-based returns. The International Monetary Fund (IMF) has also lauded this arrangement.
Lack of Modern Infrastructure
For the purpose of increasing Pakistani textile exports and ensuring the long-term survival of this industry, the government needs to overhaul the distribution of infrastructure on modern lines. Textile manufacturers are unable to benefit from raw material availability and tariff concessions due to outdated machinery. The textile sector exhibits one of the longest value chains, with dozens of sub-sectors, that are dependent on machinery for ginning, spinning, weaving, knitting, processing, stitching, and producing man-made fibers (MMF). However, Pakistan’s textile machinery imports have decreased over the years; Bangladesh, Vietnam, and India had higher textile machinery imports than Pakistan, despite the heavy lockdown during COVID-19.
Lack of government efforts and the non-existent indigenous engineering sector forces the manufacturers to either stick to outdated machinery or take more loans from banks to update their machinery. However, only large-scale manufacturers can afford to take these measures. SMEs cannot afford to take these measures due to liquidity issues with banks that refuse fresh credit lines.
Lack of Value Addition in Pakistani Exports
In order to improve Pakistani textile exports, the last aspect that needs to be addressed is that of “value addition”. Pakistan’s textile manufacturing sector is centered around spinning, while our regional rivals are moving their manufacturing sectors towards knitting and weaving. The lack of innovation and almost negligible attention given to value addition and ready-made garments by both the public and private sector industries, limit the scope of this industry. Even if the government addresses the above-mentioned issues, textile exports cannot increase the foreign reserves, if innovation and value addition aren’t introduced in this sector.
Pakistan Textile Policy 2020-25
With the aim of doubling Pakistani textile exports to $40 billion by 2024-25, the government of Pakistan Tehreek-e-Insaaf worked out a comprehensive Pakistan Textile Policy 2020-25. The salient features of this policy are:
- Competitive energy tariffs for export-oriented units/sectors during all the policy years
- Amid unusual fluctuations in regional energy prices, tariffs may be revised according to the average energy prices of regional competitors like Vietnam and Bangladesh.
- Revision of duty drawback rates (DDT) – they will only be available for value-adding exports eg., Apparel, technical textiles, made-ups, and carpets.
- Automation of duty drawback mechanism; payments will be made directly in the accounts of exporters through the State Bank of Pakistan.
- Long Term Financing Facility and Export Financing Scheme rates are to be continued at 5% and 3% respectively, while the SBP can review the markup rates in view of the monetary policy.
- Competitive pricing of raw materials for value-adding exporters
- E-commerce policy to be implemented
- Revitalization of Karachi Garments City Company (KGCC)
- Launch of a mass-level training program for industrial stitching
In recent times, cotton and energy shortage has hampered about 30% of Pakistan’s textile production. As the recent devastating floods wiped out around 35% of the cotton crop, most of the small-scale industries have started to shut down their operations in Pakistan. Moreover, poor demand from the domestic as well as the global market has exacerbated the aggravating condition of Pakistan’s textile industry.
Over the years, it has been observed that successive governments have been trying to reform the textile industry. However, their policies have always been directed toward the center of the value chain; problems at the top and bottom levels have always been unaddressed. By having first-hand exposure as a professional agronomist, I have observed a lack of competence, resources, and coordination in the Punjab Agriculture Department and associated research institutions.
A state, that is already struggling with high inflation and depleting foreign reserves, cannot afford to lose an industry that accounts for 8% of its economy. Therefore, along with government initiatives, the private sector also needs to play its part. The unwillingness of the private sector, including large-scale manufacturers, to move towards vertical integration, has also served no one but competitors.
Textile manufacturers need to own the cotton farming community and devise mutually beneficial policies, instead of relying on the hope of cheaper Indian cotton, flowing through the borders someday. Unless the above-mentioned impediments aren’t minimized, a sustainable stream of foreign reserves through textile exports cannot be expected.
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