b Presentation Kamran Sandhu

7/29/2019 b Presentation Kamran Sandhu

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Challenges to Pakistan'sValue Added Industry

Presented by

Kamran Yousef Sandhu (PhD Scholar)

Project Director/Principal

Pakistan Readymade Garment Technical Training Institute Lahore.


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ABSTRACT

The Textile and Clothing sector is one of the most competitive and value added

economy of Pakistan. It is the only sector who contributed US$9.579 Billion (5

export for the year 2008-09.

This sector is also a major contributor in employment generation in the textile an

supply chain.

Pakistan is worlds 4th largest producer and 3rd largest consumer of cotton.

Its advantages start from integrated and advance manufacturing infrastructure,

cotton and raw material availability, abundant manpower which leads to high val

production for the international customers.


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ABSTRACT

Despite of the advantages, Textile and value added sector is facing interna

external challenges and its performance registered a decrease of (-10.22%

2008-09 as compared to the last fiscal year.

Major problems are policy imbalances, war on terrorism, energy crises, inf

Pakistans image building along with the Global economic crunch etc.

This paper gives broad overview of the textile and apparel industry, challen

faced by the industry and how challenges can be overcome by suggesting s

recommendations for the industry.


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INTRODUCTION. Cotton has always been Pakistans competitive strength from the da

independence and is a main driving force for value added industry of Pakis

Cotton production registered an increase from 1.1 million bales in

10 million bales in 2000.

Along with that, number of factories increased form 3 to 600 and nu

spindles increased from 177000 to 805 million. But unfortunately, nu

looms and finishing units not increased proportionally (Aftab and Mehreen

In 2008 clothing export stood at US$3.9 Billion and Textile export stood at

But the year 2009 was very depressing year as industry is facing war o

political instability, shortage of energy along with the internal economi(Economic Survey 2009-2010).


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THE CONTRIBUTION AND SIGNIFICANCE OF TEXTILE AND APPAREL S

Atilgan (2006) briefed that a countrys competitiveness and performance

measured by the performance of its industry.

Textile policy (2009-14) explain that Textile is the most important manuf

sector of Pakistan and has the longest production chain:

one-fourth of industrial value-added,

employment to about 40%of industrial labor force,

consumes more than 40% of banking credit

accounts for 8% of the GDP.

an average share of about 60% in national export.

12th

rank in world textile export


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Export of Textile and Clothing (US$ Million

1990

2000

2004

2005

2006

2007

World Textile 104345 157295 195541 202657 220367 240364 2

World Clothing 108129 197722 260569 276802 309142 345830 3

Total 212483 355017 456110 479479 529509 586194 6

Pakistan Textile 2663 4532 6125 7087 7469 7371

Pakistan Clothing 1014 2144 3026 3604 3907 3806

Total 6377 6676 9151 10691 11376 11177 1

% of world trade 1.73% 1.88% 2.01% 2.23% 2.15% 1.91% 1

Source: Ministry of Textile Industry


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Pakistans Textile Exports by Major Categorie

Source: TDAPAll figure are US$ 000


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Industry installed capacity and production d

Source: (Shahzad, et al. 2010)


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Sector wise Employment

Source: (Shahzad, et al. 2010)


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CHALLENGES FACED BY THE READYMAD

APPAREL INDUSTRY OF PAKISTAN.


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Cotton Shortage PRGMEA (2010) explains that actual domestic demand of cotton is 1

bales and Pakistan is producing almost 11 million bales so unfortunately tshortage of 5 million bales for the domestic market.

Federal Committee on Agriculture describes that due to the flood ther

shortfall of 2.5 million bales in 2010-11.

The above situation is very much clear that Pakistan is already facing sho

the cotton for the domestics market and shortage of 2.5 million bales will

industrialist into immense pressure.


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Pakistan Cotton Prices last two yea

Source: Emerging Textile (2011)


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Price Fluctuations

Particularly, yarn price fluctuation is badly hearting the export orders. Ya

fluctuation is so fast that on daily basis new rates are being announced.

On the other, hand government is unable to control the prices of the co

yarn which is the driving force for the industry.

Moreover, electricity, gas, petrol rates are also increasing witho

announcement so resulting in the higher prices of the raw material.


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Energy Crises.

Pakistan is facing severe energy crises form last five years. There is shortage

electricity, gas, petrol to run the service as well as manufacturing industry

Pakistan.

Continues load shedding of electricity and gas resulting in the low perform

and productivity of the factories.

As an estimate provided by PRGMEA, due to the usage of petrol, diesel and

power expense has been increased by 50 %.


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Electricity

0

5000

10000

15000

20000

25000

Firm Supply (MW) Peak Demand (MW)

Source: Ministry of Water and Power


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Gas Shortage

The Sui Northern Gas Company Ltd (SNGPL) announced load shedding sche

never met the expectation of the manufactures and also not strict on the sbeing announced.

Aftab & Mehreen (2010) explains that according to official of All Pakistan T

Mills Association (APTMA) 60 to 70 percent of the industry has been badly

and was unable to meet the production deadlines resulting in the loses. Henotified that a loss of Rs.1 billion per day is being faced by the industry.


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Technological Challenges

New and advance technology has resulted in competition around the w

now efficiency and productivity are important factors for a nation.

Pakistans 80% apparel industry is SME using traditional methodolog

machinery resulting in low performance of man and machines.

As productivity of Pakistan industry is based on traditional methods,production increases .


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Monetary Policy

Pakistans monetary policy for industry is very much tight. There is alm

high mark up rate coupled with 20% inflation results in the higher cost business.

This also results in the non competitiveness of the product prices and so

the market share.

On the other hand, Government of Bangladesh is offering industrial lo

special interest rate of 9 to 11% to support their readymade garment

(Shah, 2011).


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Interest Rate Comparison FY 2010

14%

11%

5.69%5.25%

0%

5%

10%

15%

Pakistan Bangladesh China India

Source: Trading Economics


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Cost of Production

Cost of Production increased due to

war on terrorism,

currency devaluation,

unexpected fluctuation of the yarn prices and

international financial crunch,

cost of doing business in Pakistan has increased.


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Duty Draw Back on value added sector

Government of Pakistan announced subsidy of 6% to apparel sector by ke

view the subsidy offered by china, India and Bangladesh till 2008. HoweR&D is far less than competitor countries but it gave sign of

manufacturers.

From 2008 onward duty drawback has been reduced to 3% for apparel s

Pakistan. But unfortunately, duty drawback claims have not been catered tthe state bank of Pakistan and manufactures are waiting for the same.


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Duty Draw Back rates of different countries

3%

11%

12.50%

Pakistan China IndiaSource:Ministry of Commerce China (2007)Pakistan Textile Policy (2009-2014)Circular No. 35/2010-Cus., New Delhi (2010)


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Foreign Direct Investment

Due to the global economic crises, unpredictable policies, energy cri

international situation, FDI declined by 31.2% in 2008-09 as compare tofiscal year. In the current fiscal year, this situation further worsted and de

44.7% (Economic Survey 2009-10).

On the contrary investment in oil and gas slowed down as compared to

year so resulting in the higher prices of the utilities for the local (Economic Survey 2009-10).

Government should take immediate actions to provide friendly pol

international investors so that Pakistans current situation should be taken


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Foreign Direct Investment in Pakistan (US $ Bi

01000

2000

3000

4000

5000

6000

FY05 FY06 FY07 FY08 FY09 FY10

BillionUS$

YEARS

Source: Economic Survey of Pakistan (2009-2010)


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Imbalance Governmental polici

Because of inappropriate and imbalance polices for the value added s

Pakistan, there is decreasing trend of foreign direct investment, insufficienprocessing zones.

According to Textiles Policy 2009-14 a target of US$25 Billion has bee

achieve till 2015 where as Bangladesh is expecting its growth upto US$ 4

till 2015 (Shah, 2011). To achieve the target, favorable policies shimplemented for the target of US$ 25 Billion.

Government is planning to apply the Reformed General Sales Tax (R

manufacturers. As 80% manufacturers comes under SME category, RGST w

in shortage of finance for their operations and will be unable to confron

situation.


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Socio-cultural factors

Pakistan Institute of Labor Education and Research (2009) depicts that the

female workforce in RMG industry of Pakistan.

Shah (2011) explains that 80% workforce of Bangladesh textile industry, in

RMG sector is comprised of female workforce.

In Pakistan, there are socio-cultural constraints for the females to join RMGother industry. There are many issues like,

lack of training opportunities,

transportation,

male dominated house culture and

poverty.

Cultural Constrains


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Apparel Export of Pakistan

Export of readymade garments showed a negative trend of 20% from 2007

2009-10.

Pakistan was the Asian player before 2000 but due to the internal problem

starts loosing the international market share.

Nowadays, main market of Pakiatn is USA and after that Europe. There is nexplore japans market, Middle East and some countries of the Europe unio

(Memon. 2011)

Kalim and Lodhi (2005) emphasize that Pakistan must take drastic steps to

industry more knowledge intensive; otherwise Pakistan would be at risk oeven its present share of world exports.


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Apparel Export of Pakistan

0

500

1000

1500

2000

FY05 FY06 FY07 FY08 FY09 FY

MillionUS$

YEARS

Source: Memon (2011)


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Conclusion & Recommendatio Apparel industry of Pakistan is passing through the hardest period ever fa

main reason of the situation is the Global economic crunch and internal

Pakistan.

Due to the energy crisis and increased fluctuation of yarn prices, as these

basic drivers of industry, increased the cost of production.

Moreover, currency devaluation also resulted in the high cost of import of

material. Furthermore, inflation rate which went upto 25% and monetary

for the apparel industry also resulted in the high cost of doing business.

War on terrorism is a major problem being faced by the industry and inter

buyers are reluctant to travel to Pakistan. Instead they prefer to mmanufacturers in Middle East and which is not possible for SME sector of P


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Conclusion & Recommendatio

To compete with the neighboring countries i.e. China, India, Banglad

Srilanka, level playing field has not been established by the governPakistan.

As cost of doing business is increasing day by day, Pakistan has started

market share and competitor countries are gaining the same. Due to this

has declined the export of textile and clothing by -10.22% in 2008-09.

Duty drawback has been decreased from 6% to 3% and which is a littl

relief for the manufacturers but to get the claim of duty drawback i

challenge for the industry.


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To save the garment industry which is the back bone of the economy as is

intensive and foreign exchange earner and to meet the export target, favo

policies should be implemented for the following recommendations.


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1. Same subsidies on export, energy, and bank refinance schemes as being awby India, Bangladesh, and China.

2. Favorable policies for Foreign Direct Investment (FDI) to Pakistan

3. Image building of Pakistan to attract the international buyers.

4. Financial support for the technology up gradation.

5. Financial support for the capacity building of human resource of the valuesupply chain.

6. Control on the price fluctuation of raw material.


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7. Awareness and implementation of International Quality Standards.

8. Interest rate should be lower down in order to survive this industry and Su

on Bank interest rate must be given.

9. Removal of Energy Crisis

10. Exploration of new Export Markets

11. Duty free excess to Europe, USA, Japan etc.

12. Government should support industry to work on the technical textile for v

addition.


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References Aftab.A., & Mahreen, K. (2010).Pakistan textile industry facing new challenges. Research Journa

International Studies 14, 21-29.

Atilgan,T (2006). The effect of the textile and clothing sector of the economy of turkey. Fibers an

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Circular No.35 (2010). New Delhi. Retrieved on March 14, 2011. Accessedfromhttp://taxlinks.blogspot.com/2010/09/all-industry-rates-of-duty-drawback.html#axzz1Gx0B

Economic Survey (2008-09). Economic Survey of Pakistan (2008-09), Ministry of Finance, Govern

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Kalim, R., Lodhi, S.A. (2002). The Knowledge-based Economy: Trends and Implications for Pakista

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References Memon, A. N. (2001). Readymade garment manufacturers face high cost of production. Pakista

Journal.LX1, (37-38).

Organizing for labor rights. Women Workers in Textile/Readymade Garments Sector in Pakistan aBangladesh.

Pakistan Institute of Labor Education and Research.(2009).Organizing for labor rights; Women w

textile/Readymade Garments sector in Pakistan and Bangladesh .Pakistan: ZeenatHisam.

Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA)

Shah, A. (2011).Textile Performance Bangladesh outclasses Pakistan. Retrievedon February 25,

Accessed fromhttp://agrihunt.com/index.php?option=com_content&view=article&id=260

Shahzad,A.,Fiaz,M.,Babak,M.,& Kamran,S. (2010). Development of Textile Industrial Cluster in PaSocial Science(6)11, 123-140.

Textile Policy 2009-14. Ministry of textile industry, Government of Pakistan.

Trading Economics (2011).www.tradingeconomics.com. Accessed on March 9, 2011.

TDAP (2010). Trade Development Authority of Pakistan . Available at www.tdap.gov.pk.

Water and Power Division (2010). Ministry of Water and Power, Government of Pakistan availab

www.mowp.gov.pk. Accessed on Feb 2011.
http://agrihunt.com/index.php?option=com_content&view=article&id=260http://www.mowp.gov.pk/http://www.mowp.gov.pk/http://agrihunt.com/index.php?option=com_content&view=article&id=260


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