An unprecedented crisis is leading Pakistani Textile & Apparel sector towards uncertainty

adv-06

Mohammad Nurul Alam

The textiles and apparel sector of Pakistan is contributing 60% to its export earnings and employing 40% of the labor force which plays a crucial economic role for the century. However, due to the political instability, higher power supply cost, lack of policy-support from the government for the RMG industry and lack of diversification for market and product the century is now observing a regular decline in apparel export. The upcoming days seem not to be glorious and promising for Pakistan but the sector can see dramatic change.

Present RMG export situation of Pakistan

As per data released by the Pakistani Ministry of Commerce, the value of textile and garment exports from Pakistan decreased by 14.63% of $16.501 billion in fiscal 2022-23 (July-June). But the export earnings were $19.329 billion in 2021-22 which shows a clear downfall in apparel export-earning.

The apparel and textile export in fiscal year 2021-22 by the end of June 30, increased by 25.53% to $19.329 billion over $15.399 billion in the previous fiscal 2020-21. The exports amounted to $12.526 billion in fiscal year 2019-20.

Pakistani textile and apparel exports contributed 59.50 % to Pakistan’s total goods exports of $27.734 billion during the last fiscal year and in the total exports the textile and apparel share was 60.89 % of $26.246 billion during fiscal year 2021-22.

By category knitwear exports dropped by 21.10% year-on-year to $4,436.78 million during the period, while exports of non-knit readymade garments were down 10.57 % to $3,491.95 million as per data Textile Ministry of Pakistan.

The CEO of renowned Kohinoor Mills Aamir Fayyaz Sheikh was recently quoted in Pak media as saying that “Pakistan’s overall market share in the textile and garment industry was nearly 2.25% about two years ago. Now it’s down to around 1.7%.”

The reasons behind the downtrend in textile and apparel export 

According to Pakistani media, there is a long period of mismanagement in Pakistan’s economy and this is reflected in the textile sector which was a promising sector in the country’s economy. The reasons for declining Textile and Apparel exports as identified below –

1)The political disturbances and dent growth in the sector

Two decades ago international brands and their representatives postponed visits to Pakistan due to security reasons when different political rival groups started deadly violations. The violation also halted safe movement for the citizens in their workplace along with safe goods transit.

As the country is still experiencing political polarization inflation rises as the reason the cost of production goes up, reducing profitability and forcing textile mills to close. Thus, a stable government is mandatory for Pakistan to control the inefficient factors that can hinder the economy and business sector. 

On the other hand, political stability is a key factor in establishing trust with investors, shareholders, and foreign buyers, but Pakistan fails to maintain stable political governance.

2)Impact of devastating floods of 2022 

The floods of 2022 has a devastating impact on cotton crops that destroyed large areas of cotton fields in Punjab and Sindh provinces. The severe flood wreaked havoc on cotton fields, leading to raw material shortages. As a result, Pakistan’s clothing and textile sector observed a collapse of the supply chain and the cotton shortage could not be managed properly to give support to the apparel sector.

On the other hand, the textile industry was unable to offset this decline by purchasing cotton from abroad due to a government-imposed ban on imports aimed at conserving foreign exchange reserves. This situation has forced hundreds of factories to shut down or operate with reduced shifts, resulting in massive worker layoffs.

3)The impact of Russia-Ukraine on Pakistani apparel export 

Russia launched a full-scale military invasion into Ukraine in February 2022 and the ongoing war is taking a devastating human toll and will likely have lasting effects on global trade, particularly the energy and apparel markets. 

The war did not bring good news for Pakistan which is already suffering from high inflation and low economic growth, and political instability, particularly the textile and apparel sector suffered severely and it is experiencing a declining business.

Historically Pakistan had a good trade relationship both with Russia and Ukraine. Pakistan’s exports to Russia have observed an increased growth at an annualized rate of 13.6% from USD 13.1M in 1996 to USD 279M in 2020. In the same way, Pakistan’s exports to Ukraine found up-raising at an annualized rate of 15.5% from USD 18.1M in 1996 to USD 573M in 2020. However the ongoing war deepened the crisis more on the critical situation that could not be managed by strong political policy support and trade relationships.

4) Power crisis and high power- cost

According to media reports Pakistan’s textile and apparel industry is suffering from high power costs where efforts to equalize costs by eliminating the cross-subsidy from power tariffs have fallen short.

The apparel businesses are grappling with financial challenges. The power consumption of textiles and apparel firms on the LESCO network saw a year-on-year decline of 49 % in October 2023 and a 36 % decline on the MEPCO network, a clear indication of deindustrialization. This is an economic threat and have pushed the apparel sector to the brink.

Energy costs constituted 12-18 % of total input costs but it was manageable at the prevailing 9 cents per kilowatt-hour to energize the economy.

The All Pakistan Textile Mills Association (APTMA) said in a presentation to the National Electric Power Regulatory Authority (NEPRA).

“The textile industry is in a critical situation due to high power costs, as the government’s failure to keep the promised rate of 9 cents per KWh and increase it to the current 14 cents has led to deindustrialization and export decline,”  

The APTMA representative said that power tariffs now exceed a critical threshold of 12.5 cents/KWh, which makes the industry uncompetitive and forces firms to shut down. Once rates go beyond 9 cents/kWh, the industry can’t grow, and existing units decrease rapidly. If tariffs hit 1.5 times the Regionally Competitive Energy Tariff (RCET), firms become uncompetitive and shut down.

5)Lack of new investment in the Textile and Apparel sector.

Pakistani textile industry is facing the problem of low productivity due to its obsolete textile machinery. So Pakistani textile and apparel sector needs more investment in modern production equipment that might help the country to shift from a cheaper and low-value-added product to high-end product exports. The new investment can make up more than 50% of the value in the textile and apparel export, says different media analyses.

Pakistan’s textile industry estimates that around Rs1,400 billion (US$32 billion) of investment was required till 2010 to achieve the government’s export target but the unpredictable internal condition of Pakistan caused a rapid decrease in foreign investment.

In conclusion, it could be said that the Pakistani textile and apparel sector might have the threat of being thrown out from the global apparel-export competition. The ongoing crisis is getting worse every single day and no strong governance activities could be seen. The uncertainty and threat seem never-ending but the Pakistani government still struggling to bring the sector in good shape.  

The sources of the article is different media analyses.