by Prof. Dr. Noor Ahmed Memon, Dadabhoy Institute of Higher Education.
Textile is the most important manufacturing sector of Pakistan and has the longest production chain, with inherent potential for value addition at each stage of processing, from cotton to ginning, spinning, fabric, dyeing and finishing, made-ups and garments. This sector contributes nearly one-fourth of industrial value-added and provides employment to about 40 percent of industrial labor force. Barring seasonal and cyclical fluctuations, textiles products have maintained an average share of about 60 percent in national exports.
Cotton Spinning Sector
The spinning sector is the backbone in the ranking of textile production. At present, as per record of Textiles Commissioner’s Organization (TCO), it comprises 517 textile units (40 composite units and 477 spinning units) with 13.414 million spindles and 198,801 rotors installed and 11.338 million spindles and 126,583 rotors in operation with capacity utilization of 84.55 percent and 63.67 percent, respectively.
The textile industry is the largest manufacturing industry in Pakistan. Pakistan is the 8th largest exporter of textile commodities in Asia. Textile sector contributes 8.5% to the GDP of Pakistan. In addition, the sector employs about 45% of the total labor force in the country (and 38% of the manufacturing workers). Pakistan is the 4th largest producer of cotton with the third largest spinning capacity in Asia after China and India and contributes 5% to the global spinning capacity. At present, there are 1,221 ginning units, 442 spinning units, 124 large spinning units and 425 small units which produce textile.
Pakistan has emerged as one of the major cotton textile product suppliers in the world market, with a share of world yarn and cotton fabric trade of about 30% and 8% respectively, maintaining the sector as a backbone of industrial activity for the country. The annual volume of the total world textile and clothing trade is more than US$ 785 billion in 2019; Pakistan’s share is less than 3%.
It is also noted that cotton production during current season has improved considerably due to favorable weather conditions and arrivals stand at 7.4 million bales. However, the country remains reliant on imports to meet the remaining demand and the rising international cotton prices will put pressure on the sector’s margins.
Greater reliance on imported raw material also increases currency risk exposure due to exchange rate volatility. Pakistan’s polyester demand took a steep dip in FY20, registering a fall of 26 percent year-on-year, owing to a halt in business activities and reduced demand from the textile sector. However, the demand has recovered since then.
The spinning sector is the backbone in the ranking of textile production. The rapid increase in spinning capacity due to technological advances has increased the production of cotton and related products substantially. Pakistan’s spinning sector caters not only to the requirements of the domestic industry but also about one-third of the total production of yarn is exported to different destinations.
However, the stock of cotton is decreasing with the ginners. The stock of one international organisation is also decreasing. On the other hand rate of cotton is not increasing as compared to the cotton yarn. Moreover, demand of cotton is also increasing and there is a parity issue between the rate of cotton and cotton yarn.
The effects of Covid-19 are decreasing now but the tension between Russia and Ukraine is increasing market concerns. Moreover, there is likely to be a political uncertainty in the country in the coming days. The cost of production is increasing due to inflation and the increase in power prices.
China was on number one after buying forty seven thousand and eight hundred bales. Pakistan was on number two with twenty three thousand and nine hundred bales and Vietnam was on the third place with twenty three thousand and eight hundred bales. The rates of cotton in Brazil, Central Asia and Africa remained stable while the rates of cotton in India overall remained stable.
The government has fixed the minimum support price of cotton on Rs5,000 per 40kg. It helped a lot in increasing the production of cotton in the country. The prices of cotton witnessed an upward trend in international market so it is recommended that price of Phutti should be increased and fixed at Rs 5500 per 40 Kg.
The government had imposed 17% sales tax on cotton and cotton-related products in the ‘mini-budget’. The government should revise imposition of 17% sales tax on cotton, Banola, Khal and Banola oil.
The establishment of Cotton Authority by Prime Minister Imran Khan was welcomed by stakeholders. It was recommended that government should include chairmen of APTMA, KCA and PCGA in the cotton authority. This will strengthen the Authority.
Separately, cotton arrival in Pakistan increased by 32.4% year-on-year, showed the latest fortnightly data released by the Pakistan Cotton Ginner’s Association (PCGA). As per the report, total cotton arrivals surged to 7.434 million bales, compared to 5.616 million bales in the same period last year, showing a difference of 1.82 million bales.
Imports
Pakistan Imports of Cotton was US$1.91 Billion during 2021, according to the United Nations COMTRADE database on international trade. Pakistan Imports of Cotton – data, historical chart and statistics – was last updated on March of 2022.
Exports
Pakistan Exports of cotton yarn (cotton content 85%) to China was US$751.04 Million during 2021, according to the United Nations COMTRADE database on international trade.
Pakistan Exports of cotton yarn (cotton content 85%) to China – data, historical chart and statistics – was last updated on March of 2022.
Raw material
Cotton is considered a lifeline of the economy of Pakistan. Pakistan is among the countries most vulnerable to the devastating effects of climate change. Erratic weather in the past three seasons has crippled the country’s already ailing cotton sector. Cotton crop faces significant challenges vis-à-vis competing crops especially sugarcane. Most important being unfavourable international prices.
At present country has been unable to achieve its full exports potential in the textile sector and product diversification owing to limited access to raw-material, and therefore, terminating RD on cotton would allow exporters to achieve price competitiveness and product diversification. As the country receives huge exports orders, local production of cotton is insufficient to meet the demand. Cotton was not available at competitive prices.
The worsening situation is purportedly due to the supply of sub-standard cotton seeds to farmers, which caused colossal losses to Pakistan in terms of water, land, labour, yield, electricity besides financial losses to farmers. To meet the demands of its textile industry, Pakistan regularly imports cotton mainly from Turkmenistan, Uzbekistan and the US. The country will likely have to import 6 million bales 2919-20.
Challenges
Pakistani textile industry considered as the backbone of the export sector is facing new issues which should be dealt with promptly. The spinning industry still faces problems despite a power tariff reduction that is insufficient to bring back its competitiveness, but its quality yarn is bringing back global buyers being disappointed by inconsistent and low-quality Indian yarn. Pakistani yarn manufacturers are not prepared to export yarn at current global yarn rates as it is not commercially viable to match Indian rates that are subsidized by their government.
Some exporters claim that initially they were unable to reap benefits of rupee depreciation, citing that international buyers were smart enough who were keeping a close watch on the exporting country’s exchange rates and revised prices according to fluctuations in the currency value.
By FY24, the industry is anticipated to nearly double exports to US$ 25 billion but many of the challenges dogging the sector for the past 10 years have not been addressed. However, some of the problems have been tackled such as ending energy blackouts.
The government must immediately take notice of the provision of sub-standard cotton seeds to farmers by the suppliers and strict action must be taken against them as exporters see it as an act against the interest of Pakistan. The government should make it compulsory for the large spinning units having more than 30,000 spindles and production to grow their cotton to manufacture cotton yarn and extend full support to them in this regard.
First, the government should introduce good policies to make farmers have the consciousness and enthusiasm of planting cotton, and in particular, the government’s policies should ensure that the farmers can make good money by planting cotton.
Second, the government should increase investment in scientific research, and strengthen scientific research and technological development for cotton planting. Only in this way, can the technology of cotton planting always be at the advanced level in the world. And only in this way, can Pakistan’s exports of textile products and cotton yarn increase significantly.
Pakistan’s export of cotton yarn and textiles would gradually form the scale, because economic theory suggests that when the export forms the scale, it will have the scale effect, further drive the development of cotton related industries and the development of the national economy of the whole country.
References
- Textile Commissioner Organization
- Pakistan Bureau of Statistics
- Pakistan Economic Survey-2020-21
- Trade Development Authority of Pakistan.