ISLAMABAD: All Pakistan Textile Mills Association (APTMA) on Monday issued a rebuttal on an article 'Textiles, our Achilles heel' published on May 24.

A historic cotton decline, gas and energy outages, billions of rupees in tax refunds, efficiency audits, labor and raw material shortages, and other issues have affected the industry considerably. Despite this, the industrial sector performed well, and exports grew. Industry could only manage $ 13 billion in exports from 1947 to 2018, but in the last four years, exports have doubled, with a goal of $ 26 billion by the end of next fiscal year. It's almost too easy to blame the economy's lone performing industry for no reason. Before citing the success stories of Bangladesh and Vietnam, one must examine the fundamental challenges that have plagued the exports sector for many years. If things were that straightforward, then why hasn't any other sector of the economy performed adequately in Pakistan's history?

Textile and garment exports increased by 23 percent year on year to $15.4 billion in 2020-21, up from $ 12.5 billion in 2019-20. Moreover, 70 percent of these exports were of items that had undergone extensive processing to make value-added products, which is a good sign. The Pakistani textile industry has witnessed a higher-value bedsheet, knitwear, and woven garment exports growth, but decrease in lower-value yarn exports. In first ten months of current fiscal year, textile export has increased by 26 percent from $ 12.7 billion to $ 16 billion.

Furthermore, it is hoped that clothing and textile exports would generate $ 21 billion revenue by the end of the fiscal year in June 2021-22. Thus, spreading an air of optimism amidst its debilitating economy and proving the textile sector as Pakistan’s Achilles’ shield. However, to our dismay, historically speaking whenever the sector starts taking off, it faces setbacks in the form of flawed analysis leading to policy changes. From 1947 to 2018, we could only achieve $ 13 billion in exports, however in the last four years, exports have doubled.

It also mentions that the textile sector invested $ 5 billion last year, and at this rate, and can add another $ 3 billion this year, with the potential to add further $ 5 billion by the end of next year. Additional capacity of 1.25 million spindles, 6000 air jet looms, and 3 million square meters was increased as a result of this investment, which will reflect in increased exports this coming year.

According to the Observatory of Economic Complexity (OEC), global textile trade was $871 billion in calendar year 2021, accounting for 4 percent of world trade. Pakistan's overall textile trade share was 2 percent, which is a major success and indicates that the country has a lot more potential and acquire more global textile markets. In the current calendar year, Pakistan's textile share of global textile trade is predicted to rise by 20 to 25 percent.

Additionally, increased exports were the result of the implementation of Regionally Competitive Energy Tariffs (RCETs), which reduced conversion costs while making Pakistani products competitive in the international market. When the majority of (regional) markets were down with Covid-19, the industry not only survived but thrived – the industry was running around the clock at full capacity to meet the high demand, which paid off in the form of record exports. Pakistan had imposed less strict lockdown restrictions during the COVID times than its South Asian neighbors, and the industry has benefited from recent investment by growing clothing and textile exports. Rising cases in typically Bangladesh and India resulted in international buyers’ panic buying and relocation of orders to Pakistan.

The textile industry – Pakistan's single largest contributor to exports (60 + percent), manufacturing sector employment (40 percent), and banking credit (40 percent), as well as a nearly 8.5 percent contribution to GDP – is the result of sustained industry profitability rather than window-dressing or fudging numbers. The provision of Regionally Competitive Energy Tariffs is not a subsidy but a regional rate which is right of any export sector. The cost of RCET as percentage of exports has been only 2.44 percent.

The average regional electricity tariff is 8 cents per kwh, while the average regional gas/RLNG tariff is $ 4.8 per MMBtu. In Pakistan, regionally competitive power tariffs are 9 cents per kwh and $ 6.5 per MMBtu for gas/RLNG. Over the last three years, availability of RCET has resulted in an increase in exports of 23 percent in FY21 and 36 percent this year.

“Cotton productivity in Pakistan has dropped to a historic low level which has resulted in demand and supply gap when the sector is operating at full capacity. High demand of cotton has pushed the cotton prices to a new record height. To bridge the Demand and supply gap, country needed to import the cotton from other countries. Since the increased exports are not the result of higher cotton prices, it is reasonable to assume that reduced yarn and cloth exports have resulted in the production of value-added products.”

On deeper analysis the issue boils down to; the unprecedent re-valuation of the rupee to 200 plus. Value added sector booked export orders on the presumption that the rupee would depreciate further and did not book the rupees in advance as they usually do. In contrast, last year when they had forward booked the currency, the rupee devalued and a lot of firms took a financial hit as they got less rupees to the dollar for the exports. The forward booking of order and exchange rate covers are normal business decisions and the consequence of lower or higher profits losses is a business decision that each section / player of the sector takes and cannot pass the consequences to others.

The Pakistan textile industry exports specialized cotton and synthetic blended yarn, fabrics, and finished fabrics to global brands and retailers, resulting in economies of scale that make Pakistani textile products competitive in international markets. On the other hand, duty free import of yarn and fabric means rendering the domestic cotton industry non-competitive as no one will be buying yarn produced in the country.

When it comes to concessionary finance for the textile sector, the greatest scheme utilized by the sector has been LTFF, and this scheme is not available to indirect exporters. Indirect exporters make up nearly 70 percent of the textile industry, so a scheme that only facilitates about 30 percent of the industry is hardly a major concession. The only benefit of LTFF to direct exporters who avail it is that of financing new machinery and attracting fresh investment - factors which are part and parcel of export packages bestowed on industry by all our regional competitors.

Concessionary finance is available in all countries. As a result of supportive concessionary finance schemes, China has taken the lead in new investment during the last ten years, with 50.6 percent of installed capacity in 2020, followed by India (19.7 percent), Vietnam (5.4 percent), Bangladesh (5 percent), Turkey (4.3 percent), Indonesia (4.1 percent), and Pakistan (3.3 percent). Despite the low percentage of new investment, Pakistan's share of global installed capacity climbed from 4.4 percent to 6.0 percent between 2010 and 2020 due to minimal depletion of old machinery.

There remains a severe shortage of working capital in the Pakistani market, as turnovers have increased and doubled in rupee terms in the last 3 years, while our regional competitors have much higher credit and longer repayment schedules.

More crucially, these export sector concessions are inextricably tied to the policy rates. The interest rate on the newest Monetary Policy climbed to 13.75 percent, while the rate on Export Finance Scheme (EFS) loans to exporters increased from 3 percent to 7.5 percent. The rate of the Long-Term Financing Facility (LTFF) loan to purchase machinery for export industries has been raised from 3 percent to 7 percent. As a result, it is demonstrated that these are not at extremely low rates, but rather are tied to policy rates. Actually, policymakers in our country are subsidizing consumption-based items while taxing sectors that might substantially contribute to export-led growth.

Among all the factors that make the textile sector of Pakistan regionally un-competitive, energy tariff is at the core. Since it makes up around 35-40 percent of conversion cost in textiles, therefore, to keep textile products competitive in the international market, availability of energy at regionally competitive tariff rates is inescapable.

Furthermore, land, water and steam cost share in total cost of production is very minimal, so considering and comparing their prices with regional countries is irrelevant. Most of the steam is produced with coal or fuel oil in Pakistan. Apart from power generation from gas, this steam is as expensive as in the rest of the World.

The baseless assertions regarding inefficient machinery are false, as the industry has invested millions of dollars in capacity and new machinery, and most spinners use state-of-the-art machinery across the value chain. It would be foolish to promote one segment of the value chain at the expense of another. The garment industry gets its raw materials from basic value chain industries.

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