Business

Textile sector welcomes industrial package

Voices hope it will enhance forex reserves, revive sick industrial units

Imran Rana March 23, 2022

FAISALABAD:

Textile exporters have welcomed the industrial support package, announced by Prime Minister Imran Khan, and stated that it focused on industrialisation, foreign exchange inflows and revival of sick industrial units.

They added that the scheme sets pro-growth measures in place to steam up industrialisation, boost exports and place the country’s economy on path of sustainable growth.

Appreciating the government’s initiative on Tuesday, Pakistan Textile Exporters Association (PTEA) Chairman Sohail Pasha termed the industrial package right move and argued that it would trigger industrial revolution and boost economic productivity in the country.

“The protection of the stakes of the industrial sector and rapid economic progress is must to tackle the ongoing challenges,” he added. “This package will steer growth-led revenue generation for Pakistan, help it overcome revenue and current account deficit and revive the idle capacity.”

He stated that during the last decade, sizable textile capacity turned non-functional and the number of sick units rose on account of bad business conditions.

In absence of any mechanism for rehabilitation, the textile industry was unable to produce as per its installed capacity.

“Now with this package, the activation of idle capacities in the value-added textile sector has become possible which will significantly help in fetching additional $1.5 billion worth of foreign exchange and generate over 100,000 employment opportunities,” he said.

Appreciating the government’s assistance in boosting export growth, PTEA Vice Chairman Ameer Ahmad said that the leadership was serious about pushing exports as it came up with export facilitation policies including Export Facilitation Scheme and competitive energy prices in the key export industries.

Published in The Express Tribune, March 23^rd, 2022.

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COMMENTS (1)

samir sardana | 2 years ago | Reply Textile profitability in Pakistan is all a function of cotton prices and USD PKR excluding EOU SEZs who can import Cotton duty free and export hassle free .Importing cotton at merit duty for sale in Pakistan is not available and neither is import of cotton at merit duty for export of yarn fabric as the interest loss in obtaining the duty drawback will wipe out the budgeted profit on the export orders A bumper Cotton crop means ample raw material and controlled raw material prices.But the real benefit to the textile companies is due to throughput gains and maximum capacity utlisation - with attendant gains of manufacturing efficiency such as reduction in wastages and losses and optimisation gains of the production mix .This reduces the fixed and semi-variable cost per ton of yarn - and is the driver of profits. Market prices of yarn fabric are a Gold Fix except when the PKR appreciates and global yarn rates are weak when imports of yarn are viable .The Gold fix is that Yarn makers peg the prices just below the cost of imports consumed landed cost of imports Freight VAT Differential working capital cost .So to that extent the Yarn Fabric Rates in Pakistan are linked to Global Yarn PKR and US LIBOR Thererfore analysing the materials to sales ratio is meaningless.If PKR depreciates exporters will short the PKR-USD forwards over the export realisation tenor and ship out the Yarn - and that has no link to management efficiency - it is just an example of the management taking advantage of an opportunity offered to it by the Pakistan CAD and the US Fed.This will REDUCE the material to sales ratio although the production and management efficiency might be worse than in prior years. Even if there were no exports of Yarn or Fabric from Pakistan the domestic prices of yarn are Gold Fixed as Gold was in the past .It is only when there is yarn shortage in Pakistan that the local prices reflect the true interplay of demand-supply as import.is a viable and the only option. Therefore textile companies should disclose the Cost of Production COP of their Top 5 products by value - with the BOM Bill of Materials .The Delta of the BOM and COP impact of manufacturing and management efficiency.That will capture COPQ and Poor grades of Raw Materials Power shortages Product mix etc. Textile industries are required to keep detailed cost records subject to cost audits.These are also vetted by the Pakistan Government - for the purpose of export subsidies and drawbacks Which need SION - Standard Input Output Norms and the Actual Cost SHeets Textile management In Pakistan is not meant to punt on global yarn and cotton prices.Even if long staple cotton is to be imported from Egypt or there is a global Cotton crop disaster - no Pakistani company buys cotton futures on the CBOT.Thus the benefit of a crash in the PKR or a boom in yarn prices cannot accrue to the credit of the Pakistan Management s efficiency. It is only the Delta of BOM and COP or at the least the COP - which will be an ideal judge of management efficiency.Any profit earned beyond management efficiency SUPER PROFIT.A portion of SUPER PROFIT has to be paid to stockholders as dividend and management efficiency.is what managers are paid for. Company managers lie when the say that disclosure of COP and Delta BOM- COP will harm their competitive position.This is an aggegate number over a 12 months which is adjusted for opening and closing stocks which makes it an average of more than 12 months .The textile technology and power availability makes it easy to predict the lowest conversion cost subject to wage differences across nations .Within Pakistan there are no secrets in Textile costing. In any case the Pakistan govtt audits the detailed cost sheets and the COP is just an average across various grades of a product type - reflecting the cost base of more than 12 months.It is as much of a trade secret as the materials to sales ratio .dindooohindoo Domestic yarn prices are a Price fix by the yarn makers - who in any case share the costing data.So the plea that disclosures in quarterly filings with the KSE will imperil their competitiveness is specious puerile and juvenile.The same applies to the export markets.FOB yarn rates at Port Qasim or CIF Yarn as Dis ports - are linked to global yarn rates and freight - and have no relation to the Pakistan Yarn costing data.

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