Pakistan's textile sector, which was gearing up to receive greater export revenues only a few years ago, has begun losing the momentum. Unfortunately, 2024 was not a great year for this vital sector, which is called the backbone of the country's industrial economy.
Though in fiscal year 2023-24, textile exports showed a thin growth of 0.93%, the industry still earned handsome export revenues of $16.7 billion. Now, in the first five months of FY25, textile exports stood at $7.607 billion, higher by 10.51% than the corresponding period of last year.
However, in 11 months of calendar year 2024, textile exports came in at only $15.43 billion. Millers believe that the December figure may be around $1.5 billion, thereby ending the year below $17 billion.
"Initial months of this calendar year were not that bad for the textile industry, especially exports, as they were reflecting a positive trend," said Ijaz Khokhar, Patron-in-Chief of Pakistan Readymade Garments Manufacturers and Exporters Association.
Unfortunately, the trend began to reverse after the first few months. The main reason was political uncertainty, which has dragged on for over two years. "We have lost at least 40% of our export orders, as buyers are reluctant to trust Pakistani textile millers due to political issues and are diverting their orders to Vietnam," Khokhar said.
Others pointed out that Pakistan also failed to win orders diverted from Bangladesh due to the political upheaval. "Textile millers in Pakistan should fully capitalise on the opportunity, generated by the change of power in Bangladesh, however, our millers have not been able to cater to the demand due to price differences," said Waqas Hanif, a mid-sized textile miller based in Lahore.
A major part of demand was once again diverted to Vietnam as Pakistani millers lacked product diversification. "Vietnam is much more advanced in textile and other sectors. They have a huge variety of products and are quoting lower rates," Hanif pointed out.
Pakistan was once the preferred choice for international buyers due to its attractive prices. But the country always lags when it comes to product diversification.
Over the past decade, the government, textile millers and analysts along with foreign buyers have strongly advocated for product diversification. A few millers are working on it, but the industry at large is far away from making new products, required by the European Union and American buyers. The government's role in this regard is not encouraging either. Some economists warn that political tensions, coupled with some tough measures from the finance ministry and the Federal Board of Revenue (FBR), will crush the sector, which is still the largest source of export revenue.
"The local industry has not been expanding for years, so how one can expect product diversification or an increase in export revenue," Ahmad Aziz Subhani, a UAE-based economist, asked. Recently, the FBR has included the textile sector in the normal tax regime, as a result of which millers are bound to pay a 2% advance tax compared to 1% previously. Additionally, they now have to provide all their business details to the FBR.
Subhani said that after the increase in taxes, Pakistani textile companies were moving to Dubai. "So far, around 400 companies have opened their offices in Dubai and have registered with the Dubai Chamber of Commerce. This will now reflect in under-invoicing of export orders by many Pakistani millers, which will result in further contraction of export revenue," he added.
Many textile magnates point out that things are not going in the right direction for the sector. "We are facing a huge problem in the form of high energy costs, reflected in the contraction of mills and diversion of orders to Vietnam. We don't know exactly how many billions of dollars we have lost due to this issue," Ashraf Ali, a Faisalabad-based textile retailer, said. He added that a cotton crisis was brewing as nearly half of the spinning units had been shut down due to liquidity crunch and the delay in releasing sales tax refunds by the FBR.
"We should anticipate an increase in yarn prices in 2025 as well as a shortage of the product," Ali added. The industry is also waiting for Trump's second term to begin as many factors are dependent on policies the incoming US president will bring.
Many millers believe that restrictions, due to political instability or other issues, if imposed, will negatively affect Pakistan's textile industry. In addition, they noted that the ongoing war between Russia and Ukraine, and the Middle East conflict may further escalate tensions and impact the global economy.
In a nutshell, textile exports for the current fiscal year may shrink or remain nearly stagnant due to the numerous issues the industry is facing. The industry has nearly lost hope of achieving its $25 billion export target, as without a textile policy and involvement of real stakeholders in decision-making, achieving this target would be a distant dream, they said.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ