Whither to?: What is the textile sector looking forward to in the coming year?

Industry remains as lackadaisical as ever about value addition.

FAISALABAD:

Barring a few savvy, innovative players, the textile sector in Pakistan plans on spending 2013 in much the same way it has spent the past few decades: complaining about how the government does not grant them enough privileges and how their businesses are dying. The only upside for the industry is something they did nothing to create: the declining value of the rupee is likely to boost their earnings in 2013.

Speak to any textile manufacturer in Faisalabad, the hub of the industry in Pakistan, and one gets virtually the same talking points every time: the government does not provide us with gas to run our [grossly inefficient] captive power plants, it has taken away our tax breaks and is no longer paying the interest on our loans, etc. What seems strange is that all of these goodies were taken away from the industry about four years ago, and yet, rather than adapting to their absence, the textile industry insists that they be given back.

Mian Zahid Aslam, president of the textile-dominated Faisalabad Chamber of Commerce and Industry, said that he expects Pakistani exporters will have a tough time selling their wares on the international market in the coming year. He anticipates that his view will be vindicated by the volume of orders Pakistani companies receive at the Heimtextil trade fair in Germany: one of the largest textile trade shows in the world, and one which is seen as a barometer of European retailer interest for the remainder of the year. Zahid believes that many of Pakistan’s leading textile firms will come away from that fair – to be held later this week in Frankfurt – empty-handed.

Yet despite being one of the biggest textile fairs in the world, Heimtextil is a relatively Euro-centric trade show. Demand in the euro-zone is slowing down drastically as governments in the European Union fail to come up with a lasting solution to their currency crisis.

A more important market for Pakistani textiles appears to be the United States for finished garments, and China for raw cotton, cotton yarn and grey cloth.

Exports to the United States have continued to grow at a slow, steady pace, and in 2011 exceeded the levels last seen before the 2008 financial crisis. Meanwhile, demand from China for textile inputs appears to be insatiable. Faisalabad’s exporters, who have begun selling to Chinese garment manufacturers, report having trouble keeping pace with the demand from their clients. In 2013, these exporters expect China to continue its rapid growth as a leading market for Pakistan’s textile input exporters.

And textile exporters are likely to benefit in 2013 from the expected continuation of the devaluation of the rupee. The Faisalabad chamber estimates that the city alone accounts for about $4 billion out of Pakistan’s total exports of $25 billion last year. Whether or not that share for the city grows will depend in large part on how many of its exporters remain content with just exporting yarn and grey cloth and how many seek to create value-added products, or even their own brands of clothing.

Another key complaint by the textile sector has been the lack of credit in the market. Most of the domestic credit is soaked up by government borrowing, as Islamabad continues to display a lack of fiscal discipline in bridging the fiscal deficit. In 2013, as the government turns to the International Monetary Fund for assistance, there may be some breathing room created in the banking sector for domestic lending, which may spur growth in the textile sector.

The key variable, however, will remain energy. The energy crisis has lasted the entire term of the Pakistan Peoples Party-led administration. There is some hope among industrialists that a new government would have the mandate to make some tough decisions within its first year in office to fix the energy crisis, or at least put Pakistan on a path to towards energy sustainability.

It remains an open question, however, whether any of the political parties currently vying for power, have a solution in mind.

Published in The Express Tribune, January 7^th, 2013.

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