KARACHI: The economic activities in Pakistan are influenced considerably by the textile sector as evident in its direct contribution to domestic production, financial services and foreign exchange earnings.
According to annual report by State Bank of Pakistan (SBP), the sector has strong implications on socio-economic conditions of the country given its role in employment generation.
Although outlook for textile was fairly positive at the beginning of FY11, the sector had to face privation with intensified power outages and gas shortages. Moreover, devastating floods also affected textile production in H1-FY11. However, during the second half of the year, surge in global cotton prices provided earning opportunities in the form of unprecedented high export prices, which in turn induced production activities.
Consequently, the textile manufacturing witnessed a growth in 10.9 percent in H2-FY11 compared with a YoY decline by 6.5 percent in the first half. Cotton prices started rising sharply in October 2010 and touched a 150-year record level in February 2011 on the back of both supply and demand factors The crop loss in Pakistan and Australia, unfavourable weather in China, declining US inventories and export cap by India also surged prices.
On the demand side, China’s renewed commitment to build up cotton reserves, panic buying as well as speculative positions in futures contracts pushed the cotton prices up.
This rise in cotton prices lead to a broad based increase in textile products across the globe, which helped Pakistan earning record $13.8 billion of foreign exchange through textile exports.
The price impact was so strong earnings from textile exports grew by 44.7 percent in H2-FY11 despite the quantum export.
The bed-wear, towels and cotton yarn declined during this period. There were other textile products, including cotton fabrics, hosiery and silk and synthetic items that witnessed rise in both quantum and value terms driven mainly by relatively stable unit prices and competitiveness losses for Chinese products.
Despite a decline in cotton crop, spinning activities improved during FY11 on the back of fewer cotton exports, stronger cotton imports and healthy margins. Pakistan imported 188 thousand MT of cotton during H2-FY11 compared with 157 thousand MT in H1-FY11. Cotton yarn production increased by 7.6 percent YoY during H2-FY11 compared with 1.6 percent YoY during H1-FY11.
A large part of fabrics export growth in FY11 was temporary and is less likely to sustain in FY12. Export data suggests the increase in fabric export during H2-FY11 was mainly to Turkey.
However, fabrics demand by Turkey may not continue going forward after imposition of safeguard restrictions on textile inputs by Turkish government in July 2011.
The fabric export to Bangladesh may continue to support this sector in Pakistan.
In January 2011, European Union eased rules of origin for textile import from Bangladesh, according to revised rules garment manufacturers in Bangladesh can avail generalised system of preferences (GSP) benefits even if they use Pakistani fabrics as input. This caused an increase in fabrics export to Bangladesh in H2-FY11 onward. Although Pakistan’s exports of apparel (both knitwear and woven garments) increased sharply in FY11, it could not raise its share in the world markets.
The Pakistani manufacturers were struggling with energy shortages and law and order situation that could only uphold their existing market share Particularly, Pakistan lost its share in US market against India in bed-wear category as buyers switched to import higher-end products.
Around 12 percent of Pakistan’s total fabric exports are destined for Turkey.
Bangladesh is a recipient of least developed countries’ (LDC) preferential access to EU market under the GSP.
Accordingly, textile exports from Bangladesh duty free access to EU under Everything but Arms (EBA) scheme (duty free access is available to only LDCs). This makes textile products of Bangladesh more competitive compared with non-recipients of EBA (including Pakistan).
In towels category, Pakistan lost its share against low cost Bangladesh, India and China. It is therefore, safe to conclude textile sector in Pakistan is going to face stiffer competition from neighbouring economies and it would become difficult for it to survive if there is no modernisation in production process and new marketing strategies are not adopted.
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