Shahid Sattar and Hira Tanveer

“The News International” March 14, 2018
In the contemporary world, the only constant is ‘change’. The world is transforming and consumer preferences are changing across a wide range, from food consumption to the standard of living, to travelling and then to clothing.
Simple textiles and clothing have evolved into fashion brands. Everyone has now jumped on the environmental bandwagon. Textile consumer preferences are shifting from cotton-based apparel to synthetic man-made apparel. In the world market, consumption of man-made or synthetic fibres against natural fibres has shifted to a ratio of 70:30, with synthetic fibres having the lions share – a decade ago it was 30:70.
Polyester is now the most dominant man-made fabric across the globe. Its demand surpassed the demand of cotton in 2002, and it has continued to grow ever since at a significantly faster rate than all other types of fabric. Man-made fibres are cheaper, environment-friendly and more durable; their quality does not deteriorate with washing. Technological advances in synthetic material have offered textiles that are softer, hang better and even have better moisture absorbency than cotton.
The demand for man-made fibres such as polyester staple, viscose and tencel is increasing as a substitute for cotton, amid changes in the global fashion trend. But the policy situation remains the opposite in Pakistan; its exports are still primarily cotton-based. Pakistan’s major export destination of textiles and apparel is the US and Europe. The US imports of synthetic apparel overtook cotton-based imports from 36 percent in 2006 to 54 percent in 2016. Pakistan’s share in the total textile and apparel imports of the US in 2016 declined to a mere three percent owing to its narrow export basket which basically comprises natural fibre. This means that if we do not keep up with the new world preferences, our international market share will continue to shrink.
One reason for reliance on cotton based products in Pakistan is that, apart from polyester, nothing is made in Pakistan. We virtually import all synthetic fibres including nylon, viscose etc. Further, when raw materials such as Polyester Staple Fibre (PSF) are imported for the local production of synthetic man-made fibre (MMF) yarn, providing raw material to our spinning industry and helping diversifying our textile exports, the import duty reaches up to 20 percent – 7 percent import duty and 2.9 to 11.5 percent anti-dumping duty.
However, when MMF yarn is imported directly it faces a lower import duty of five percent (under the South Asian Free Trade Agreement) to 10 percent, under chapter 55 for MMF yarns import, resulting in a dichotomy. Resultantly imported PSF (input to our spinning mills) becomes more expensive than international prices. The aforementioned anomaly in regulatory duties is making domestic MMF yarn production uncompetitive, even in their own domestic market. This led to a downfall of 36 percent of domestic MMF yarn production capacity in the last one year alone.
Amidst the ongoing crisis, foreign exchange spent on the import of MMF yarns from Indonesia, China, Thailand and India is around Rs12 to 16 billion. In Pakistan, the domestic production of polyester viscose blended yarns is approximately 165,000 tons per annum. More than 50,000
tons of PSF yarns are imported per annum. This is equivalent to the production of almost 15-20 domestic mills in the business of 100 percent polyester, polyester viscose blended, viscose or polyester yarns and other synthetic fibre-blended yarns spun out of a total of 45-50 mills. These mills provide employment to 100,000 people.
Importers of synthetic blended yarn not only put local industries out of competition but also fully exploit them to sell the product at a cheap rate equivalent to India. On the other side, the value-added export sector imports cheap MMF yarns under the Import Policy Order 2012-15 (SRO 193(1)/2013) which allows import of MMF yarns consisting of pure polyester, polyester viscose and others, with five percent import duty on yarn imported from India. The export sector uses this imported yarn, adds value to it and then exports the product claiming full duty drawbacks, which is patently unjust.
What is hurting the local synthetic fibre manufacturing industry most is the lack of a level playing field, with higher tariff barriers being imposed on the import of raw materials and a minimal duty on import of MMF yarns, leading to the widespread dumping of MMF yarn and fabrics in the country. By imposing 20 percent regulatory duty on $100 million imports of MMF yarn, jobs of 100,000 people employed in our spinning industry can be saved with using the additional revenue of around Rs2 billion in the Federal Board of Revenue’s kitty. The MMF industry, which is backed by sufficient raw materials and a huge global demand, can give a boost to the textiles. It is high time that the government and the industry realised this and captured a bigger share in the growing market for synthetic textiles.
Being high-technology products, man-made and synthetic textile products can attract additional Foreign Direct Investment (FDI) in Pakistan, since the world has moved away from cotton-based textiles. India, Vietnam and Bangladesh have gone way ahead of us in terms of growth. They could do so by following a uniform tax structure and attracting FDI through manmade synthetic textiles.
With the world population growing and requirement for food grains and land available for cultivation mounting, natural fibres will diminish with time. This will in turn lead to reduced supply of natural fibres like cotton; which will increase the price due to a shortage of supply. High price and shortage of supply will further propel people to use more man-made synthetic fibre-based apparel. In Pakistan, cotton cultivated area had reduced to 16.7 percent within a year (from 2015-16 to 2016-17)’ it was substituted by sugar cane and maize. Furthermore, a growing population will need more land to grow more food crops.
Synthetic fibres are here to stay and their demand will only increase over time. Synthetic fibres will find varied usages because of their property to be designed and verified as per a desired use. Pakistan is clearly missing the shift from cotton to man-made fibre apparel and needs to re-examine its position and flawed policies to become conversant in manufacturing MMF-based fabrics in order to maintain, if not improve its share in the world textile trade.
(https://www.thenews.com.pk/print/292023-disappearing-textiles)

Shahid Sattar and Hira Tanveer
“Dawn”
March 05, 2018
PAKISTAN’S exports touched their zenith at $25.05 billion in 2013, but have declined since then to $20bn during the last four years. All major exporting sectors of the country saw this decline, including textiles. The loss in textile exports has been attributed to lack of investment in upgrading technology and innovation in the textile industry.
Absence of investment in the sector has been a result of: non-accumulation of savings and investment owing to low profitability because of high costs of production, liquidity and cash flows being soaked up by the Federal Board of Revenue and the State Bank in delayed refunds/drawbacks, and continued overvaluation of the currency for five consecutive years making exports uncompetitive.
There is no denying the fact that our textile sector has become regionally uncompetitive, but this is not because of inefficiency of the industry but because of a non-conducive business environment.
To avoid going to the IMF again, we must improve export performance by tapping into the textile industry’s exportable surplus of almost $20bn, which can help reverse the trade account deficit.
It is the government’s role to provide a viable business environment by maintaining a competitive cost of doing business, promoting competition through an open economy which brings trade opportunities and protects domestic industries through tariff and non-tariff barriers where necessary.
Market forces should be allowed to work; any greater role of the government that interferes with market forces creates bureaucratic delays and inefficiencies.
According to the recent World Bank report, “Pakistan’s poor trade performance in recent years is an outcome of diminishing export competitiveness”. The reason for the loss of competitiveness is the increased cost of doing business.
According to the ease of doing business report, Pakistan stands at 147 out of 190 countries significantly lower than regional peers and competitors like India, Vietnam, Indonesia and Turkey.
A country with a regionally uncompetitive business environment cannot be expected to compete with regional players. Pakistani textiles were once a celebrated international brand, famous for their premium quality as well as affordability owing to the moderate cost of doing business and low prices. International organisations in 2006 rated Pakistan’s textile industry as one of the most technologically advanced industries.
Now, unfortunately, we cannot ensure high quality products because of the unavailability of quality raw material and other inputs. Cotton is the lifeline of the textile sector and its production has declined by 21 per cent in the last three to four years.
Furthermore, through irrational policies, import of quality cotton has been restricted while domestic crop production is also dismal; the quality of output will be compromised even with the most innovative machinery.
To provide a competitive price for exports, competitive cost structure is a prerequisite, attained only through correct currency valuation. We have an overvalued currency as well as a high cost of doing business. These instruments need to be stabilised in order to compete.
On the contrary, regional competitors like India, Vietnam, China, and Bangladesh are pursuing aggressive textile policies and buying market share in textiles through highly subsidised exports.
Amusingly, Pakistan is the world’s leading importer of used clothing with per capita per annum import of approximately $1, whereas import in India is only 9 cents per capita per annum.
Our imports of used clothing are 10 times that of India which has a similar poverty rate. This is because Pakistan is importing used clothing under the guise of new apparel. This is actually the rejected apparel and clothing from the US and EU, dumped in our market at unbelievably low rates that no one can compete with.
The government should act as a regulatory and complementary body in market economies, making policies that support the domestic industry. Once an enabling environment is created, market forces will compel competitive production, accurate pricing, and set the floor for achieving economies of scale.
Pakistan’s textile industry has an untapped exportable surplus of almost $20bn, which can help reverse the trade account deficit. Such a balance of payment situation is not a very comfortable position to be in.
In order to avert the possibility of going to the International Monetary Fund again, we must improve export performance through the aforementioned measures and then place our bet at winning against aggressive competitors.
(https://www.dawn.com/news/1393230/breaking-the-curse-in-textiles)