Pakistan textile industry set for Rs200 billion makeover

Tailors stitch clothes at a market in Peshawar. After wake-up calls by foreign competition, Pakistan's fashion industry has evolved now.

Pakistan has decided to launch a new Rs200 billion package to shore up its falling exports, including textiles, after prolonged criticism by the industry, exporters and political parties.

Commerce Minister Khurrum Dastgir said: "In order to raise exports, the government will reduce the cost of doing business and make the export-oriented industries competitive with regional countries. The government will shortly unveil a Rs180 billion to Rs200 billion package. The package has been discussed with Prime Minister Nawaz Sharif who has given his go-ahead. The plan is currently being examined by the Ministry of Finance and the Federal Board of Revenue. The textile industry will get the largest share of the pie."

Explaining the purpose of the package, he said: "It aims at fast-tracking the introduction of new technology and infrastructural modernisation of textiles and other industries."

The government will provide special tax incentives to enhance value addition. The government is committed to the technological revival of the textiles sector and will help it compete with other regional competitors. The bigger and older competitors include India and China while the new ones are Bangladesh and Vietnam.

The minister unveiled these plans while appearing before a Senate standing committee on textile industry and exports. Committee chairman Mohsin Aziz said: "The committee is concerned with the decline in exports while the government is doing nothing to arrest the slide."

Roadblocks
The industry is burdened with taxes. "Hundreds of industrial units have been shut down because huge imports are coming in under bilateral foreign trade agreements and via smuggling," said Khalid Tawab, senior vice-president of the Federation of Pakistan Chambers of Commerce & Industry.

The Senate committee was in session to take action to "face the crisis and challenges being faced by the industry and its consequences, causing a rapid shutdown of textile units and other industry in Pakistan," said the Chamber.

Textile exports accounted for 60 per cent of overall exports, hit by foreign competition and weak global demand on the back of oil and commodity prices.

Dastgir told the committee: "Our exports are no longer competitive in foreign markets. Pakistan has become expensive while India has become highly competitive. It lagged Pakistan five years ago."

Pakistan exports went down from $25 billion in fy-13 to $19 billion in fy-16, said the State Bank of Pakistan, the central bank.

The new package includes that "in lieu of steps to reduce the cost of doing business, including gas, power tariff, sales tax and the Pakistan rupee exchange rate, the government will offer a duty draw back [DDB] facility to all export sectors."

The DDB is a facility which permits industry players to receive refund of taxes while buying inputs to produce goods which are exported.

Stagnant exports
Part of the reason for the government coming out with the revival package is that overall exports - including those of textiles - are stagnant at around $20 billion for the last four years, causing a severe balance of payments situation.

The All Pakistan Textile Mills Association (APTMA) has been agitating for help to produce and export more. The APTMA suspended its agitation in October 2015. It had also demanded a reduction in the Rs170 billion additional taxes imposed by the government.

The government had accepted three of APTMA's eight demands to help it grow production, introduce new technology, shift to high-quality and innovative products to meet modern consumer tastes in Pakistan and abroad. For years, the industry had continued producing and exporting coarse clothes which were reprocessed abroad and sold after value addition.

But, after wake-up calls by foreign competition, Pakistan's fashion industry has evolved now. It makes millions of dollars by selling to consumers in markets such as the UAE, Saudi Arabia, Middle East, France, the European Union and the US.

Finance Minister Ishaq Dar said: "The government has chosen to help the textile industry as it is the biggest labour employer and forex earner through exports."

But, most of the demands by the industry have still remained unfulfilled. These include uninterrupted power supply, end of prolonged power outages, cheaper working capital and long-term credit for import of high-tech machinery to produce high-quality textiles, household linen and other products.

Will the new package meet all these demands, spur more production and raise exports? Everyone, including Pakistan's foreign competitors, is watching.

- The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.