Like it or not, in its 70 years history, textiles is the only globally competitive stand-alone industry that Pakistan has created. The definition of stand alone being that given a level playing field vis-a-vis its international competitors, the industry can hold its own both in terms of quality and pricing. However, owing to Islamabad’s limited understanding of the industry’s operational dynamics - both domestically and internationally – it is churning out rather myopic policies, which if not corrected will result in slowly but surely dismantling this all-important national industry. As the country’s textile exports rapidly lose ground – nearly15% decline year-on-year - the textile exporting community in Pakistan today stands quite confused on whether or not this government is even serious about safeguarding a sector that nationally accounts for nearly 12% of GDP, 40% of employment and 57% of exports.
Textile manufacturing by its sheer structure figures relatively low on capital deployment but is highly labor intensive, making it an ideal industry for developing economies with large populations. Little wonder that economies like India, China, Bangladesh, and of other Asian countries, consciously support or subsidise respective home textile manufacturing just to sometimes simply keep people employed. Thereby, in doing so, unleashing a great game of the sort to capture more and more global textile market share and where everything to displace the competition is considered kosher. We know of some such blatant official policies in selected Indian states who pick up a part of monthly industrial wage-bills to stave-off redundancies; unrealistic minimum-wage-level and window dressing on environmental compliance in Bangladesh; and of artificially low power bills and finance costs in China, to name only a few and all designed to beat the competition. But, in contrast what we instead see here in Pakistan is: a) an incoherent approach to counter this attack, b) a complete disconnect between ministries who in one way or the other tangibly affect our textile chain – a dedicated textile ministry is no more, and c) some embarrassingly simplistic turnaround solutions that are put forward from time to time by related ministers, albeit in isolation and not as a joint plan. And the official commentary, quite often, so far removed from reality that it tends to be a joke. Though with Pakistan’s rising unemployment and ballooning current account deficit (despite low international oil prices) one doubts if anyone really sees its lighter side!
Anyway, the comedy of errors can’t be ignored: The finance minister thinks that just by zero-rating the sector – which by the way is an exercise of removing a bad operational mechanism that should not have been legislated in the first place and not of facilitation – the country’s exports will suddenly grow by $10 billion, the commerce minister thinks that mere negotiations by his ministerial team can somehow nullify Brexit’s fall out on Pakistan’s exports, the power minister thinks that in cutting power to the industry by 10 hours/day during the month of Ramadan he is somehow performing some kind of a religious duty; and on the roles of industry, agriculture and environment ministries, the less said the better. These three provincial ministries somehow appear to be the victims of the maze created by the sheer act of poorly thought through devolution process, which is now manifesting itself in provincial leaders’ dangerous indulgence in populism at the expense of industry.
And the indulgence list is endless, starting from their: arbitrary announcements on minimum wage levels, unrealistic environment protection laws that in some cases even surpass the ones in Europe and the USA, absence of standards’ harmonisation between provinces leading to an erosion of possible advantages arising from economies of scale, and last but not least, overlapping of federal and provincial functions resulting in double taxation and excessive oversight that not only gets to be counterproductive but also stokes corruption.
Modern day business has become a science. Like the predatory birds, astute economic mangers have a nose that can smell a kill well in advance in order to optimise opportunity arising from competition’s demise. While we commit hara-kiri by overburdening our textile manufacturing with unrealistically high taxes; excessive governmental oversight; high input costs in labor, raw materials and especially in power; and by formulating policies that destroy the natural market equilibrium, our competition is keenly eyeing our fall and is already gearing up to grab what may be lost by us. For example, India last week approved a INR 60 billion special package for its textiles & apparel sector to create 10 million new jobs in 3 years, to attract new domestic and international investment of up to $11 billion, and to generate more than $30 billion in value added & garment exports with a clear aim to overtake Bangladesh and Vietnam in garment exports and to gobble up Pakistan’s meager global share of its different value added products. The measures approved include additional incentives for duty drawback scheme of garments, flexibility in labor laws to increase productivity, and tax and production advantages for job creation. Ironically, it is an open secret about the Indian economic strategic thinking, which believes that if Pakistan’s textile exports get dismantled, its entire economy gets dismantled!
Blame game aside, our textile industry today is a victim of our own follies and the solutions also lie with us. To start with the government will do well by recognising that the remedy lies in addressing the sector as a whole. Merely pleasing one part in the entire textile chain over others - the cotton farmers or the ginners or the spinners or the value added sector - will not achieve anything in the long run. The revival strategy needs to be holistic and all the requisite production stages have to prosper in tandem. No point imposing duties on importing cotton while failing to restrict cotton exports, since an artificial shoring up of cotton prices in the domestic market will either be short lived or will take down the entire national textile chain with it, including the farmer. Providing an opening to our competitors that allows them to cherry pick local raw materials and break our production chain will just be the last nail in the coffin. Also, a revival will entail that all relevant ministries play their due role in not only facilitating the industry but in also taking preventive action where necessary.
The Ministry of Water and Power has to ensure that our power rates to the industry are regionally competitive, that necessary sector al reforms are undertaken to allow direct power distribution options to the private sector, and to focus on small and medium sized textile firms which always are the real drivers of value added exports; The Ministry of Commerce has to have a re-think on how to minimise the effects of Brexit by seeking private sector’s expertise and by involving the actual stakeholders, and by reforming the trade development authority of Pakistan to enhance its capacity as a think tank cum a research body with an ability to guide the government in chalking out detailed export plans and trade strategies; The provincial industry and environment ministries have to do some serious soul searching to strike the right balance between national requirements of growth and green compliance; and lastly, the Ministry of Finance will do well by realising that crowding out the private sector and maintaining an artificially high value of the Rupee is causing the economy more harm than good.