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Half a Million Jobs Lost as Textile Crisis Hits Pakistan's Economy

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A neglected waiting area, empty reception and dim lights greet visitors at what used to be the biggest textile factory in the northern industrial area of Pakistan’s economic hub.

At its peak Al-Abid Silk Mills Ltd. employed 7,600 employees in Karachi, now only a handful can be seen in the near-abandoned garment workshop. It’s one of hundreds that have shut down over the past few years, contributing to Pakistan’s exports falling to their lowest in six years.

Exporters from South Asia’s second-largest economy, including textile manufacturers who account for more than half of all overseas shipments, say buyers have shifted to countries including Bangladesh and Vietnam as continual power outages impede their ability to meet order deadlines, while complaining that the government has provided scant support.


“The government has never planned how we need to go forward with the textile industry,” Naseem Sattar, the 80-year-old chief executive officer of Al-Abid, said as he smoked in his office in the derelict plant. “Such a factory is considered a national asset and we got no help.”

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Despite a pick up in economic growth after the government submitted to an International Monetary Fund program in 2013 to avert a balance of payment crisis, Pakistan’s exports have fallen as global demand slows and the nation tries to overcome an energy shortage. Overseas shipments for the year through June fell to $21 billion, the lowest level since 2010, according to Pakistan Bureau of Statistics.

“Internally you have constraints on energy and then manufacturing keeping exports down,” said Turab Hussain, head of the economics department at the Lahore University of Management Sciences. “If oil prices go up and exports don’t pick up there will be pressure on your balance of payments and currency.”

About 100 member factories have shut down and at least 500,000 people have lost jobs in the past two years, according to Saleem Saleh, acting secretary general of All Pakistan Textile Mills Association, the biggest contributor to the nation’s textile exports. About two-thirds of the members of the Pakistan Bedwear Exporters Association have stopped working in the past five years, according to its head Shabir Ahmed.


Most factories shutting down are small or mid-sized plants unable to bear the extra cost of prolonged power outages. Meanwhile, larger factories have invested in their own power, including diesel generators, to cope with the nation’s electricity deficit of about 3,000 megawatts.

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The IMF, which is set to conclude its three-year, $6.6 billion loan program with Pakistan at the end of this month, is pointing to a number of causes, including the local currency it says isovervalued by as much as 20 percent.

“The continued decline in exports is a cause for concern, to a good extent that’s due to a fall in international prices for cotton and other commodities,” Harald Finger, the IMF’s mission chief for Pakistan, said in a July interview. Domestically “there are security issues, there are continued power outages, even though they are declining now, that’s still a factor. There are issues around the business climate, and so on, and also one of these factors is also the real effective exchange rate.”
bout half of the Pakistan’s exports are shipped to six countries, while 40 percent of total textile exports are primary commodities, including cotton yarn sent to China, Minister of Commerce Khurram Dastgir Khan told lawmakers in Islamabad’s parliament on Sept. 5. Pakistan’s apparel exports grew less than half the pace of Bangladesh and Vietnam before the recent fall during 2005 to 2012, according to World Bank data.

For buyers, Pakistan’s competitors are also more alluring due to the country’s tarnished security image after years of insurgency, bombings and violence.

If you can get the same price in Vietnam or India or Bangladesh, I think it’s still the case that most purchasers will still choose the other countries because their purchasing managers dare to go there,” said Mattias Martinsson, the Stockholm-based chief investment officer at Tundra Founder AB, which holds about $160 million in Pakistani stocks. “They can go freely around and don’t have to be afraid” which isn’t their perception of Pakistan, he said.

Even so, the country’s security situation has improved with an army push against insurgents after more than 100 students were killed by the Pakistani Taliban at a military school in 2014 in the northern city of Peshawar. About 449 people died in terrorist-related violence last year, the lowest in 10 years, according to theSouth Asia Terrorism Portal.

The government recognizes the industry’s malaise and Prime Minister Nawaz Sharif on a visit to Karachi on Sept. 8 said boosting exports is a top priority and his administration will soon announce relief measures.

‘Cannot Ignore’
Sharif is also pegging his 2018 re-election prospects on ending the daily power blackouts, relying on a surge of Chinese investment and projects worth $46 billion that were announced last year.

“Economic growth and exports are interlinked,” Sharif said. “We cannot afford to ignore our exports.”

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A worker operates a sewing machine at a textile manufacturer in Karachi.
Photographer: Asim Hafeez/Bloomberg
Pakistan already announced in June a zero-rated sales tax regime for five export industries, including textiles. Borrowing has become more attractive with the discount rate at its lowest in more than four decades. Sharif this month asked the ministry of commerce to arrange a duty-free import of five million bales of cotton to plug a domestic shortage this year.

Despite these measures, State Bank of Pakistan Governor Ashraf Mahmood Wathra says the nation needs to diversify products and exports markets away from those on a declining trend. However, he expects improved electricity and gas supplies this year to stem some of the drop in exports.

‘Very Happy’
“When I speak to industrialists, I see them more comfortable than two-to-three years ago,” Wathra said. Textile exporters complain about tax refunds being delayed by the authorities, but otherwise “they are very happy with the interest rate and refinance rate,” he said.

Sattar, whose factory used to make $100 million annual revenue at its peak, doesn’t agree. He wants to get his plant running again, but is unable to repay loans taken to purchase the milling machines. Sattar is now being hounded by banks and the country’s anti-graft agency, he said.

“If you are drowning, they push you further down,” he said. “Textiles are going away from Pakistan.”
 
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This brings up an interesting question regarding CPEC: Given what is written above, is Pakistan in a position to take full advantage of CPEC? It seems the biggest hindrance to CPEC is the Pakistan government, its corruption, its incompetence, and its apathy.
 
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True that our Textile business is almost down to gutter . Even Mauritius has called our textile investors to go there and invest there .
The only game changer can be if China invest in Pakistani Textile cause our labor is far cheaper than china . China is thinking of shifting from Steal dumping which it has done to europe to other ventures and Textile is one Venture China has yet to take it seriously
 
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True that our Textile business is almost down to gutter . Even Mauritius has called our textile investors to go there and invest there .
The only game changer can be if China invest in Pakistani Textile cause our labor is far cheaper than china . China is thinking of shifting from Steal dumping which it has done to europe to other ventures and Textile is one Venture China has yet to take it seriously

Actually what is preventing your govt from giving at least subsidized DG sets and diesel for this main industry?

There is no need for China in there .
 
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10 years from now most garments factories will get automated. Raymond in India plans to cut 10k jobs and bring in automation in place of people. So China investing won't cut it at all. What will help will investments in research in to new fibres which can then be leveraged to get a lead from competitors. Setting up a fibre research centre would be very helpful.
 
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The IMF, which is set to conclude its three-year, $6.6 billion loan program with Pakistan at the end of this month, is pointing to a number of causes, including the local currency it says isovervalued by as much as 20 percent.

“The continued decline in exports is a cause for concern, to a good extent that’s due to a fall in international prices for cotton and other commodities,” Harald Finger, the IMF’s mission chief for Pakistan, said in a July interview. Domestically “there are security issues, there are continued power outages, even though they are declining now, that’s still a factor. There are issues around the business climate, and so on, and also one of these factors is also the real effective exchange rate.”

A correction in the exchange rate is already overdue, and must occur at some point. The longer it is delayed, the larger it will need to be, inevitably.
 
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Textile has always been behaving as a nascent industry in Pakistan. The industry has been flooded with traditional "Mian" owners and lack of business integration. About 60-80% of industry completely lacks any sort of forward or backward integration and hence not able to capture the value chain. Coupled with this, the entrepreneurial abilities at best are average. In addition, being low value add, the industry earnings are a function of related commodity prices, bringing in high volatility and thus non-attractive to strategic investors like Chinese.

“Let us be realistic in admitting that the market access is not the only issue that is impeding our textile exports; low value addition is a greater issue,” All Pakistan Textile Mills Association (Aptma) leader Gohar Ejaz said.
http://www.d2dlogistics.net/pakistan-exploit-textile-addition-potential/
https://www.thenews.com.pk/print/71755-entrepreneurs-dominate-textile-value-addition-sector
https://www.thenews.com.pk/print/28421-value-addition-in-textiles-can-earn-extra-15bn
http://ptj.com.pk/Web-2016/02-2016/PDF-February-2016/Editorial.pdf

Policymakers have also been very blindsided as well. There are other promising sectors, which if promoted with the same vigor as textile. could have delivered material results as opposed to continuous disappointment. For example, Pharmaceutical sector can potentially earn a lot of exchange if government help good local pharmaceutical companies (HINOON,SEARL,FEROZSONS,GETZ,AGP etc) to obtain FDA complaint products. India earns about 6 Billion $ from exports of FDA approved drugs. Pakistan doesn't even have a single FDA approved Pharma despite having a robust and thriving domestic pharma industry. IT and Offshore Call Centers have been fairly neglected. Pakistan could also easily capture hallal product market in ME,Europe and East Asia, the work has started tough but its little too late to make an impact.Its more Ironic that India and Thailand are bigger exporters of Halal meat and products than Pakistan.
Pakistan's exclusive focus on Textiles as export product has led to only more subsidies making their way to "Mians" than anything significant for the country.
 
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Textile has always been behaving as a nascent industry in Pakistan. The industry has been flooded with traditional "Mian" owners and lack of business integration. About 60-80% of industry completely lacks any sort of forward or backward integration and hence not able to capture the value chain. Coupled with this, the entrepreneurial abilities at best are average. In addition, being low value add, the industry earnings are a function of related commodity prices, bringing in high volatility and thus non-attractive to strategic investors like Chinese.


I agree. I said something similar earlier in this forum on another thread. In my opinion, Pakistan needs to ween itself off of the textile industry and diversify its exports. Especially to some that aren't so heavily tied to global commodity prices.

This brings up an interesting question regarding CPEC: Given what is written above, is Pakistan in a position to take full advantage of CPEC? It seems the biggest hindrance to CPEC is the Pakistan government, its corruption, its incompetence, and its apathy.


Exactly. However, while my faith in the Pakistani government remains limited, I have a lot faith in the Chinese government. They've faced many hurdles when it came to the development of their vast country, but succeeded anyway. They've proven their capabilities again and again. I'm sure that they will be able to do the same for Pakistan, despite the challenges. But Pakistan's government has to do its part.
 
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From what i read somewhere, India Bangladesh and Vietnam has been having it good in the textile Industry. Lack of any proper tech and machinery investment in Pak textile industry has lead to, these 3 countries replacing Pak exports...
 
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Modernisation and cheap resources can only make textile industry profitable Pakistan must work on these fields
 
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From what i read somewhere, India Bangladesh and Vietnam has been having it good in the textile Industry. Lack of any proper tech and machinery investment in Pak textile industry has lead to, these 3 countries replacing Pak exports...

Sad but true. Biggest hindrance to Pakistan's economy and potential is the Pakistan government. Nothing else.
 
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Sad but true. Biggest hindrance to Pakistan's economy and potential is the Pakistan government. Nothing else.

The same lot of people end up in private sector, govt. and military. SO if there is corruption and incompetence in one, there is corruption in all. Its the truth all over the world. Because people are being selected from the same basket. Pakistan's failure was a lack of focus on Primary and Secondary Education which should have been made priority in the early 50s and 60s, and higher Education focus on the 70s and 80s. This would have changed the future of any country. Look at Israel and China which focused heavily on Education in its early years..
 
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I am actually very surprised ..the textile Industry is actually booming in India , with regions like Coimbatore-Tiruppur and some parts of Gujarat making the most of it ....these cities have 20-25 percent nominal gdp growth per year ..

what is Pakistan doing wrong that India or say Bangladesh is doing right ?
 
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I am actually very surprised ..the textile Industry is actually booming in India , with regions like Coimbatore-Tiruppur and some parts of Gujarat making the most of it ....these cities have 20-25 percent nominal gdp growth per year ..

what is Pakistan doing wrong that India or say Bangladesh is doing right ?
Textile industry in TN was in doldrums due to powercuts. Export orders could not be completed and countries like bangladesh which have quota was crushing textile exports from India. Power supply might be stable now but texttile industry in India is not catching up with technology, its risky industry as for as future is concerned.
 
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