Money Matters

Tangled planning

December 4, 2017
By Mansoor Ahmad

While the vulnerable smaller textile mills are wondering how to survive the slump, the larger ones, especially those having composite units, have started weaving yarn into branded fabric for stitching up apparel for the local market to cover export losses, which, for some players, are nowhere near over and continue to pile up despite all the subsidies and concessions granted to this industry.

INDUSTRY


While the vulnerable smaller textile mills are wondering how to survive the slump, the larger ones, especially those having composite units, have started weaving yarn into branded fabric for stitching up apparel for the local market to cover export losses, which, for some players, are nowhere near over and continue to pile up despite all the subsidies and concessions granted to this industry.

Things are improving though as textile exports rose eight percent to $4.39 billion in the first four months of the current fiscal 2017/18. It was a result of value-added sector’s continued recovery in export earnings during the period. Pakistan Bureau of Statistics (PBS) data also showed that textile exports amounted to $4.075 billion in the July-October period of the past fiscal year.

Textiles are going through a positive transformation by increasing their share in the domestic market from 25 percent to around 40 percent in last four years. This way this industry, which usually used to collapse during the rough patches in the past, has reduced its dependence on exports by a measurable extent. Our industry still commands less share of the domestic market than China and India that dispose of over 60 percent of their produce in the domestic market. Chinese and Indian textiles are shielded from depression in export due to larger share in domestic market.

Another advantage enjoyed by Chinese and Indian textiles is that their fibre mix (cotton verses manmade fibers) is 75 and 45 percent manmade fiber and 25 to 55 percent cotton. In Pakistan, the ratio is 75 percent cotton and 25 percent manmade fiber. Globally the blend is 75 percent manmade and 25 percent cotton. In case of depression in global textile trade the first casualty is cotton that is traditionally expensive than manmade fiber.

Since Pakistani textile industry is predominantly cotton-based therefore its exports suffer more than the other two competing economies. In the same way Chinese textile exports suffer less than the Indians that have large share of cotton in their textiles than Chinese.

The textile brands in Pakistan were introduced about a decade back by small and medium sized players having no facility to produce fabric. They outsourced their brand production to the small and even large weavers after competitive bidding and then marketed the fabric at four to five times the price they paid to the producers.

The brands of popular designers thus started earning more than the weaving mills because the margins were very high on small turnover. The larger mills started realising that their sustained survival depends upon penetration in the domestic market through brands. Most of them came in a big way. However, the largest brand with the highest number of outlets is still the company that started small and has made a reputation that dwarfs the bigger brands. It now has manufacturing facilities of both fabric and garments.

According to latest figures, readymade garments exports surged 14.8 percent to $803.526 million. Export of made-up articles rose 8.81 percent to $222.183 million, while towel exports remained almost flat at $248.224 million in July-October.

The big composite units, however, are catching up fast and at least eight players now have countrywide presence with over 200 outlets each. This presence has ensured them a large share in the domestic market and their margins are also much higher than what they used to fetch from their dealers network in the past. The margins are good even after accounting for the expenses of all their outlets. These larger players are in comfortable position and are not seen in the protests lodged by the All Pakistan Textile Mills Association.

They pay the same electricity and gas tariffs but the higher cost is covered by the higher price of the brands. They are now in retail sales and their prices are fixed. Now, they don’t have to pay commissions to dealers, wholesalers, and retailers. The outlets have enabled them to introduce new non textile products as well. They have also opened branches in Middle East, Europe, and America, where there is a concentration of immigrants from Pakistan, India and Bangladesh. So in a way they are into branded exports as well.

The sales of one of the highly-sought-after ladies fabrics called lawn have exceeded Rs400 billion per year – most of it in the cloth form. It is equivalent to $4 billion worth of exports but at much higher profits. The hue and cry in the textile sector is coming from relatively smaller units that are unable to dispose of their yarn in domestic market because the larger mills or brand owners have edged out non branded products from the market. They cannot export as well because their cost is higher due to obsolete technology. Their survival is now linked to establishing composite units so that they could use their yarn and fabric for value-added products. For exports they will have to upgrade technology to increase efficiencies in speed, use of power to global level. Government subsidies if provided would not bail them out for long.

The writer is a staff member