FYP'14

ANALYSIS OF TEXTILE INDUSTRY OF PAKISTAN 2014

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MEHWISH NASEER (55063) Page 1

PAF- KARACHI INSTITUTE OF ECONOMICS AND

TECHNOLOGY

FINAL YEAR PROJECT

FINANCIAL ANALYSIS OF NISHAT TEXTILE MILLS

PAKISTAN LIMITED WITH OVERALL TEXTILE

INDUSTRY OF PAKISTAN

Supervisor

Mr. Jalal Ahmed Khan

April 2014

Submitted By

Mehwish Naseer

(55063)

The Degree Requirement For:

Bachelors of Sciences in Accounting and Finance

Department Of Management Sciences


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THESIS APPROVAL

Thesis title: FINANCIAL ANALYSIS OF NISHAT TEXTILE MILLS PAKISTAN LIMITED WITH OVERALL

TEXTILE INDUSTRY OF PAKISTAN

Submitted By Mehwish Naseer

Thesis Supervisor: Mr. Jalal Ahmed Khan

Academic year: 2010-2014

The board of studies at PAF-KIET has approved this Thesis, submitted in partial fulfillment

of the requirement for the Degree of Bachelors in Sciences of Accounting and Finance.

Approval

Jalal Ahmad Khan Adnan Anwar

(Supervisor and Program Manager) (Director Management

Science)


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LETTER OF TRANSMITTAL

Mr. JALAL AHMED KHAN

Instructor, Finance

PAF KIET

Respected Sir,

I have chosen to do a comparative study on Nishat Textile Mills Pakistan Limited with

Textile Industry. I have chosen this topic to study and analyze the financial reports and

performance which has been assessed through studying various Textile Industry trends and

Karachi Stock Exchange provided information.

During this research, I have analyzed five public listed companies at Karachi Stock Exchange

of Textile Industry and attempted to study their business cycle as well as their business trend.

All the companies chosen are considered as one of the giants of the Pakistan. During the

analysis, all the factors of industry growth are considered and a complete market analysis has

been made. Calculations and different methodologies are used to measure the performance of

textile sector while discussing those areas which has a potential.

I would like to thank you for giving me the opportunity to conduct my research and expand

my horizons. I appreciate the support you have given throughout my efforts. I have tried my

best to provide all the relevant information, and would be pleased to answer any of your

queries.

Regards,

Mehwish Naseer (55063)


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LETTER OF AUTHORIZATION

Dear Reader,

Mr. Jalal Ahmed Khan (Supervisor for Final Year Project), as the requirement of the Final

Year Project authorized this report submission on FINANCIAL ANALYSIS OF NISHAT

TEXTILE MILLS PAKISTAN LIMITED WITH OVERALL TEXTILE INDUSTRY

OF PAKISTAN

For preparing a detailed report on this topic, I thank all those who have provided me with

their valuable assistance so that I have taken the responsibility to complete the report in the

assigned time.

Regards,

Mehwish Naseer (55063)


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ACKNOWLEDGEMENT First Of All I Thankful To Almighty ALLAH Who Gives Me Power To

Complete The Project.

I Owe A Great Many Thanks To A Great Many People Who Helped And

Supported Me During The Work On Project. My Deepest Thanks To My

Supervisor Mr. Jalal Ahmed Khan, He Guided Me In Every Stage Of

Completing Project And Corrected Various Mistakes Of Mine With Attention

And Care. The Material Compiled And Presented In This Report Is A Result Of

Immense Hard Work And Its Subject To Information And Data Provided By

Nishat Textile Mills And Other Members Of The Textile Industry. I Am

Grateful To The Help And Support Extended To Me And I Acknowledge Their

Assistance With Deep Admiration.

I Would Also Thank To My Institution PAF-KIET And My Seniors Without

Whom This Project Would Have Been A Distant Reality. I Also Extend My

Heartfelt Thanks To My Family Specially My Father Hafiz Mohammad

Naseer And My Mother Raeesa Naseer Without Whom I Wasnt Able To

Do Anything, And My All Well Wishers.

Mehwish Naseer

(55063)


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METHODOLOGY

Nishat Mills Limited (standalone) analysis has been compared with Textile industry as a whole.

Five Companies (Gul Ahmed, Ibrahim Fibers, Kohinoor, Din Textile and Deewan) financial data has been gathered, analyzed and considered

as industry for Project purposes and analysis is been done as to compare

the base of company

Trend analysis (horizontal) for seven years has been done for the company and industry.

Comparative analysis (vertical) has been done to compare the company with industry financials.

Ratio analysis for various categories has been done in detail to analyze financial position and performance of the company and the industry.

Theoretical PESTEL, PORTER and SWOT have been undertaken to study the underlying factors affecting the financial performance of the

industry.

The Karachi Stock Market performance has been compared with that of the Textile industry. Risk factors have been analyzed to arrive at the Cost

of Equity of Nishat Mills ltd. and attractiveness of its shares for investors.


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PROJECT DIMENSIONS

COMPANY NAME: Nishat Textile Mills Pakistan Limited

SECTOR: Personal Goods (Textile)

STATUS: Operational

TYPE: Public Listed Company

PRODUCT: Weaving Processing Home Textile Garments Generation Facilities Nishat Linen

REGISTERED:

Karachi Stock Exchange Lahore Stock Exchange Islamabad Stock Exchange

REGISTERED OFFICE &

SHARES DEPARTMENT: Mr. Khalid Mahmood Chohan Company Secretary

Nishat House,

53 - A, Lawrence Road, Lahore.

Total Number of Listed Companies 180

Number of Competitors selected 05

Gul Ahmed

Ibrahim Fibers Limited

Kohinoor Textile Mills Limited

Din Textile Limited

Deewan Textile Mills Limited


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TABLE OF CONTENTS

EXECUTIVE SUMMARY ..................................................................................................................... 11

INVESTORS GUIDE ............................................................................................................................ 13

TEXTILE INDUSTRY ........................................................................................................................... 15

HISTORY OF TEXTILE .................................................................................................................................. 17

GLOBAL TEXTILE INDUSTRY OVERVIEW........................................................................................ 20

TEXTILE INDUSTRY OF PAKISTAN ............................................................................................. 24

OVERVIEW ...................................................................................................................................................... 25

INDUSTRY STRUCTURE IN PAKISTAN .............................................................................................. 26

GROWTH IN PAKISTAN TEXTILE INDUSTRY ................................................................................ 27

INVESTMENT IN TEXTILE SECTOR ..................................................................................................... 29

TEXTILE INDUSTRYS ECONOMIC CONTRIBUTION .................................................................. 30

MAJOR TEXTILE PRODUCERS AND CONSUMERS ....................................................................... 31

GROWTH TREND DURING LAST 5 YEARS ....................................................................................... 32

REASONS FOR DECLINE IN GROWTH ............................................................................................... 34

RECOMMENDATIONS ................................................................................................................................ 36

ROLE OF GOVERNMENT .......................................................................................................................... 38

GOOD NEWS FOR TEXTILE INDUSTRIES ......................................................................................... 39

TEXTILE VALUE CHAIN ............................................................................................................................. 40

EXPORT IN TEXTILE INDUSTRY ........................................................................................................... 41

CONTRIBUTION OF TEXTILE SECTOR: ............................................................................................. 42

PEST ANALYSIS .............................................................................................................................................. 44

PORTERS FIVE FORCES ANALYSIS ....................................................................................................... 49

SWOT ANALYSIS ........................................................................................................................................... 52

TEXTILE MANUFACTURING ..........................................................................................................59

AUTOMATION IN TEXTILE MANUFACTURING IN PAKISTAN ............................................. 59

WHY THE PAKISTAN TEXTILE INDUSTRY CANNOT DIE .................................................. 62

NISHAT MILLS LIMITED .................................................................................................................. 64

VALUES .............................................................................................................................................................. 65


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NISHAT AT A GLANCE ............................................................................................................................... 66

OVER THE YEARS ......................................................................................................................................... 66

VISION STATEMENT ................................................................................................................................... 67

MISSION STATEMENT ................................................................................................................................ 68

THE GROUPS................................................................................................................................................... 69

BUSINESS & PRODUCTS ............................................................................................................................ 71

SPINNING ...................................................................................................................................................... 71

WEAVING...................................................................................................................................................... 71

PROCESSING ................................................................................................................................................ 71

HOME TEXTILE ......................................................................................................................................... 72

GARMENTS.................................................................................................................................................. 72

GENERATION FACILITIES.................................................................................................................... 73

COMBINED HEAT AND POWER PLANT ............................................................................................ 73

NISHAT LINEN ........................................................................................................................................... 74

COMPANY INFORMATION ...................................................................................................................... 75

ORGANIZATIONAL CHART ..................................................................................................................... 77

CORPORATE VALUES & CODE OF CONDUCT ............................................................................... 78

CORPORATE SOCIAL RESPONSIBILITY ............................................................................................. 79

CREDIT RATING ............................................................................................................................................ 80

FUTURE PROSPECTS ................................................................................................................................... 81

STRATEGIC ANALYSIS ............................................................................................................................... 82

PEST ANALYSIS .......................................................................................................................................... 82

PORTER FORCES MODEL ..................................................................................................................... 84

CORE COMPETENCE .................................................................................................................................. 85

SWOT ANALYSIS ....................................................................................................................................... 86

FINANCIAL ANALYSIS ....................................................................................................................... 87

STAND ALONE FINANCIAL ANALYSIS ............................................................................................... 88

NISHAT MILLS LIMITED ............................................................................................................................ 88

FINANCIAL STATEMENTS ................................................................................................................... 89

HORIZONTAL AND VERTICAL ANALYSIS OF FINANCIAL STATEMENTS ................... 93

RATIO ANALYSIS .................................................................................................................................... 104


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EFFICIENCY RATIOS ............................................................................................................................. 104

LIQUIDITY RATIO ................................................................................................................................... 105

SOLVENCY RATIOS ................................................................................................................................ 105

PROFITABILITY RATIOS ...................................................................................................................... 105

CALCULATING COST OF EQUITY THROUGH DIVIDEND GROWTH MODEL ......... 120

CAPITAL ASSET PRICING MODEL FOR CALCULATING BETA .......................................... 121

INDUSTRIAL FINANCIAL ANALYSIS ......................................................................................... 122

COMBINED INDUSTRY BALANCE SHEET ................................................................................... 123

COMBINED INDUSTRY INCOME STATEMENT ........................................................................ 125

COMBINE INDUSTRY CASHFLOW .................................................................................................127

COMPARATIVE ANALYSIS RATIO ...................................................................................................... 128

BIBLIOGRAPHY ................................................................................................................................... 141


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EXECUTIVE SUMMARY

The textile sector is considered to be the backbone of Pakistans economy. Being the 4th largest producer of cotton, Pakistan has the 3rd largest spinning capacity in Asia after China

and India. The importance of textile sector can be gauged from its contribution of around

8.5% to the total GDP of the country.

There are 180 companies listed in the Karachi Stock Exchange of Personal Goods (textile) in

which Nishat Textile Mills Limited is the market leader of Industry of Pakistan. The project

is based on complete analysis of the Industry with overall seven years financial analysis of

Nishat Textile Mills Limited with its comparative analysis with Pakistan Textile Industry.

The report begins with global overview of textile industry in which it contains the brief

introduction of the global Textile Industry and the developments in Textile sector. It also

reveals the current challenges faced by the Global Textile Industry and their causes.

This report is essential reading for any serious investor, providing comprehensive financial

information on a company's performance, position and cash flows over the past 7 years data.

This information, extracted from reported financial statements, forms the building blocks for

any analysis undertaken by investment professionals. - Key Stats and Ratios including;

Valuation Ratios (e.g. Price/Earnings), Per Share Data (e.g. EPS), Profitability Ratios (e.g.

Gross Margin), Management Effectiveness (e.g. Return on Equity), Financial Strength (e.g.

Quick Ratio) and Dividend Information (e.g. Dividend Yield). - 7 years of history are

available for most ratios. - Profit & Loss Account (7 years) - Balance sheet (7 years) - Cash

Flow Statement (7 years) - Educational content- Definitions of ratios and guidance on using

the data - Graphical analysis.

The report also gives the overview and performance of Pakistans Textile Industry and

business conditions prevailing in this sector, Also the financial overview of the Textile

Industry of Pakistan throughout the seven years of performance of industry.

Various segment of the Textile Industry of Pakistan, their imports and exports as well as their

utilization of the raw material and top exporter of textile products and top consumers of

textile product are also discussed in this project report. PESTEL, Porter Five forces and

SWOT analysis of Textile Industry has also been done in this report.

During prior years, variation has been witnessed in the sectors performance on account of

volatility in cotton prices. Being an export oriented industry; the sector is also dependent

upon the demand pattern of textile products by major importing economies. Competition in

the international market remains severe for Pakistan with Bangladesh, China and India being

the major competitors within the region. Growth in exports of these countries superseded that


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of Pakistan. Pakistans underperformance is largely a function of domestic problems faced by

the country. These include energy crises, weak law & order situation and inflationary trends

in the economy

Historically, Pakistans textile industry and clothing sector has always been a major

contributor to the foreign exchange earner and still contributes about 55% to the total export

proceeds.

Our study reveals Nishat textile performance to be outstanding in the years under review

2007 to 2013.howevr year 2012 was the full of challenges due unstability situation in the

country which directly reflected the economy of Pakistan. But the whole scenario has been

diverted towards growth in the year 2013 which can be observed further in report. In a nut

shell I will categorize NML as the growing company in the textile sector.


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INVESTORS GUIDE The Nishat textile mill is a market leader of textile industry of Pakistan. After analysis through

various financial aspects, Nishat textile is representing the most suitable company for all those

investors who are interest to invest their amount in this textile sector. NML has current market share

price of 116.06 PKR with an increase of Rs. 0.58% on 2nd

May 2014. The following table shows the

investors worthiness for Nishat Textile Mills.

PARTICULARS

2007 2008 2009 2010 2011 2012

2013

EARNING PER SHARE Rs. 7.58 36.86 6.23 10.50 13.78 10.04 16.63

PRICE EARNING RATIO Times 17.21 5.67 4.74 3.65 4.11 6.07 2.33

DIVIDEND PAYOUT

RATIO % 32.98 24.05 34.86 23.95 23.81 32.10 6.78

DIVIDEND YEILD % 1.92 2.91 5.29 5.80 6.56 7.36 4.25

DIVIDEND Rs. 2.50 2.50 2.00 2.50 3.30 3.50 4.00

BETA 0.37

2007 2008 2009 2010 2011 2012 2013

EARNING PER SHARE 7.58 36.86 6.23 10.50 13.78 10.04 16.63

DIVIDEND 2.50 2.50 2.00 2.50 3.30 3.50 4.00

0

5

10

15

20

25

30

35

40

Rs.


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Nishat textile does not have any risk of solvency because the Company is equity financed.

Nishat has maintained a strong financial position in the Textile Industry of Pakistan and they have well stable business, investors can invest in their business without any fear. It can be analyze by

the above graph that in 2013 company earning price share and dividend have been increased and

expected to be more stable for upcoming years. The overall analysis of NMLs reflect well established market position as a leading export oriented composite unit in the countys textile sector. The wide array of the companys product portfolio, extensive market outreach, and growing customer base are key growth drivers. The entity continues to maintain low leveraged capital structure, in turn, strong

coverages, and engendering sound risk absorption capacity. The financial profile of the company takes comfort from consistently growing dividend stream emanating from a sizable and prudently

diversified portfolio of strategic investments. Meanwhile, NMLs association with Nishat Group as its flagship company remains a key rating factor. Nishat textile is a favorable business for investors

and the Company is working hard for improving their strategies to satisfy their investors. It is

advisable to invest in Nishat Shares.


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TEXTILE INDUSTRY


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TEXTILE INDUSTRY The textile industry is primarily concerned with the production of yarn, and cloth and the subsequent design or

manufacture of clothing and their distribution. The raw material may be natural or synthetic using

products of the chemical industry. The word textile may be simply defined in two ways: as a woven or

knit cloth and as fiber (collective term for filaments). Filament is a very fine thread or threadlike

structure. White yarn is thread made by twisting fibers used in making cloth. Textile is any product

manufactured from fibers through twisting, interlacing, bonding, looping and any other means, in such

a manner that the flexibility, strength and other characteristic properties of individual fibers are not

suppressed.

Textile manufacturing is a major industry. It is based in the conversion of three types of fiber

into yarn, then fabric, then textiles. These are then fabricated into clothes or other artifacts. Cotton remains

the most important natural fiber, so is treated in depth. There are many variable processes available at

the spinning and fabric-forming stages coupled with the complexities of the finishing and coloration

processes to the production of wide ranges of products. There remains a large industry that uses hand

techniques to achieve the same results.

Fibers are the smallest units from which fabrics are made, by on process or another. Some fibers are

short, other is very long, some are kinky, others are straight and smooth, some are scaly and some are

twisted.

Varieties of Textile Fibers (according to nature of source)

1. Natural- found in nature in fibrous form.

Example:

Vegetable fiber, animal fiber and mineral fiber

2. Man-made-

Transformed by man from non-fibrous sources

Example: natural polymer and synthetic fibers

3. Manufactured made from cellulose or protein

Example: viscose rayon, acetate, olefins the difference between manufactured and synthetic fibers is that the manufactured fibers are derived from naturally-occurring cellulose or protein, while

synthetic fibers are not. And manufactured fibers are unlike natural fibers because they require

extensive processing (or at least more than is required by natural fibers) to become the finished

product.

The category of manufactured fibers is often called regenerated cellulose fibers.

Cellulose is a carbohydrate and the chief component in the walls of plants.


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HISTORY OF TEXTILE

No one knows when exactly the spinning and weaving of textile began. It has been said that

people knew how to weave even 27000 years ago. This was even before humans were able to

domesticate animals. The oldest actual fragment of cloth found was in southern Turkey.

People used fibers found in nature and hand processes to make fibers into cloth. Even

though high technology was not available, skilled weavers created a wide variety

of fabrics. Dyeing of fabrics was done to satisfy the universal human need for

beauty. Within time, more complex social and political organization of people evolved. With the

growth of cities and nations, improvements in technology came into place and there was a substantial

development in the international trade, both of which involved textiles. Chinese textile was considered

to be the most significant in international trade. Historians have claimed that silk from China has

reached ancient Greece and Rome along a trade route called the Silk Road in the latter part of the

second century B.C. and Egypt in 1000B.C. The Romans also imported cotton from nearby Egypt and

from India. Archaeologists have found facilities for dyeing and finishing cotton fabrics in settlements

throughout the Roman world. During the middle ages, the production and trading of the plant

called woad,

An important source of dye was a highly developed industry. During the fifteenth century, Trade Fairs

in southern France provided a place for the active exchange of wools from England and silks from the

Middle East. The economic activities surrounding these events gave rise to the first international

banking arrangements. Even the discovery of America was a result of the desire of

Europeans to find a faster route not only to the spices but also to the textiles of the Orient.

Textile trade quickly took root in America, as colonists sold native dyes such as indigo and

cochineal to Europe and bought cottons from India. Although advances were being made in the

technology of textile production, the manufacture of cloth in Western Europe in 1700 was still

essentially a hand process. Yarns were spun on a spinning wheel and fabrics were woven by hand-

operated looms. A major reorganization of manufacturing of a variety of goods occurred during the

latter h a l f o f t h e 1 7 0 0 s i n W e s t e r n E u r o p e . T h e s e c h a n g e s , k n o w n a s t h e

I n d u s t r i a l Revolution, altered not only technology, but also social, economic, and cultural life.

The p roduct ion o f t ex t i l e s was t he f i r s t a r ea t o unde rgo indus t r i a l i za t i on

dur ing t he seventeenth and eighteenth centuries as the result of an economic crisis. Good

quality textile products, produced inexpensively in India and the Far East, were

gradually replacing European goods in the international market. In Britain, it became

imperative that some means be found to increase domestic production, to lower costs, and to improve

the quality of textiles. The solution was found in the substitution of machine or nonhuman power for

hand processes and human power. Many important inventions, most importantly spinning

machines, automatic looms, and the cotton gin, improved the output and quality of fabrics. These

inventions provided the technological base for the industrialization of the textile

industry. Each invention improved one step of the process. For example, an improvement that

increased the speed of spinning meant that looms were needed that consumed yarn more rapidly.

More rapid yarn production required greater quantities of fiber. The growth of the textile industry was

further hastened by the use of machines that were driven first by waterpower, then by steam,

and finally by electricity. The textile industry was fully mechanized by the early part of the

nineteenth century. The next major developments in the field were to take place in the

chemists laboratory. Experimentation with the synthesis of dyestuffs in the laboratory rather than


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from natural plant materials led to the development and use of synthetic dyes in the latter half

of the nineteenth century. Other experiments proved that certain natural materials could be

dissolved in chemical solvents and re -formed into fibrous form. By 1910, the first plant for

manufacturing rayon had been established in the United States.

20th Century

Major changes came to the textile industry during the 20th century, with continuing technological

innovations in machinery, synthetic fiber, logistics, and globalization of the business. The business

model that had dominated the industry for centuries was to change radically. Cotton and wool

producers were not the only source for fibers, as chemical companies created new synthetic fibers that

had superior qualities for many uses, such as rayon, invented in 1910, and DuPont's nylon, invented in

1935 as in inexpensive silk substitute, and used for products ranging from women's stockings to tooth

brushes and military parachutes.

The variety of synthetic fibers used in manufacturing fiber grew steadily throughout the 20th century.

In the 1920s, acetate was invented; in the 1940s, acetate, modacrylic, metal fibers, and saran were

developed; acrylic, polyester, and spandex were introduced in the 1950s. Polyester became hugely

popular in the apparel market, and by the late 1970s, more polyester was sold in the United States

than cotton.

By the early 20th century, the industry in the developed world often involved immigrants in "sweat

shops", which were usually legal but were sometimes illegally operated. They employed people in

crowded conditions, working manual sewing machines, and being paid less than a living wage. This

trend worsened due to attempts to protect existing industries which were being challenged by

developing countries in South East Asia, the Indian subcontinent and Central America. Although

globalization saw the manufacturing largely outsourced to overseas labour markets, there has been a

trend for the areas historically associated with the trade to shift focus to the more white collar

associated industries of fashion design, fashion modeling and retail. Areas historically involved

heavily in the "rag trade" include London and Milan in Europe, and the SoHo district in New York

City.

By the late 1980s, the apparel segment was no longer the largest market for fiber products, with

industrial and home furnishings together representing a larger proportion of the fiber market. Industry

integration and global manufacturing led to many small firms closing for good during the 1970s and

1980s in the United States; during those decades, 95 percent of the looms in North Carolina, South

Carolina and Georgia shut down, and Alabama and Virginia also saw many factories close.

21st Century

In 2002, textiles and apparel manufacturing accounted for $400 billion in global exports, representing

6% of world trade and 8% of world trade in manufactured goods. In the early years of the 21st

century, the largest importing and exporting countries were developed countries, including the


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European Union, the United States, Canada and Japan. The countries with the largest share of their

exports being textiles and apparel were as follows (2002):

Bangladesh: 85.9%

Macau: 84.4%

Cambodia: 72.5%

Pakistan: 72.1%

El Salvador: 60.2%

Mauritius: 56.6%

Sri Lanka: 54.3%

Dominican Republic: 50.9%

Nepal: 48.7%

Tunisia: 42.4%


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GLOBAL TEXTILE INDUSTRY OVERVIEW

After the exclusion of global quota scheme, the textile industry is flourishing at high speed. The world

is on a new corridor of industrial revolution. Analysts are anticipating more expansion with latest

technologies in Textile Machineries. The textile machinery manufacturing hubs like China, Germany,

Italy, Switzerland and India have already jumped in gigantic competition to craft and bid best

technologies in textile machineries. Global Industry Analysts, Inc. (GIA) has declared that the global

bazaar for textile machinery is estimated to reach US$22.9 billion by 2017.Demand for sophisticated

machines that produce high quality cloth is increasing. Whatever is the technology, the purchasing

decision is greatly influenced by the machines versatility, flexibility, and price offers. Key factors for

dynamic growth in the textile machinery market contain economic revival post recession, rising

demand for nonwoven disposable textile products, increasing demand from promising regions,

especially Asia-Pacific, and going up demand for environmentally-friendly fibers. This article

analyzes some of the world leading textile machinery manufacturing countries.

China Is Going High-Tech in both Textile Machinery and Product

The Chinese textile manufacturers are developing some of the best answers in technical aspects of

textile industry, along with very competitive prices. With the rapid expansion of textile industry,

China s textile machinery industry also enjoys an occasion for development, and become the world s

largest textile machinery manufacturer. China started industrialized machine virtually 80 years ago.

At present, China-made textile machinery and equipment account for 80 percent of domestic textile

machinery market. But, the industry is facing 50 percent less of sales share, and only 15 percent of

gross margin, so loss coverage is high.

China is still the biggest machinery manufacturer in the global textile arena. Many countries in Asia

are facing adjustment of product structure, so demand of high-end and complete sets of textile

machinery are in demand. Chinese industry has obvious advantages compared with textile trade

powers of India, Pakistan, Bangladesh, and Turkey, particularly in cotton spinning equipment,

complete sets of polyester equipment and dyeing-printing equipment due to price.

As China is clearly emphasizing on high tech and high value added products, textile machinery would

be a key area for the country to focus this year and onward. Ministry of Industry and Information

Technology of China specifies that the percentage of high-tech products in sales should increase from

original 40 percent to 60 percent and the proportion of research and development fund of high-tech

products in total corporate sales should increase from original 2 percent to 5 percent each year.

China is not only exporter of textile machinery but also a potential importer of textile machinery. The

potential import markets for textile machineries were Chinese provinces like Jiangsu, Zhejiang and

Guangdong, which accounted for roughly 71% of the China s overall textile machinery imports. The

last year machinery manufacturers experienced orders pouring in and the market witnessed attention

of the world on Chinese machinery. Many leading machinery manufacturers around the world chose

China for expanding their production base and established their manufacturing unit in China.

Rapid industrialization and subsequent economic development in China over the last decade has

contributed to a significant rise in Asian textile production. China Government initiatives such as

China s 12th Five-Year Plan (2011-2015) which prioritizes technological advancement and

improvement in craftsmanship and equipment on par with the international levels for textile and other

industry sectors is expected to turn momentous growth in the Asian market.


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China is clearly focusing more on technical textiles and use of high tech automation in textile

manufacturing, hence machineries for those industries will move towards China. Recently Shanghai

has become one of the most fashion conscious cities in Asia. As China is producing fabric and

apparels and look for value addition, they are moving for fast fashion products hence investments

would take place for those production lines.

India Looks Forward To Improve In Technology

Indian textile machinery industry is more than 50 years old and the industry is increasing day by day.

About 750 machinery and equipment manufacturing units are in India, of which over 250 units

produce complete machines, and the rest produce parts and accessories. Textile machinery

manufacturing sector at present is meeting 45-50 per cent of the overall demand of the domestic

textile industry, whose main constituent is ginning, spinning, weaving and processing. The country is

very good in manufacturing accessories, machine mountings & consumable parts but still the sector

needs further development producing weaving machinery (shuttle less looms) and some high- tech

processing machinery.

Indias machinery exporters, though, have been employing various strategies to make sure that they remain competitive in the liberalized trading environment of 2013 and beyond. Many manufacturers

are taking action for improving production efficiency through advanced automatic system, re-

engineering of manufacturing systems, merging separate production units and Scheme for

modernization, technology up gradation and productivity advancement in anticipation of enhanced

demand in 2013 and beyond among other manufacturer are seeking changes through Encouragement

to the old used technology even for modernization under the subsidy scheme, encouragement to the

decentralized power loom sector to expand its capacity with obsolete technology and some of are

planning to raise added value by setting up joint ventures with foreign firms, to take benefit of their

technical, design and marketing proficiency. Others are making relationships with foreign importers

to increase their marketing capability.

As a textile product manufacturer, India faced some export decay during global economic slump

during 2009-10, but then they recovered and remained slightly above the target during 2010-11. In the

2011-12 fiscal years the country has fulfilled the target of export of textiles and garments to around

USD 28-30 billion. The US and EU, account for about two third of India s textiles exports. The other

major export destinations are Canada, UAE, Japan, Saudi Arabia, Republic of Korea, Bangladesh and

Turkey.

India is not only exporter of textile machinery but also importer of the textile machinery. Textile

machinery import has risen from US$ 0.92billion during 2010-2011 to US$1.38billion (estimated)

during 2011-2012. Exports during 2011-2012 were estimated at US$ 147 million as against US$ 168

million achieved during 2010-2011.The gloomy global market is responsible for lower exports.

Italian Textile Machinery Industry Grows Strongly

Italian textile machinery industrial sector is one of the foremost machinery manufacturers comprising

around 300 companies (employing roughly 12,400 people) and producing machinery for an overall

value of US$ 3.41 billion per year, with exports amounting to 80% of total sales. The quality of Italian

textile technology is evidenced by the high number of countries in which Italian machinery is sold:

around 130 countries worldwide.


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Exports were always the driving force behind the sector s growth in Italy. The enthusiasm of major

textile markets, combined with the capability of Italian machinery manufacturers to assert them on a

global scale, contributed to sustained growth in exports. Almost 25 per cent of the sector s sales

abroad are directed to China, with Asian markets generally accounting for 50 per cent of all foreign

sales.

During the fourth quarter of 2012, the orders index for textile machinery rose by 22 per cent

compared to the previous quarter. Even more significant was the increase with respect to the same

period of the previous year (+46 per cent).

Overall orders also benefitted from a positive trend on the domestic market, for which a 47 per cent

increase was actually recorded compared to the three previous months. Growth on foreign markets

was slightly more contained at +20 per cent. Whereas the value of Italian textile machinery

production for 2011 registered a 9 per cent increase compared to 2010, from US$ 3.072 to US$ 3.328

billion. A similar increase was recorded for exports (+10 per cent), valued at just over US$ 2.688

billion.

In contrast, Demand has remained especially weak from the domestic market. In Italy, as throughout

the European Union in general, current economic uncertainty is hindering a recovery in investments,

even in the textile industry. In spite of the growth experienced in 2012, Italian machinery

manufacturers remain extremely cautious for the current year.

Spain Tries To Increase Its Capacity in Textile Machine Manufacturing

Spanish textile machinery industry has thrived with the arrangement of small and medium sized

companies with the strength of less than 50 employees. These companies are still looking very hard

competition with the world leaders to attain the international standards of price, design, quality and

service. Weaving machine spare parts, knitting, sewing, accessories and spinning are the different

categories integrated under the textile machinery sector of Spain. About 80 machinery companies gain

fiscal credit value 260 million Euros in the Spain.

The exports in the countries like Latin America, North America and Middle East is also noteworthy.

New destinations like USA, Mexico, France, Turkey and India have new developing markets which

are the motives for the go up in the demand of evolution.

Dyeing and finishing sector consists of 35 companies and is the leading sector of country. The other

sector which follows it is a spinning machinery section with 25 companies. Both sub sectors has an

eventual for new innovations in the machinery. The export of machinery in Spain is of 70% of its total

production.

Germany Provides Reliable Technology in Machine Manufacturing

Germany has jumped out as crucial manufacturer of textile machinery and has secured its place by the

5th rank worldwide in machinery export. The key strengths of German machinery manufacturers

become obvious if one considers the entire life cycle of a machine. During the entire lifetime of a

machine, the investment costs represent only about 10 to 50 per cent of the overall costs.


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After two excellent years, the business climate in the global textile industry became more moderate in

2012. It was also reflected in the order intake of the German textile machinery industry that was

below the figures of 2011, but still on a satisfying level. German textile machinery exports reached

1.82 billion Euros in the first half of 2012 (minus 2.7 per cent year-on-year). Based upon weak fiscal

conditions within the most important markets, the industry had to go through a difficult year.

Asia is the biggest market as it absorbed 40% of the German textile machinery exports. India is the

single largest client in Asia in the last year. Between January and July 2012, German textile

machinery worth 111 million Euros was shipped to India. The second popular for German textile

machine is USA. The 10 largest export markets for German textile machines and accessories are

India, China (including Hong Kong), Turkey, US, Italy, Czech Republic, Brazil, Saudi Arabia and

Pakistan.


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TEXTILE INDUSTRY OF PAKISTAN


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OVERVIEW

Textiles is the most important manufacturing sector of Pakistan and has the longest production chain,

with inherent potential for value addition at each stage of processing, from cotton to ginning,

spinning, fabric, processing, made-ups and garments. The sector contributes nearly one-fourth of

industrial value-added, provides employment to about 40% of industrial labor force, consumers more

than 40% of banking credit to manufacturing sector and accounts for 8% of GDP. Barring seasonal

and cyclical fluctuations, textile products have maintained an average share of about 60% in national

exports. However, despite being the 4th largest producer and 3rd largest consumer of cotton globally,

Pakistans comparative advantage is largely pre-empted by low value added exports as reflected in countrys 12th rank in world textiles exports.

There is a strong causal link between industry structure and investment trends which impacts exports.

The growth of the textiles sector was marred by lopsided structural development. Whereas the

spinning capacity increased over the years, the highest value added sector failed to attract adequate

investment. Also, the degree of fragmentation of the sector downstream of spinning has risen

significantly. For instance, nearly 90% of cloth production is in the non-mill sector where bulk of the

production capacity is concentrated in inefficient small power loom units. The overall technological

configuration of the industry needs major up-gradation as it comprises, mostly, machinery that is

obsolete or has outlived its economic life. Balancing of machinery configuration and capacities across

different sub-sectors is also missing.

The industry has also suffered for lack of adequate infrastructure facilities needed for its smooth

operations. Apart from absence of exclusive areas dedicated to textiles production, some of the key

services, such as power, gas and clean water are not available with reliable supplies. Skilled

manpower is also significantly deficient with the result that the sector is suffering from low

productivity. Equally importantly, numerous regulations applicable to industry in general also add to

higher cost of doing business and retard entrepreneurial spirit of investors. Major efforts will have to

be undertaken to alleviate the non-economic irritants that impose significant economic costs, which

ultimate hurt countrys competitive position.

The growth of the sector was also affected by certain historical external factors which shaped the

pattern of developments in the textiles sector. One such factor was quantitative restrictions introduced by the major importing countries. The quota regimes effectively restricted the growth potential based on comparative advantage of home grown cotton, an abundant supply of labor and

cheaper cost of production. Quotas encouraged export of raw materials and semi-manufactured

products limiting access for high end products, including garments. However, adequate preparations

for effectively facing the competition after the abolishment of quota regime and requisite investments

for this purpose were not made. Consequently, the overall textiles exports of the country, expected to

rise in a quota free regime, actually started to stagnate.

On the other hand, the quota-free environment has brought challenges of its own. A number of

competing countries have been granted unilateral concessions besides preferential trade agreements

by the countries of leading export markets. Reliance on traditional markets and products, therefore,

has made exports vulnerable to increasing competition and preferential regimes, which has been

accentuated through direct interventions by governments of textiles exporting countries.


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INDUSTRY STRUCTURE IN PAKISTAN

Presently, the industry consists of large-scale organized sector and a highly fragmented cottage /

small-scale sector. The organized sector comprises of integrated Textile mills i.e. spinning units with

Shuttle less looms. The downstream industry (Weaving -Finishing -Garment - Towels & Hosiery),

with great export potential, is mostly in the unorganized sector.

Spinning Pakistans spinning sector caters not only to the requirements of domestic industry but about one third of the total production of yarn is also exported. Spinning industry operates in the organized sector and

over 200,000 individuals are employed in this sector. Pakistan is the fourth largest producer and

second largest exporter of cotton yarn in the world.

Weaving This sector includes production of cotton and synthetic fabric and accounts for almost 70% of the

woven fabric production. Majority of the units in this segment are small and medium sized entities.

Nearly 300,000 individuals are employed by the weaving industry in the country.

Processing The processing sector mainly comprises of dyeing, printing and finishing sub-sectors. There are over

650 units with an estimated number of 30-40 units operating in the organized sector at a large scales,

whereas rest of the units operate as small and medium sized units. This sector employs around

100,000 individuals. The printing segment dominates the overall processing industry with a share of

52% of the total installed fabric processing capacity in the country, followed by Textile dyeing

industry having a share of 26% and fabric bleaching facilities with a share of 22%.

Garments The garments manufacturing segment generates the highest employment within the Textile value

chain. Over 730,000 jobs are created by more than 4500 units. 80% of the units comprise small sized

units. The knitwear industry operates at 60% capacity in the country with a large number of factories

operating as integrated units. The following table depicts the magnitude of the Textile industry.


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GROWTH IN PAKISTAN TEXTILE INDUSTRY

According to a report compiled by Topline Securities, growth in the industry was witnessed because

of improved demand and stable yarn margins, while a depreciating rupee (the rupee fell 7% against

the dollar in 1HFY14) and declining finance costs managed to boost revenue.

The brokerage houses analysis is based on listed textile companies (78 firms) which includes all

textile units below Rs250-million market capitalization at the Karachi Stock Exchange (KSE).

However, for the sake of comparability, Azgard Nine and Amtex Limited have been omitted due to

volatility in their net profits.

Profits of the sample textile firms increased by 26% to reach Rs17.5 billion while gross profits posted

a growth of 14% to Rs39 billion in 1HFY14. Net profits grew more than gross profits mainly because

of the decline in financial charges.

Though the sample covers 60% of textile sector market capitalization, it is very small compared to the

total Pakistan textile industry. Therefore, actual profit growth of the textile industry would be much

more than Rs3.6 billion. The same was also reflected at the local bourse as shares of companies in the

sample gained 53% against the benchmark KSE 100-Indexs return of 20% in 1HFY14.

Sales up 7% led by exports

Overall, textile output in 1HFY14 jumped by 6.8% due to the uptick in sales of the sample

companies to Rs283 billion. This can also be observed from 7.8% growth in the countrys total textile

exports for the period to .9 billion. In terms of Pakistan rupee, overall textile exports went up 19%

year on year (YoY) to Rs730 billion.

Strong cotton yarn, grey cloth and bed wear demand from China and neighboring countries has

contributed to higher units sales, while margins increased due to stable cotton prices and around 7%

Pak rupee depreciation against the dollar in the same period.

In 1HFY14, local cotton prices remained in the range of Rs6, 806-7,771 per 40kg compared to Rs5,

573-6,645 in 1HFY13, depicting less volatility this time.

2QFY14 was not good

The textile sector performed well in 1QFY14 but profits declined slightly by 0.3% quarter to quarter

(QoQ) in 2QFY14 due to a massive surge in fuel and power cost and less textile exports in second

quarter of the current fiscal year.

Exports of textile products decreased by 5% QoQ to .4 billion compared to .6 billion in 1QFY14. A

major decline can be seen in cotton yarn followed by bed wear, which decreased by 18% QoQ and

12% QoQ, respectively.

However, rupee depreciation by almost 4% QoQ during the period provided some support to the

companies falling profits.


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Outlook for 2HFY14

The recent rupee appreciation, relatively less orders from China, dumping of Indian yarn in the

country and materialization of proposed 2%-17% tax on textile exports may exert pressure on profits

of textile sector in coming months, the report forecast.

However, the recently-awarded Generalized System Preference (GSP) Plus status from the European

Union (EU) and resultant surge in local demand will likely ease-off this pressure to some extent.


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INVESTMENT IN TEXTILE SECTOR Pakistans Textile industry has shown a huge investment for the last five years in modernization and the improvement of the production base and at the same time skill development has increased at a

greater pace. Keeping in view the importance of post quota regime the Textile industry is trying to

convert this into an opportunity and has been preparing to face this challenge. Accordingly, over the

last five years this sector has invested $ 5.0 billion in modernization and higher value addition.

Table: Sub Sector Share in Textile Industry

SECTORS

SECTORAL SHARES IN TOTAL

INVESTMENT IN THE SECTOR

Spinning

46 %

Weaving

24 %

Textile Processing

12 %

Knitwear & Garments

5 %

Made-Ups

8 %

Synthetic Textile

5 %


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TEXTILE INDUSTRYS ECONOMIC CONTRIBUTION

Exports 60%

Manufacturing 46%

Employment 38%

Source: Economic Survey of Pakistan

Exports42%

Manufacturing32%

Employment26%

TEXTILE INDUSTRYS ECONOMIC CONTRIBUTION


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MAJOR TEXTILE PRODUCERS AND CONSUMERS

The global textile industry is highly dependents on the world cotton industry, as cotton provides the

main raw material for textiles. Hence, textile production and consumption patterns follow cotton

production and consumption trends worldwide.

Much of the growth of cotton production since the end of the Second World War (WWII) was due to

improved yield(output per hectare more than quadrupled between 1945/46 and 2006/07, from 0.2 per

hectare (t/ha) to 0.8 tons per hectare, according to the International Cotton Advisory Committee \

ICAC), rather than to expanded area (cultivated land increased by only 35% over the 1945/46-

2006/07 period, expanding from 22.3 million hectares to 34.8 millions). In 2007, cotton was grown in

90 countries. In 2006/07, the four main producing countries were China, India, the USA and Pakistan

and accounted for approximately three quarters of world output. Since the beginning of the 1940s,

world cotton consumption has increased at an average annual growth rate of about 2% (roughly the

same as production). Growth in the demand for cotton was comparatively higher in the 1950s and

1980s, with an average growth rate of 4.6% a year during the 1950s and 3% in the 1980s. Developing

countries accounted for approximately 78% of global cotton consumption between 1981 and 1999;

since 2000 this ratio has been above 80%; according to projections based on ICAC figures, in 2010

they would absorb almost 94% of global cotton output.

Source: http://www.rcci.org.pk/wp-content/uploads/2012/12/gtopti.pdf


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GROWTH TREND DURING LAST 5 YEARS Pakistan's textile industry is going through one of the toughest periods in last 5 years. The global

recession which has hit the global textile really hard is not the only cause for concern. Serious internal

issues also affected Pakistan's textile industry very badly. The high cost of production resulting from

an instant rise in the energy costs has been the primary cause of concern for the industry. Depreciation

of Pakistani rupee during last year has significantly raised the cost of imported inputs. Furthermore,

double digit inflation and energy crises have affected the overall textile sector.

Source: Economic Survey of Pakistan, by State Bank of Pakistan

This table shows the trend to textile sector. In starting textile growth is not more than 1.01 % the in

next year growth is badly affected by energy and other crises and growth will go in negative number

its done first time in Pakistan textile history. After that its move towards better side gradually and in

2011-2012 over all textile growth become 5 % after some bad period. Now according to State bank

economical survey a textile growth rises at 13 %. Benazir Bhuttos assassination followed by unstable

law and order situations. Moving ahead in 2008 the textile sector showed record negative growth due

to financial church in global economy resulting in slow down in economy growth chased by soaring

Years GROWTH

2008-2009 -0.70%

2009-2010 -1.78%

2010-2011 1%

2011-2012 4.80%

2012-2013 13.02%

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

GROWTH -0.70% -1.78% 1% 4.80% 13.02%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

GROWTH OF TEXTILE INDUSTRY


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oil, food and other commodity prices, softening of external demand and turmoil in the international

financial market. The economy is also going through the most terrible energy crisis affecting the

performance of the textile industry.


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REASONS FOR DECLINE IN GROWTH

Main reasons of crisis in textile industry in Pakistan are as follows:

Lack of Research & Development (R&D)

The lack of research & development (R&D) in the cotton sector of Pakistan has resulted in low

quality of cotton in comparison to rest of Asia. Because of the subsequent low profitability in cotton

crops, farmers are shifting to other cash crops, such as sugar cane.

Lack Of Modernize Equipment

The textile industry has obsolete equipment and machinery except few major producers. The inability

to timely modernize the equipment and machinery has led to the decline of Pakistani textile

competitiveness. Due to obsolete technology the cost of production is higher in Pakistan as compared

to other countries like India, Bangladesh & China.

Increasing Cost of Production

The cost of production of textile rises due to many reasons like increasing interest rate, double digit

inflation & decreasing value of Pakistani rupee. The increasing interest rate caused barrier in opening

new manufacturing units & also increase the production cost of existing units. The value of Pakistani

rupee is continuously decreasing which increased the cost of imported raw material. The removal of

subsidy & implementation of new taxes from government also increase the cost of production. The

instant increase in cost of electricity also caused an increase in production. The above all reason

increased the cost of production of textile industry which create problem for a textile industry to

compete in international market.

Energy Crisis

As a consequence of load shedding the textile production capacity of various sub-sectors has been

reduced. The representatives of the all textile associations presented their serious concerns on the

huge losses being incurred due to electricity & gas load shedding and the instant rise in the Electricity

tariff. They said that the industry has already been crippled due to record high load shedding.

Raw Material Prices

Prices of cotton & other raw material used in textile industry fluctuate rapidly in Pakistan. The rapid

increase in the price raw material affects the cost of production badly. Due to increase in the cost of

production the demand for export & home as well decreased which result in terms of downsizing of a

firms resulting in unemployment.

Effect of Inflation

The increase in inflation causes the increase in the cost of production of textile good which return in

downsizing. The double digit inflation is also affecting exports of textiles.


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United States & EU Cuts Imports of Textile from Pakistan

US & EU are the major importer of Pakistan textile which creates a huge difference in export of

Pakistan textile after imposing a restriction on import of Pakistani textile goods.

Removal of Subsidy on Textile Sector

The provisions of Finance Bill 2009-10 are not textile industry friendly at all. Provisions like

reintroduction of 0.5% minimum tax on domestic sales, 1% withholding tax on import of textile and

articles, 16% Federal Excise Duty on banking and insurance services besides withdrawal of

exemption of 16% sales tax and 4% withholding tax on machinery and parts in the Finance Bill 2009-

10 are badly affecting already crippled industry.

Export Performance of the Textile Sector

Due to high cost of production, power shortage and stiff competition with regional players, the export

performance of Pakistan textile sector is suffering badly.

Lack of New Investment

Pakistan textile industry is facing problem of Low productivity due to its obsolete textile machineries.

To overcome this problem and to stand in competition, Pakistan Textile Industry will require high

investments.

Supply Chain Management

Another problem contributing in the poor performance of our textile sector is the absence of efficient

supply chain management and centralized framework. Many economic and political factors limit the

ability of the exporters to meet their commitment timely and may also result in losing business in

future.


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RECOMMENDATIONS

Recommendations for the growth of the textile sector are as follows;

Revision of Government policies is required

There are non-conducive government policies in term of bank loans and interest rates. It is the need of

the hour to develop a coherent plan by the government that allows some sort of exemption/concession

to the textile sector. For example as in India; the Export-Import Bank was set up for the purpose of

financing and facilitating the industries, especially textile. The government may give subsidies to

share the burden of the industry.

Reducing the cost of doing Business in Pakistan

At present cost of doing business in Pakistan is higher as compared to the regional countries, which

has resulted in bitter competitiveness to Pakistani Products in Foreign Markets. China and India are

the bigger competitors of Pakistan. We fear if cost of doing business in Pakistan is not brought at par

with other Asian countries, our products would find no place in Market both in terms of quality and

price. In the context of future trade, there is an urgent need to bring all the utility charges and levy of

taxes down to the minimum level.

Focus on Value Addition

Pakistan is a leading exporting nation in raw yarn, cotton, and fabrics. If we emphasis on the value

added products like garments, Hosiery, knitwear and other textile made-up, the export volume of

textiles can be increased by manifolds. In this respect top priority should be given to stitching industry

that leads to highest value addition and employment generation.

Technology Interventions

Sophisticated technology should be introduced to compete with the other countries (India, Bangladesh

& China) in the global market in term of cost and quality.

Human Resources Development

The Textile Board should establish a separate training wing as a Center of Human Resource

Development where training courses should be conducted for the capacity building of labor. There is

also urgent need to increase the number of such Vocational Institutions where modern technical

education is provided.


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Proper Energy Supply

According to sources, it is estimated that in recent past around 800 units have closed in Punjab during

electricity and gas load shedding while approx. 500,000 workers lost their jobs. In order to save the

industry there must be a preferential treatment with the industry in uninterrupted energy supply.

Investment in Textile Sector

The investment volume is not satisfactory in the textile sector as compared to the potential available.

Government should take serious step to survive the textile industry. In order to decrease the price raw

material for textile we need to increase our production capability.


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ROLE OF GOVERNMENT

Textile industries are the backbone of a Pakistan economy and Pakistan government always taking

interest in textile sector. The share of textile industry in the economy along with its contribution to

exports, employment, foreign exchange earnings, investment and value added makes it the single

largest manufacturing sector for Pakistan. It contributes around 8.5 percent to GDP, employs 38

percent of the total manufacturing labor force, and contributes between 60-70 percent to total

merchandise exports.

So that way Government start many of project in textile sector by support of ministry of textile and

some other private investors, for achieving peak position in the world.

Near about 6 to 7 textile projects are under process that will be completed in next coming years. Name

lists of project are given below.

Export development plan implementation unit (EDPI)

Pak_ Korea Garment technology instituted (PKGTI)

Lahore Garment city (LGC)

Faisalabad Garment city (FGC)

Karachi Garment city (KGC)

Pakistan textile city limited (PTCL)


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GOOD NEWS FOR TEXTILE INDUSTRIES

Finally Pakistan government take great imitative for reducing the problems of textile industries

because they know, if they do not take strictly action on serious problem than 55 % of Pakistan

economy going toward downsize. In previous couple of months little bit work done by CM Punjab.

Some happiest news for industries is given below.

1. CM Punjab Shahbaz Shareef assure a consisting of hourly and quota based gas supply for 8 hours a

day to the textile industry located in Punjab in combination of gas and electricity, which has helped

industry in its operations and an increase of 20 percent of exports in quantity terms from July to

September 2013. "Prime Minister Nawaz Sharif has also shown concern and I am very much hopeful

that gas supply to the textile industry during December will remain intact," he said.

2. Shahbaz Sharif said the PML-N government was pursuing a solid strategy for promoting trade,

economic and industrial activities. He assured that all possible steps would be taken for resolving

genuine problems of industrialists. Pakistan would make tremendous progress in textile sector after

getting the status of GSP Plus (Generalized System of Preferences), besides increasing job

opportunities and exports.

3. Government is fully committed to solve the energy crisis as it has become a major challenge that is

not only hurting the industrial activities but also badly affecting the country's economy. Government's

economic team had fully prepared with pragmatic strategy to cope with all the challenges, which

country is facing today, said Chaudhry Abid Sher Ali. He assured that he will make all efforts for

immediate payment of pending refund claims of textile exporters as exporters are facing financial

crunch owing to this problem. If that amounts are released, exporters can deploy that capital towards

expanding their businesses, which in turn will help Pakistan's export earnings grow. He termed

approval of GSP plus status as a milestone achievement of the Pakistan government and Approval of

duty free access to European markets is a good sign for the ailing value-added textile industry which

is badly suffering due to various factors.


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TEXTILE VALUE CHAIN


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EXPORT IN TEXTILE INDUSTRY

Export of textiles posts 7pc growth

According to Pakistan Bureau of Statistics here on Thursday, textile and clothing exports reached

$8.035 billion in July-Jan period this year as against $7.468bn over the corresponding period last year.

Only three products witnessed negative growth in exports among all textile and clothing categories

during the period under review.

On monthly basis, export of textile and clothing witnessed a growth of over three per cent in January

2014 over the corresponding month of last year.

In terms of rupees, export proceeds witnessed a growth of 18.07pc in July-Jan period this year from a

year ago.

Export of low value-added products, such as cotton cloth, was up by 7.62pc, cotton carded 459pc,

yarn other than cotton yarn 17.22pc, and made-up articles excluding towels, bed wear 18.52pc during

the months under review over the corresponding months of last year.

In the value added sector, export of bed wear increased by 19.83pc, knitwear 6.82pc, and readymade

garments 7.65pc.

Exports of towels dipped by 5.19pc; cotton yarn 5.10pc and tents 17.34 pc

Raw cotton export witnessed a robust growth of 70.21pc.

Total export proceeds witnessed a growth of 4.64pc to $14.699bn in July-Jan 2014 from $14.047bn

over the corresponding period of last year.

Source: http://www.dawn.com/news/1088364/export-of-textiles-posts-7pc-growth


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CONTRIBUTION OF TEXTILE SECTOR:

Since independence, textile sector has grown considerably in extent and magnitude despite

intermittent set-backs due to ill-conceived policy and neglect of the needs of time. Despite its

meager strength and strong need for developing further potential it has grown to become the

backbone of the economy. This fact can easily be grasped by a mere glance at the

contributions this sector has made to the economy and society of the country as a whole.

Economic Contributions

Any development in the country does not restrict its effects to one or two sectors rather; the

implications of any such development can be felt across multi- sector pathways. Same has

been the case with Textile sector. Here, the discussion is limited contributions and effects of

development in Textile industry to the Economic and Social spheres of the country.

Increase in National Income

Any development in the industrial sectors greatly contributes to the Gross Domestic Product

of country. Currently, Textile sector alone contributes 9.5% to the GDP. Development of

industrial sector means more investment, employment and production and hence, higher

contribution towards GDP.

Economic Stability

Growth in Textile sector has immensely contributed towards economic stability of the

country. This sector alone employs 15 million work force of the country. Moreover, when the

finished goods are domestically available, it helps keep prices down and fluctuations due to

international market influences are less likely to strike populace.

Improvement in Balance of Payments

Textile industry has brought structural changes in the pattern of foreign trade of the country.

Today, the Textile sector account for about US$ 10.2 billion export of the country. On one

hand, this sector helps reduce import bills of textile products and on the other hand, it

contributes in earning foreign exchange thereby helping towards keeping balance of payment

in control. Following table presents a comparison of years 2008-09 and 2009-10 with respect

to exports of different textile products.

Agricultural Development

Development in Textile sector greatly affected the agricultural development in turn. It is

evident from the fact that if number of textile mills increased from 3 to 600 and spindles from

about 177,000 to 805 million respectively in 1947 to 2010 then cotton bales increased from


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1.1 million bales in 1947 to 10 million bales by 2010. Increased demand of cotton contributed

towards better life of farmer by offering greater market for the raw material.

Greater Employment

As already mentioned, this sector employs about 15 million or 38 percent of total workforce

of the country. If the employment rate is added with the upstream and downstream

employment, like in agriculture or export related work opportunities due to this sector then

the economic effect of this sector increased manifold.

Collateral Industrial Development

Development of one industry leads to the development and expansion of other industries. A

number of industries and work opportunities are directly or indirectly related with Textile

Sector. For example, colors and dies, plastics, printing, machinery etc are equally affected by

booms or busts in Textile sector.

Enhanced Government Revenues

Any industrial development is bound to increase government revenues. Though textile sector

is still zero rated for the purposes of sales tax on exports yet the tax on domestic supply and

income tax contribute greatly to government revenues.

Diversification of Economy

Development in textile sector has helped in diversifying economy by reducing dependence on

mere production and export of raw material. It also instilled diversification by stimulating

collateral industrial development.

Social contributions

Better Living Standards Textile sector development helped in increasing the value of output

per worker. The income of the labour, due to higher productivity increased resulting in better

living standards of growing middle class.

Social Welfare

Growth in textile sector enhanced social welfare in a multitude of ways. Better and greater

employment opportunities, meeting domestic needs, generating revenue and thereby

positively affecting public social spending etc all lead to social welfare.


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PEST ANALYSIS

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a

framework of macro-environmental factors used in the environmental scanning.

Following is the PEST analysis of textile industry of Pakistan.

Political Factors:

Following are the political factors that affect the textile industry of Pakistan

Labor Law

The labor in Pakistan is cheap as compared to other competing countries. The labor law specifies a

minimum wages of 7000 rupees for a worker for a month, which gives an advantage to the textile

industry in terms of low cost.

Environmental Laws

The processing industry in the textile value chain holds an important position as far as value addition

is concerned. Garments and made-ups comprising the downstream industry rely heavily on the

processing sector for the provision of value added fabrics and materials.

Unfortunately the processing segment also is the most susceptible area that can be affected by global

environmental regulations regime. More than 650 units are in operations majority of which operate at

a small and medium sized scale. These units carry out processes including:

Bleaching of fabric

Dyeing and finishing of fabric

Printing and finishing of fabric

The major area of concern for the textile processing sector is wastewater. Textile processing is water

intensive process. Almost .08-0.15 m3 of water is consumed to produce one kilogram of finished

fabric, translating into 1,000-3,000 m3 of wastewater generation per day against a production of 12-20

ton/day of finished fabric.

Currently the wastewater generated by the industry is discharged into the local environment without

any treatment that serious negative effect on the environment.

A wide range of chemicals are used by the processing industry for dyeing and printing operations.

These include bleaching agents, vat dyes, azo dyes, sulphur dyes, disperse dyes and color pigments,

which are manufactured by using chemicals such as formaldehydes, hydrochloric acid, ammonia,

chromium salt, soda ash, caustic soda, sodium sulphate , sulphuric acid, etc.


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Extensive usage of these chemicals by the processing industry results in discharge of toxic elements

as effluents, which if not treated properly have the potential to cause significant environmental

degradation.

Though there are environmental laws in the country but still there is no strict implementation and the

industry is not facing any problem in the form of high costs in complying with the environmental

laws. But if there are strict implementations it will reasonably affect the textile industry of Pakistan.

Trade restrictions

A trade restriction is an artificial restriction on the trade of goods between two countries. It is the

result of protectionism. It may be direct or indirect in the form of tariffs, quotas or other duties and

taxes. Following are a few restrictions the textile industry of Pakistan is facing

Import duty and Anti-dumping duty

Government of Pakistan has imposed six percent import duty and anti-dumping duty imposed on the

import of

Polyester Staple Fiber (PSF) to allow the textile industry to manufacture competitive blended textile

products for both domestic and export markets.

The textile industry which was heavily dependent on PSF was faced by a shortfall of 10,000 tons each

month mainly due to restricted production within the country. The tariff of six percent at the import

stage and countervailing duties ranging up to 10 percent has rendered import of PSF economically

infeasible and the manufacture of blended yarn textile products more difficult.

PSF constituted a direct substitute for cotton, a commodity in short supply, and timely removal of

import duties on

PSF would secure the textile industry competitiveness on an international and regional level.

Anti dumping Imposed on Pakistan by European Union:

An anti-dumping of 5.8% has been imposed by the European Union on Pakistan, which has put

Pakistan in a desperate position to match competitiveness posed by Bangladesh, India, China, Sri-

Lanka and Vietnam.

Infrastructure

The important resources and infrastructure, such as adequate of supply of water, continuous supply of

electricity and gas, efficient logistics and transportation, tax structure, raw material supply are all

basic requirements for the development of industrial base, which are not adequate for competing with

foreign competitors.


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However, on the other hand, the industry is faced with rising charges of the energy sector, which

increases the cost of production, making it difficult to compete with the other regional rivals. The

governments should work in this regard for maintaining a textile sector which is so important to

Pakistans economy.

Political Stability

Political unrest, strikes and terrorism have critically affected the economy of Pakistan. Frequent

changing of the government has adversely maligned the policies of the textile sector. According to the

World Trade Review

Pakistan has failed to take necessary steps needed to meet post Multi Fiber Agreement (MFA)

challenges for its textile industry owing to lack of political will by the successive governments.

In 1978 World Bank surveyed the Pakistan textile industry and reported many deficiencies in this

sector. It also gave certain measures to resolve these issues, but unfortunately all these problems still

persist and the industry is still unable to keep its pace with the international market.

Successive governments lacked the will to reform human resources and adapt the marketing

techniques that resulted present scenario in this industry.

Economic Factors:

Following are the economic factors that are affecting the textile industry of Pakistan.

Interest rates

Pakistan has highest interest rates as compared to its competitors. For instance, Bangladesh, India and

China enjoy comparatively low interest rates than Pakistan. The prevailing rates are 8.5 to 9.0 per cent

in Bangladesh,

5.25 per cent in India. Market rate is 10.25 per cent, however exemption of 5 percent is provided to

Date post:	16-Nov-2015
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