Pakistan is deindustrializing prematurely. The premature deindustrialization of Pakistan is contributing to an increase in Pakistan’s trade deficit. Pakistan simply hasn’t kept up with global demand for manufactured / value added products. The textile sector is a major manufacturing and export sector for Pakistan. To begin the process of reversing the premature deindustrialization of Pakistan, it is important to start with a sector in which Pakistan has a global presence.
This report titled “A Policy Framework for Improving the Export Competitiveness of Pakistan’s Knitted Apparel Sector” is the first in a series of studies of the value added sub-sectors of Pakistan’s textile sector. This Study is part of the PBC’s Make-in-Pakistan initiative, an initiative which aims to revive manufacturing in Pakistan, leading to jobs, an increase in value added exports, import substitution, initially of labor intensive products and an increase in tax collection.
A significant portion of Pakistan’s exports comprise of textiles. In 2017, textiles contributed almost 60.0% to Pakistan’s exports. Amongst textile products, knitted apparel is a major export item for Pakistan. Pakistan’s exports of knitted apparel amounted to $2.5 billion in 2017 and made up 19.4% of total textiles exports.
Pakistan has underperformed in exports of knitted apparel. In 2017, Pakistan’s exports of $2.5 billion were well below its regional peers: Bangladesh ($17.7 billion), Vietnam ($13.2 billion) and India ($8.4 billion). In the last ten years, Pakistan’s exports of knitted apparel rose by 33.0% which was significantly lower than regional peers: Bangladesh (181.0%), Vietnam (239.0%) and India (91.0%).
Pakistan’s knitted apparel exports suffer from market concentration. Out of the $2.5 billion worth of knitted apparel exports, nearly 90% went to two markets; the EU (52.9%) and the USA (35.8%). Product concentration is also an issue since the top ‘10’ products contribute 67.0% to exports of knitted apparel. Other issues that have adversely affected Pakistan’s competitiveness in the knitted apparel sector include deteriorating cotton quality, shortage of skilled labor, poor technological status, lack of proper industrial infrastructure, and high cost of doing business in Pakistan.
|Top 15 Exporters of Knitted Apparel in the world
||Export of Knitted Apparel
(USD Bn, 2017)
Although, the Government of Pakistan has in the past announced a number of textile policies and sector specific incentives to tackle these issues, they have not been successful due to poor implementation.
In order to devise a strategy to increase Pakistan’s knitted apparel exports, 21 knitwear exporters were interviewed to share their views on the policy framework required to make Pakistan a major player in the global knitted apparel market.
Following were suggested to enhance export competitiveness of Pakistan’s knitted apparel sector:
Shift from cotton to apparel in policy-making: In order to increase knitted apparel exports there has to be a fundamental shift in the thinking of policy makers in Pakistan. The focus has to change from cotton to apparel, only once this happens can Pakistan leverage its strengths to become a major player in the global apparel market.
Inputs like power and gas should be brought down to regional levels. While the government works to change the overall energy mix with the objective of reducing cost, it should in the interim period provide relief in the form of reduced rates for the textile sector.
Government policies should prioritize the growing of cotton. The acreage under the cotton crop has declined over the years. This is primarily due to support prices offered to wheat and sugarcane growers. The government needs to reassess food security requirements and set realistic support prices for wheat and sugarcane.
Garment clusters should be developed near major population centers. Apparel manufacturing is labor intensive; garment clusters therefore need to be developed near areas of population density. In addition, good air, rail, sea and road connectivity are important for setting-up of successful garment clusters.
Government should fund technology upgradation through incentives. To be able to compete in global markets, upgradation should be funded in Pakistan through either tax incentives or lower rates of markup for capital investments.
100% FDI and Joint-Ventures need to be promoted. Government will need to come up with a comprehensive strategy to attract either 100% FDI or JVs in the knitted apparel sector. Pakistan will need to make major changes in laws which govern not only investments but the manner in which business is done in this country.
Common Research & Innovation Centers should be setup. Common Research & Innovation Centers need to be setup in the Public Private Partnership (PPP) mode. These centers should act as repositories for knowledge in the sector in particular and textiles in general.
Induction of skilled expatriate manpower should be encouraged. Government should encourage employment of skilled expatriate manpower by local firms. Skills are required not only in manufacturing but also in management, merchandising, marketing, design, compliance etc.
The development of ancillary industry needs to be promoted. Large global suppliers of accessories should be encouraged to begin production in Pakistan. This will reduce not only the cost but also lead times for exporters.
The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 78) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk