Effects On Textile Industry Due to Energy Crisis

Contents:-

Summary:-
Introduction:
History of Pakistan Textile Industry
1. Lack of Research & development (R&D) in cotton sector:-
2. Lack of modernize equipment:-
3. Finance Bill to burden industry further:
4. Increasing cost of production:-
5- Internal issues pose a
larger threat for
Pakistan’s textile industry:-

6-Energy crisis:
a) Electricity crisis:-
b) Gas Shortage:-
7-Tight Monetary Policy:-
8- Removal of subsidy on Textile sector:-
9- Lack of new investment:-
10- United States & EU cuts imports of textile from Pakistan:-
11- Raw material Prices:-
12- Export performance of the Textile sector
13- The Effect of Global Recession on Textile Industry:-
14-Effect of Inflation

15-Unemployment caused by textile

16- Recommendation:
These are all the reasons Of Crisis in Textile Industry But we’ll focus on the energy crisis, how
energy crisis effect on the textile industry.
Summary:-

Pakistan’s textile industry is going through one of the toughest periods in decades. 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 which has significantly raised the cost of imported inputs. Furthermore, double
digit
Inflation and high cost of financing has seriously affected the growth in the textile industry. Pakistan's
textile exports in turn have gone down during last three years as exporters cannot effectively market their
produce since buyers are not visiting Pakistan due to adverse travel conditions and it is getting more and
more difficult for the exporters to travel abroad. Pakistan’s textile industry is lacking in research &
development (R & D).The production capability is very low due to obsolete machinery & technology.

Pakistan is facing high cost of production due to several factors like the
hike in electricity tariff, the increase in interest rate, energy crisis, devaluation of Pakistani rupee,
increasing cost of inputs, political instability, removal of subsidy & internal dispute. The above all factor
increase the cost of production which decreases the exports. Exports receipts decrease from $ 10.2 B to $
9.6 B. The global recession also hit badly the textile industry. Double digit inflation also caused decrease
in production in textile sector which cause the increase in unemployment level.

By the removal of subsidy the industry’s production get higher effected which prove as a last strike on
industry’s back.Govt should provide subsidy to the textile industry for the survival of this industry.
Continuity of 1pc controversial withholding tax on import of essential raw material (cotton & polyester
staple fiber) for industry should be withdrawn immediately. This withdrawal would enable the industry to
procure some 3m cotton bales annually from outside world in order to meet the shortage and to compete
with regional competitors in international market to earn foreign exchange for the country.
On imposition of 16% FED on banking and insurance services such advance taxes would play havoc with
the growth of the industry in already existing adverse circumstances and needed to be withdrawn
immediately.
The government should not withdraw sales tax and withholding tax exemption on machinery and parts,
as it would add cost besides liquidity problem for the industry.
Introduction:-
The Pakistan textile industry contributes more than 60 percent to the country’s total exports. The sum of
total export is around 9.6 billion US dollars. The industry of textile
contributes approximately 46 percent to the total output produced in the country. In Asia, Pakistan is the
8th largest exporter of textile products. The contribution of this industry to the total GDP is 8.5 percent.
Moreover, it provides employment to 38 percent of the work force in the country.
However, the textile industry currently faces massive challenges. The All Pakistan Textile Mills
Association (APTMA) needs to enhance the quality of its products. However, APTMA argues other
factors such as high interest rates and cost of inputs, non conducive government policies, and non-
guaranteed energy supplies hinder their competitiveness..

History of Pakistan Textile Industry

Increase in the cotton production and expansion of textile industry has been impressive in Pakistan since
1947. Cotton – bales increase from 1.1 million bales in 1947 to 10 million bales by 2000. Number of
mills increased from 3 to 600 and spindles from about 177,000 to 805 million similarly looms and
finishing units increased but not in the same proportion. Pakistan’s textile industry experts feel that
Pakistan has fairly large size textile industry and 60-70% of machines need replacement for the economic
and quality production of products for a highly competitive market. But unfortunately it does not have
any facility for manufacturing of textile machinery of balancing modernization and replacement (BMR)
in the textile mills. We need to think about joint ventures for the production of complete spinning units
with china, Italy and production of shuttle less looms with Korea, Taiwan and Italy.

Cotton textile industry has been major source of export earning and employment. It also helps in value
addition to the manufacturing sector of the economy. During the six years between 1993 and 1998,
production of yarn (in quantity terms) registered a steady annual growth rate of 302% in Bangladesh and
405% in India. On the other hand, Pakistan registered a growth rate of 101% per annum in yarn
production. It ranked third after China and India in the global yarn production during the same six years.
In exports, while Taiwan, India and the republic of Korea registered an annual increase of 18.1%, 27.7%
and 5.4% respectively during 1993-1998, Pakistan registered a negative growth of 4.8% one important
development was that till 1997, Pakistan was the world’s largest exporter yarn followed by India.
However, in 1998, India gained the NO 1 position, leaving Pakistan at NO 2 In the case of cotton cloth
production. A large number of Asian countries have been emerging in the international market to compete
with Pakistan. These countries are Bangladesh, India, Taiwan, Indonesia, Thailand, Turkey, Sri Lanka
and Iran. The above-mentioned discussion of international scenario highlights the adverse position of
Pakistan’s textile industry which is likely to continue further following the full implementation of WTO
agreement from 2005 onwards.

Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchants Association (PCMA) Chairman,
Appreciated government’s efforts to encourage new exports and finding new markets, which need
aggressive export marketing. The steps taken on the monetary front, such as the frequent devaluation of
Pak rupee in terms of dollar could not improve the cost competitiveness of exportable products due to
increase in prices of the local and imported inputs of the local textile industry.

During the period 1973 to December 1992, some 71 spinning units with 1,136, 835 spindles, 6,600 rotors
and 7,329 looms were closed down. In 1992, a foreign consultant form was hired by the government to
look into the stagnate conditions in the local textile industry. One of the observations of the foreign
consultant was “Pakistan has failed to make real progress in the international market and is being over
taken by many of the neighboring competitor countries.

The textile sector which constituted 69% of total export during 2001-2002, believes that
enhanced quota by the European Union and Turkey would make this possible to fetch
another US$1 billion this year.

The rise in export of value-added products from Pakistan was another point of
encouragement for the textile sector. “The export of value-added products rose to 57.4%
from 53.9% in 2002 which is clear sign that we are moving in the right direction, “said the
Chairman of all Pakistan textile mills association.

The trade policy is considered an acceptable paper, but in the industry does not fine anything
that could lead to a high level exports achievement and remove trade imbalance.
Pakistan’s textile sector earned US$5.77 billion during the 2003 year, compared with US$5.577
BILLION OF 2000-2001 indicating a growth of 0.69%. Industrial. The total exports of textile sector in
2004 were US 5.7 billion which shows 2.5% growth it increase to 4% growth in 2005 as compared to
2004.The textile sector shows 8% negative growth in 2006.The negative growth continue in 2007 also
with the value of 5%.The textile sector shows 15% growth in 2008. Now we will discuss the main reasons
of crisis in textile industry step by step in detail

Energy crisis:
a) Electricity crisis:-
As a consequence of load shedding the textile production capacity of various sub-sectors has been
reduced by up to 30 per cent. The representatives of the all textile associations presented their serious
concerns on the huge losses being incurred due to electricity load shedding and the instant rise in the
Electricity tariff. They said that the industry has already been crippled due to record loadshedding during
winter months.
 The joint meeting of All Pakistan Textile Mills Association (APTMA) & other related
organization was held at APTMA House to formulate a joint strategy to address the alarming electricity
crisis being faced by the textile industry. The meeting unanimously decided to constitute a joint working
group of electricity management for the textile industry in the larger interests of the value chain of the
textile industry.
The joint working group will meet shortly to design a detailed plan to pursue the following
goals; immediate total exemption from Electricity load shedding for the textile industry value chain;
Rationalization and reduction of electricity tariff.
The load shedding of electricity cause a rapid decrease in production
which also reduced the export order. The cost of production has also risen due to instant increase in
electricity tariff. Due to load shedding some mill owner uses alternative source of energy like generator
which increase their cost of production further. Due to such dramatic situation the capability of

100,000,000,000

80,000,000,000

60,000,000,000

40,000,000,000

20,000,000,000

0
2004 2005 2006 2007 2008 2009

COMPARISON BETWEEN ELECTRICITY PRODUCTION AND CONSUMPTION

PRODUCTION CONSUMPTION
b) Gas Shortage:-
Gas load-shedding continues in Punjab and NWFP despite a significant increase in
temperature. A spokesman for the All Pakistan Textile Mills Association claimed that 60 to 70 per cent of
the industry had been affected and was unable to accept export orders coming in from around the globe.
He said the textile industry had already endured over 45 days of gas disconnection over a period of four
months, causing extraordinary production losses and badly affecting capability of the industry. In Punjab,
he said, the textile industry's share was over 60 per cent, according to APTMA's study energy supply
disruption only was causing an estimated loss of Rs1 billion per day. He regretted that at a time when the
export-oriented industry had ready demand in terms of meeting export orders, the policy-makers failed to
take prudent steps to help ensure timely execution of orders. In the larger interest of the economy and
exports, he suggested, the government should “ensure utility companies provide smooth electricity and
gas supply to the textile industry and accord the industry top priority at this critical time.”

Recommendation:
The government is considering curative measures on the recommendations of stakeholders to address the
problems and issues faced by the textile industry of the country for enhancing its production and exports.

The government is likely to announce textile policy also called National Textile Strategy in the mid of
current month to help promote the textile sector of the country, sources told APP.

The Textile Ministry has consulted all textile sector associations and the chambers of commerce and
industry and taken them board before finalizing the textile policy and the policy would be announced
soon, they added.

The ministry received recommendations for zero rating on import of textile machinery, zero rating
exports, tariff reduction, incessant energy supply to textile units.

Issues relating to the market access and quality products with timely delivery and single digit mark up and
special power tariff for the textile industry has also been recommended.

It has been suggested that textile policy might include the issue like duty free market access to European
Union and United States as Pakistan is the largest importer of USA long staple cotton to the tune of $400
million to $500 million every year.

Prime Minister Yousuf Raza Gilani has already constituted a Cabinet committee to evaluate the new
textile policy, for the provision of incentives for modernizing the industry and making it more efficient.

The economic observes believe that the textile sector was passing through a difficult phase due to energy
shortage in the country and needed curative measures for promotion.

The textile group exports have witnessed negative growth of 9.27 percent during the first ten month of
current financial year.

Exports from July-April (2008-09) were recorded at $7.898 billion as against the exports of $8.706 billion
during the corresponding period of last financial year

During the time under review exports of cotton yarn were decreased by 15.98 percent, cotton carded or
combed by 1.41 percent, yarn other than cotton yarn by 54.74 percent, knitwear by 6.7 percent, bed wear
by 12.19 percent, tents, canvas and tarpaulin by 14.70 percent readymade garments by 14.65 percent, art,
silk and synthetic textile by 33.64 percent where as the exports of other textile materials were declined by
15.43 percent.

The only two textile groups including raw cotton, cotton cloth and towels witnessed positive growth as
their exports were increased by 40.32, o.75 and 3.26 percent respectively during the first ten months of
current financial year as against the same period of last year.
Some other Specific Recommendations
a- Remedy though FDI
b- Image Building of Pakistan to Attract FDI
c- Focus on Value Addition
d- Technology Up-gradation & capacity building
e- Human Resources Development
f- Need For Improving Textile Production
g- Improvement in productivity
h- Awareness of International Quality Standards
i- Introducing concept of on-the- job-training
j- Introducing efficient management techniques
k- Subsidy removal should be taken a back
l- Interest rate should be low down in order to survive this industry
m- Electricity & gas tariff:-
Hike in the tariff of electricity & gas cause an
increase in production cost which cuts down the demand for Pakistani textile goods in
international market due to high cost of inputs. In order to survive the industry
government should make electricity & gas cost cheaper.

n- Removal of Energy Crisis:-

Govt should try to remove the energy crisis in
order to save the industry. As the crisis in energy sector cut down the production. By
the reduction of production exports are also decreased.

REFERENCES:-

All Pakistan Textile Mills Association (APTMA) (Various Issues) Annual

Report.
Challenges for Pakistan. Asian Development Review
Pakistan Textile Journal (2009)
Pakistan, Government of (2008-09) Pakistan Economic Survey. Islamabad:
Ministry of Finance.
Textile Industry— Special Report (2009).
 ASSIGNMENT
Business Research Development

Submitted To:
Sir Safdar Tahir
Submitted By:
Maryam Nasir
10678
MBA 3 sem(Morning)

Date Of Submission:
08-02-2010