Mid Term Review

Textile Vision 2005

Small and Medium Enterprise
Development Authority
July 19, 2002

The textile sector holds a lead role in the development of the manufacturing
sector in Pakistan. It comprises majority of the manufacturing sector output,
provides employment to the bulk of the manufacturing sector labour force and
it is a major foreign exchange earner for the country. The trade in textiles is
directly effected by the phenomenon of globalisation that is leading to lower
tariff barriers and removal quantitative trade restrictions. Multi Fibre
Arrangement adopted in early 70s by the developed countries to protect their
domestic textile industry was replaced by the Agreement on Textiles and
Clothing (ATC) in 1994. The ultimate objective of the ATC is to phase-out the
quota restrictions on the import of textiles by 2005.

This rapidly changing global textile trade regime makes the formulation of
medium to long term strategy for the textile industries of the developing
countries a crucial imperative. The Government of Pakistan with this
cognizance embarked upon an exercise to figure out the long-term strategic
direction for the textile industry of the country, which would ensure the survival
and sustainable export growth in the post MFA phase-out period. As a
consequence, a detailed study, Textile Vision 2005, was developed that
provided a road map for the growth of textile sector, based on an in-depth
value chain analysis.

Vision for Textile Sector

An open, market driven, innovative & dynamic textile sector which is:-

 Internationally Integrated
 Globally Competitive
 Fully equipped to exploit the opportunities created by the MFA phase out
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And which enables Pakistan to be amongst the top five textiles exporting
countries in Asia

Three Scenarios
The vision statement highlights the key drivers of the textile sector growth and
also sets a target for the textile industry. However, the framework that could
facilitate the industry in materialising the vision was cast in the shape of
various scenarios representing simulation models.

a) Low Road Scenario represented a situation where only the historic export
growth rates in textile sub-sectors were maintained. The overall average
export growth for the textile sector after analysis was finalised at 6% per
annum.
b) Do-Able Scenario envisaged increase in unit price realisation of yarn,
fabric, textile made-ups and garments with an attempt to maintain the
market share in each individual market. It also suggested penetration in
the non-quota markets along with increased share of synthetic and
blended yarns, fabrics and garments. The overall export growth in this
scenario was estimated at 12% per annum.

c) High Road Scenario the most ambitious of the scenarios that not only
adopted the apparel sector as the engine of textile export growth but also
recommended diversification in products that hold greatest potential but
unfortunately have been neglected e.g. woven garments, sports wear,
specialised industrial garments, and women wear. Besides broadening of
export product portfolio with extra push in synthetic and man-made fibres,
fabrics and garments, it was based on achieving higher market share of
unexplored, non-traditional textile markets. The export growth in this case
was estimated at 16% per annum with the assumption of 20% and 21%
growth in garments and made-ups segments respectively in value terms,.

Exports in the Three Scenarios (US $ million)

Category Low % share Do-able % High %

Road share Road share
Garments 1,413 19% 2,919 29% 4,309 31%
Made-ups 1,739 23% 2,020 20% 4,063 29%
Fabric 2,542 34% 2,677 33% 3,443 25%
Yarn 1,746 23% 2,505 26% 2,000 14%
Total Textile 7,440 10,121 13,815

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Based on the assumptions of the High Road scenario, in which the textile
sector of Pakistan was envisioned to align itself with the changing global
trends by increasing the share of value added products like garments and
made-ups in exports, it was estimated that Pakistan will be able to acquire 5th
position with regards to its Asian competitors. It is pertinent to mention here
that the exports of the Asian countries for 2005 were estimated using a
historical growth rate which does not take into account extra ordinary
measures adopted by any country to enhance the exports of textile products.

Top Asian Exporters in Textile Vision 2005 (US $ million)

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Export Performance Review

In order to set the direction for the exports growth in the textile sector the
Government of Pakistan announced numerous policy decisions in the Trade
Policy. The objective of these decisions was to increase value addition in the
sector by providing specific incentives to the important segments in the value
chain. The most important decisions included
• removal of trade restrictions on cotton,
• campaign to produce contamination free cotton,
• restriction on extension of export refinance to the spinners,
• introduction of duty free import facilitation mechanism, DTRE, for the
exporters
• formulation of Textile Board to review the performance of the textile
sector.
Two years after the adoption of the Textile Vision 2005, the aggregate impact
of the developments are as follows:-

Pakistan has been able to retain eighth position with regards to its Asian
competitors in the exports of textile products. The exports of most of the
countries declined in 2001; major cause has been the global downturn that

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particularly effected the export performance of Thailand, India, Pakistan and
Hong Kong during the year. Over a period of three years (1998-2001)
significant increase in exports was achieved by Indonesia, where exports
increased by almost 56%. During the same period the exports of China
increased by almost 34%, and exports of Bangladesh, primarily driven by the
garments sector, increased by almost 36%.
Existing Ranking of Asian Countries (US $ million)

COUNTRY 2001 Increase over

1998
1 China 52,800 34%
2 Korea 17,806 14%
3 Turkey 10,340 4%
4 Hong Kong 10,305 -6%
5 India 9,752 5%
6 Indonesia 7,600 56%
7 Japan 7,023 12%
8 Pakistan 5,795 18%
9 Thailand 5,266 6%
10 Bangladesh 4,860 36%
*Export data of Pakistan and India for
year 2001-02
Export Data of Korea and Japan 2000

Although exports in the early years showed significant improvement with 13%
increase in 1999-2000 primarily due to demand increase of almost 14% in the
American market. This growth rate in Pakistan’s exports was higher than the
annual growth envisaged in the Doable scenario, but the exports were unable
to maintain the growth rates in the following years. Partly the reason of this
slow down can be attributed to the recession in the major markets like the
USA, which was further aggravated by the terrorist attacks of September 11,
2001.

Various multi-lateral agencies including the World Bank have also showed
concern about the global economic situation. According to the Global
Economic Prospects Report of the World Bank, the trade growth plummeted
to 1% in 2001 from 13% in 2000, which resulted in 10% drop in the demand
for developing countries exports. It further mentions that this is the first time
since 1982 that the economies of the USA, Europe and Japan have all turned
down at the same time, which makes this situation unusually risky. This
simultaneous downturn in the industrial world could also lead to an abrupt
ending to the strong recovery for developing countries that followed the Asian
Financial Crisis in July 1997.

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The post 9/11 situation for the textile exporters of Pakistan has not been very
encouraging. Major American brand names stopped placing orders due to the
uncertain and unstable situation in the region with the start of the Operation
Enduring Freedom. The mass mobilisation of the forces by the Indian
Government across the Pakistani border worsened the already tense
environment. The internal law & order condition also deteriorated with
frequent bomb explosion in Karachi. All these factors forced the American
Government to issue strong Travel Warnings on Pakistan to the American
citizens. These factors combined together dampened the export growth in
textiles.

On the basis of the targets set in the three scenarios, the actual export
performance of the textile sector is aligned to the Low Road projections. It is
worth mentioning that this scenario was based on a Do Nothing situation and
the growth in this scenario was based on historical export performance of the
sector. However, given the hostile extraneous factors, mentioned above,
retention of ranking and sustained growth underlines the positive
effects of the measures adopted under Textile Vision 2005, without
which the performance would have been worst.
Export Performance Comparison ($ million)

1998-99 1999-2000 2000-01 2001-02

(Base)∗
Actual Exports 5,104 5,741 5,933 5,795
Growth Rate 12.48% 3.34% -2.33%
Target Low Road 5,402 5,720 6,059
Target Doable 5,702 6,369 7,117
Target High Road 5,909 6,852 7,956
%low Road Realised 106% 104% 96%
% Doable Realised 101% 93% 81%
% High Road Realised 97% 87% 73%

Highlights of the last three years of textile exports:

 Pakistan’s textile sector remained heavily dependent upon the quota

markets i.e. the USA and the EU. The Textile Vision 2005 also emphasised
the need to diversify towards vital non-quota markets including Japan,
Hong Kong and the Middle East. The proposed diversification did not
materialise.

For performance review base year 1998-99 has been taken. In Textile Vision 2005 for global
comparisons purpose data was obtained from International Trade Centre, Geneva (ITC) that
was based on calendar year 1998.

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 The fibre consumption remained entrenched to cotton. The share of
manmade fibres in total mill consumption did not increase as envisaged in
the Textile Vision 2005.
 The unit price realisation in all the major markets and major product
categories experienced negative growth. Unit prices of yarn, fabric, made-
ups and garments declined since 1998-99. The export growth in the textile
sector, as envisioned in the Textile Vision 2005, was driven by increase in
unit price realisation in each product category. In retrospect it is evident
that the negative trends of unit value prices in global markets was not
incorporated in Textile Vision benchmarks.
 The primary focus of the garments sector remained on men garments,
whereas the Textile Vision 2005 explicitly highlighted the importance of
diversification towards women garments. This shift was not achieved.

Investments in the Textile Sector

The Textile Vision 2005 besides providing a road map to enhance the exports
of textile products also estimated the investment requirements for creation of
new capacity and up-gradation of the existing production base. All the
investment estimates were linked with the overall export performance of the
textile sector. The basic objective was to project total investment layout in
order to achieve a specific level of exports. For the year 2001 a total of Rs 24
billion was estimated as the investment requirement. Although the total
disbursements exceeded the requirement by almost 21% but the direction of
the investment was not in alignment with the one envisaged in the Textile
Vision 2005.

The Textile Vision 2005 clearly mentioned that in the initial years heavy
investment will be needed to create additional capacity in the apparel industry
however, total disbursement to this sector was only 36% of the target. Also
processing was suggested to be developed on war footings in order to
support the garment manufacturing but unfortunately the total disbursement in
processing was only 49% of the targeted amount. From within the traditional
sectors bulk of the investment has gone to the spinning industry, infact 56% of
the total investment in the textile sector during 2001 has been directed
towards the spinning industry. The disbursement to spinning was three times
higher than the amount estimated in the Textile Vision. Although heavy
investment were forecast in the spinning sector so as to create a processing
capacity of 13 million bales but these were to take place from the year 2003
onwards.

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The bright side of the investments in textile industry is the high investment in
the Air Jet weaving segment, the actual disbursement for which exceeded the
target by almost 55%. Such investments are likely to fuel value addition in
garments manufacturing by indigenously providing a diverse range of fabrics.
However, the Textile Vision also mentioned the importance of state of the art
synthetic fabric weaving technology. This can play an instrumental role in
providing high quality synthetic fabrics to the apparel sector which can
penetrate the global woven women-wear markets. The investments in Water
Jet weaving sector are not at all in line with the recommendations of the
Textile Vision 2005.

The disbursements in the first quarter of 2002 also indicate that the focus of
investment will remain in the spinning industry. It would be premature to
comment on the overall investments in the textile sector but there exist some
positive signs of up-gradation and modernisation in the processing and Air Jet
weaving sector, which in the long run will definitely be helpful to the apparel
sector in further value addition by product diversification.

Table 0.1: Investments in Textile Industry of Pakistan (Rs Billion)

Target for Amount % of
2001 Disbursed Target

Priority Sectors
Apparel (Stitching) 6.4 2.282 36%
Knitting 1.8 1.289 72%
Processing & Finishing 4.1 1.989 49%
Total 12.3 5.56 45%
Traditional Sectors
Weaving 0.325
Air Jet 2.4 3.726 155%
Water Jet 2.4 0.582 24%
Spinning 5.2 16.344 314%
Polyester Fiber 1.8 2.703 150%
Total 11.8 23.68 201%
Grand Total 24.1 29.24 121%

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The above numbers denote that while the aggregate impact of Government
policy initiatives yield growth in investments, it failed to stimulate
diversification of products and investments that was the fundamental essence
of the proposed vision. Additionally, the large growth in investments in
spinning sector was driven by a trough in the international cotton prices over
the past three years, allowing the spinners to import high quality,
contamination free raw cotton freely and reduce their input costs on domestic
cotton lint.

Key policy decisions in line with the Textile Vision 2005

 Formulation of a Textile Board with representation from private and public

sector. The Board reviews the export performance of the textile sector and
also deliberates upon the policy interventions to facilitate export growth
 Removal of all regulatory controls on cotton trade to ensure free
availability of inputs to the textile sector at international parity prices
 Campaign to produce contamination free cotton in the country to promote
value addition. As a result of which cotton prices now being quoted on
PSCI grade standards. Work is also under progress on Cotton Standards
Ordinance that is expected to be finalised soon.
 The provincial Cotton Control Act was amended in Punjab and Sind to
incorporate anti contamination and quality clauses
 The Government initiated work on the possibilities of establishing cotton
hedge markets in Pakistan that has now materialised in the formation of
forward trading agency on the Karachi Cotton Exchange.
 With the view to improve the quality of domestic cotton, SMEDA initiated a
programme for technology up-gradation of ginning in Pakistan
 In order to up-grade weaving sector in Pakistan SMEDA initiated a
programme to up-grade power loom sector that produces majority of the
fabric in the country
 With the view to provide due protection to the textile industry of Pakistan,
the Government promulgated the Anti Dumping Ordinance
 To ensure duty free availability of inputs for the textile exporters the
Government formulated Duty & Tax Remission for Exports (DTRE) rules.
(although it did not receive a welcoming response from the exporters as
the utilisation remained very low. During 2001-2002 only 317 exporters
benefited from the scheme). In order to rationalise the rules the
Government has formulated a stakeholder committee.
 With the objective to increase the consumption of manmade and synthetic
fibres in the country the Government announced compensatory export
rebate for synthetic textiles

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 To provide incentives for value addition Export Refinance on yarn was
withdrawn. To enhance the competitive advantage of the textile sector the
Export Refinance rates were also rationalised by the State Bank of
Pakistan
 The Government successfully negotiated enhanced market access with
both the EU and the USA resulting in lowering of import duties and
increase in quota limits. The EU increased Pakistan’s quota by 15% for all
categories and also extended zero rate of customs duty on Pakistani
products under GSP, except for textile yarn and fabric.

While the Textile Vision 2005 projections may not have met with expected
achievement of targets, many of the above mentioned policy initiatives and
programs have been instituted and their positive impact will begin to manifest
within the next year, extending to a few more years down the road. The
original target of preparing the textile industry for the post MFA phase out
situation is still within reach if the current policy trends are sustained in the
future.

The major deficiency in policy direction recommended by the Textile Vision

2005 has been in the Textile Quota allocations, where only one component of
the strategy has been adopted. i.e legal cover has been provided to the quota
policy for consistency, while its shift from performance to value addition has
not been incorporated. That, perhaps, accounts for the lack of diversification
and qualitative shift in value added sub-sectors of textile industry.

Individual Segment Analysis

Cotton

Textile Vision 2005 had envisaged that competitive advantage of Pakistan’s

textile sector would continue to be based on supply of domestically grown
cotton lint. In this, growth was projected in terms of progressively increasing
production through both, yield per acre and area under cultivation. And the
shift towards higher value addition was to be based on enhancement of
domestic lint quality in terms of staple length, better grading and elimination of
contamination. However, in line with the fundamental principle, qualitative
and quantative progress was to be made under a free trade policy both for
import and export of cotton lint.

Despite the depressed lint prices, cotton policy has been aligned with the
Textile Vision recommendations with positive results in quantity and quality of
domestic lint. Free trade policy was adhered to and market mechanisms were

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put in play with a safety net for growers through TCP’s strategic support at
minimum market intervention. The lint production, export and domestic
consumption projections have been met fairly adequately over the past two
years.

Consumption Projections envisaged in Textile Vision 2005 (Bales)

2001 2002 2003
MMF 2,686,619 2,746,321 2,806,024
Cotton 9,000,000 9,866,610 10,816,666
Total 11,686,619 12,612,931 13,622,690

The total production of cotton was projected to reach 16 million bales by the
year 2005 and it was assumed that after meeting the domestic demand of 13
million bales, 2 million bales would be available for exports and one million
kept as buffer stocks. The production figures are in line with the projections
given above.

Actual Production, Consumption and Trading – 000 bales

1998-99 1999-00 2000-01 2001-02

Production 8,790 11,240 10,681 10,900
Consumption 8,518 9,456 9,843 10,500
Imports 1,313 421 971 1,400
Exports 9 575 678 250
TCP Purchase 0 525 11 257

The cotton production is leading projections till hence but future trend is
somewhat threatened by irrigation water shortages which will be offset by
area increase in Baluchistan and NWFP. However, with the sharp increase in
spinning capacity, there is little possibility of supply exceeding demand. The
envisaged increase in manmade fibre production is also meeting current
demand levels.

TCP has played an effective role as a third buyer to support lint prices from
the growers’ perspective and support prices announced by the Government
has been met to a very large extent. The drive for reducing contamination,
launched with collaboration of Punjab Government with amendments in the
Cotton Control Act is beginning to show positive results. In Rahimyarkhan
District where the program was launched in 2001-2002 the average
contamination was drastically reduced from 26 grams per bale to 6 grams per
bale. The program is now being extended to other areas of Sind and Punjab.

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With the enactment of Cotton Control Act and strengthening of PCSI, cotton
grading mechanisms are in place and are affecting production of better quality
cotton lint.
The program for up-gradation of the Ginning Technology, combined with the
above mentioned steps taken, will provide the envisaged shift towards value
addition from the raw material phase onwards within the next two years.

Yarn

The Textile Vision 2005 was based on the premise that in order to take
maximum benefit from the liberalisation of global trade in textiles, textile
sector of Pakistan should transform itself from a producer of low value added
products to high value added products. In all the scenarios, except for the Low
Road, the textile garment and made-ups sectors were considered as the
growth drivers. It was further assumed that a growth in these segments would
create a demand pull in the upstream sectors of weaving, processing and
spinning. This will lead to technological up-gradation in these segments and
will facilitate the movement to higher value addition.

As is the case with the overall export performance of textile sector, the
spinning industry also showed high growth in 1999-2000, but this sudden
increase was not sustainable over the next few years. The projections in the
Textile Vision for spinning industry were driven primarily by two factors, firstly
it was assumed that the spinning industry capacity will be enhanced to enable
it to process upto 13 million bales by the year 2005 and secondly the growth
in the downstream industry was likely to trigger a sharp increase in demand.
As far as the capacity enhancement is concerned the number of installed
spindles was increased from 8.3 million in 1998-99 to 8.8 million in 2001-02.
The capacity utilisation increased by almost 8%, from 6.6 million spindles to
7.1 million spindles during the same period. This increase in processing
capacity and higher utilisation is likely to increase the consumption of cotton in
the spinning sector which for the year 2001-02 is estimated to exceed 10
million bales. During the previous year the mill consumption of cotton was
around 9.8 million bales.

Export Performance Comparison Yarn ($ million)

1998-99 1999-2000 2000-01 2001-02
(Base)
Actual Exports 1,010 1,162 1,147 942
Growth Rate 15.05% -1.29% -17.87%
Target Low Road 1,091 1,179 1,273

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Target Doable 1,122 1,245 1,382
Target High Road 1,112 1,223 1,345
% low Road Realised 107% 97% 74%
% Doable Realised 104% 92% 68%
% High Road Realised 104% 94% 70%

The value increase of yarn exports in Textile Vision 2005 was highly
dependant upon the product mix of the spinning sector. Both the high
utilisation of man-made fibres and a shift from low value added coarse counts
to high value added fine and super fine counts was envisaged to achieve high
unit price realisation. The consumption of manmade fibres has remained
stagnant at around 20% of the total mill consumption during the last three
years. The proportion of blended yarn in the total production has been
hovering around 22% to 24%. The overall situation has remained unchanged
and there exist no positive signals that indicate a major shift in mill
consumption pattern to increased utilisation of manmade fibres.
However, it is pertinent to mention here that the total production base of
manmade fibres has increased from 441,000 tons in 1998 to 625,000 tons
with capacity enhancement of 145,000 tons by Ibrahim fibres and 45,000 tons
by the ICI Pakistan. The existing production level of polyester fibre in Pakistan
is close to the production target of 655,000 tons, as estimated in the High
Road scenario of Textile Vision 2005. A rapid shift towards manmade fibres is
heavily dependant upon the increase consumption of blended fabrics in the
weaving and apparel sectors.
Fibre Consumption in Spinning Industry (000 kg)

1996-97 1997-98 1998-99 1999-00

Cotton 1,444,368 1,471,219 1,441,923 1,566,

Cotton M Bales 8.50 8.65 8.48 9
MMF 236,692 318,919 407,686 404,
MMF M Bales 1.39 1.88 2.40 2
Total Kg 1,681,060 1,790,138 1,849,609 1,970,
Total M Bales 9.89 10.53 10.88 11

Similarly the product mix based on yarn counts has also remained
unchanged, the coarse and medium count yarns still remain the main stay of
the spinning industry. This continues to result in low unit price realisation of
the Pakistani yarn in the international markets. The average unit price of yarn
during 2001-2 remained at US $ 1.97/kg, which when viewed in retrospect

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gives a dismal picture as these prices are even lower than the average unit
price realisation of US $ 2.32/kg during 1991-92.

Count Wise Production of Yarn 2001-2

Coarse 64.00%
Medium 31.58%
Fine 2.87%
Super Fine 1.55%

Fabrics

Both in the Doable and High Road Scenarios of the Textile Vision 2005, the
export growth rate for fabric was kept the same at 12%. The reason for this
was that in High Road scenario it was assumed that 50% of the fabric
consumption in the apparel sector would be met through imported fabrics.
However the fabric exports over the past three years have not even been able
to match the historical growth rate of 7%, as given in the low road scenario.
Given the production of textile yarn, the estimated increase in fabric
production is almost 25% since 1998-99. The total production of fabric was
4.4 billion sqm in 1998-99, which currently stands at 5.5 billion sqm.

Export Performance Comparison Fabric ($ million)

1998-99 1999-2000 2000-01 2001-02
(Base)
Actual Exports 1,584 1,621 1,648 1,542
Growth Rate 2.34% 1.67% -6.43%
Target Low Road 1,695 1,813 1,940
Target Doable 1,774 1,987 2,225
Target High Road 1,774 1,987 2,225
% low Road Realised 96% 91% 79%
% Doable Realised 91% 83% 69%
% High Road Realised 91% 83% 69%

The important factor is export product mix of fabric, which comprises almost
40% of the unprocessed fabric. The dyed fabric which fetches high unit prices
in the international markets has a small share of 14% in the total exports of
fabrics. The Textile Vision 2005 envisaged increased value addition in the
fabric exports through higher exports of fabric in dyed and printed form. The
unit price realisation of fabric does not depict any movement of the textile
industry in that direction. The average unit price realisation of fabric in 2001-2

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was US $ 0.6/sqm which is 40% lower than the average unit prices in 1996-
97.

Imports of Fabric Manufacturing and Processing Equipment US $ 000

1998-99 1999-00 2000-01

Import of Weaving and

55,184 70,725 96,539
Knitting Machines
Growth Rate % 28.16% 36.50%
Import of Processing
22,286 43,879 41,869
Equipment
Growth Rate % 96.89% -4.58%

Nevertheless, there are certain sings of improvement in the overall

infrastructure for fabric production and processing. The total imports of fabric
manufacturing equipment, including woven and knit fabrics, have picked up
over the past few years. The imports over a period of three years, from 1998-
99 to 2000-01, were US $ 222 million. During the same period the import of
textile processing equipment was US $ 108 million. The total investments in
the first year of projections, starting 2001, in both the Doable and High Road
scenarios of Textile Vision 2005 for fabric manufacturing and processing were
estimated around US $ 333 million, which is close to the investment made in
these sectors during the past years. This further signifies that although
investments have been made but the results in exports are not visible due to
the fact that most of the production is still directed towards low value addition.
The increased imports of fabric manufacturing and processing equipment
have definitely impacted the export performance of textile made-ups, but the
depth of the garments manufacturing sector has not increased to the extent
so as to create a demand pull in the weaving, knitting and processing sectors.

The only encouraging factor in fabric exports is the high growth rate of
synthetic fabric exports that have grown at an annual average rate of 17%
from 1998-99 to 2000-01. During 1998-99 synthetic fabrics comprised only
25% of the total exports of fabrics whereas, in 2000-01 their share increased
to almost 33%. This high growth in the synthetic fabrics is in line with the
changing global trends, but still the uptake of synthetic fabrics in the domestic
apparel industry is very limited.

Textile Made-ups

Since the adoption of Textile Vision 2005, the only textile segment that has
outperformed the whole industry is the textiles made-ups. Over the past three

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years the exports growth in this category has surpassed the historical growth
rate of 7%. Even the annual average growth rate, almost 13%, is much higher
than the growth rate assumed in the Doable scenario. Although the growth
rates are much lower than that of the High Road scenario, but in view of the
overall performance of the textile sector it would not be incorrect to state the
performance of the sector as satisfactory.
Export Performance Comparison Made-ups ($ million)
1998-99 1999-2000 2000-01 2001-02
(Base)
Actual Exports 1,116 1,300 1,399 1,587
Growth Rate 16.49% 7.62% 13.44%
Target Low Road 1,195 1,278 1,367
Target Doable 1,217 1,326 1,446
Target High Road 1,351 1,635 1,978
% low Road Realised 109% 109% 116%
% Doable Realised 107% 106% 110%
% High Road Realised 96% 86% 80%

On the basis of overall targets in each scenario, the total exports of textile
made-ups exceeded both the Low Road, which represented a Do Nothing
situation, and the Doable scenario, that assumed considerably high growth for
the segment. Here one thing also becomes evident that a large chunk of
investment in fabric manufacturing and processing mentioned above has
been directed towards the made-ups segment. Another important aspect of
this export growth is the increased market access particularly in the European
region in which the Government of Pakistan played an instrumental role in
post 9/11 trade negotiations.

Quota Utilisations and Unit Price (US $) Comparison of Made-ups

Upto 20th Upto 20th Upto 31st Upto 31st Upto 31st Upto 31st
June, 2002 June, 2001 December, December, December, December,
2001 2000 1999 1998
Products Quota Unit Quota Unit Quota Unit Quota Unit Quota Unit Quota Unit
Utilised Price Utilised Price Utilised Price Utilised Price Utilised Price Utilised Price
USA
Sheets (No) 36% 5.23 27% 4.74 116% 4.53 103% 4.41 109% 7.51 112% 3.86

Terry and Other

43% 1.1 49% 1.21 112% 1.18 103% 1.2 105% 1.14 96% 1.18
Pile Towels (No)
European Union
Woven Terry Toilet 49% 3.93 40% 4.02 98% 4.02 99% 4.39 95% 4.95 96% 5.54

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Linen (Kgs)

Bed Linen (Kgs) 39% 5.09 30% 5.68 97% 5.29 95% 6.02 97% 6.02 99% 6.71

Toilet, Kitchen &

25% 3.07 25% 3.34 59% 3.26 72% 3.33 61% 3.69 74% 4.2
Table Linen (Kgs)

The export growth in the made-ups category is primarily driven by volume

increase in Towels and Bed wear segments. In volume terms the Towel
exports registered a volume increase of 58%, which increased from 43 million
kgs in 1998-99 to 68 million kgs 2001-02, similarly the bedwear segment
increased by almost 40% up from 109 million kgs to 150 million kgs during the
same period. Pakistan has over the years been able to develop textile made-
ups as it niche product in both the major markets i.e the USA and the EU. The
past quota utilisations also suggest the same. The penetration of Pakistani
made-ups in the USA market has remained very high, this is also visible in
high quota utilisation of made-ups in the USA, but post September 2001
scenario suggests that by December 2002 the situation will change. Instead of
the American market, the EU market will absorb greater volumes of Pakistani
textile made-ups.

Despite the fact that the textile made-ups have shown promising export
growth, but the growth is being driven by increased volumes and not value.
The unit price realisations in all the major categories of textile made-ups have
plunged to very low levels. Case in point is the unit value of Bed wear in the
EU market, which has dropped by almost 25% since 1998, the towels
category showed a similar fall in prices. The major concern is that Pakistani
textile products have not been able to move to the upper rung of the ladder in
terms of value addition. Whereas Textile Vision 2005 derived its basis from the
principal of value addition throughout the textile value chain. In both the
scenarios, Doable and High Road, it was assumed that the average unit price
of textile made-ups should increase by 7% every year, on the contrary made-
ups have experienced negative growth in unit prices depicting the presence of
Pakistani products in low end product markets.

Garments

The garments segment of the textile value chain undoubtedly has the
potential to drive the growth in the upstream textile industry. The focus of
domestic spinning industry in coarse count cotton yarns, the inclination of the
weaving sector towards coarse cotton fabric, limited capability of processing
sector in dyeing, printing and finishing and the overall high consumption of

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cotton fibre can all be transformed by broadening the product base of garment
manufacturing in Pakistan.

It is for this reason that highest growth rates were assigned to this segment in
both the Doable (14%) and High Road (20%) scenarios of Textile Vision 2005.
The garments segment experienced unprecedented growth (18%) in 1999-
2000, with US $ 1.7 billion worth of exports. The primary reason is the 14%
increase in overall textiles imports in the USA during 2000. This growth
however dampened in the following years leading to an overall average
growth of 7% for the garments sector since 1998-99. In terms of targets, as
the historic growth rate estimated in Textile Vision 2005 for garments was 2%,
the actual performance was much better than the low road scenario. However,
the export trend in the past three years shows widening gap between actual
exports and those estimated in the Doable and High Road Scenarios.
Export Performance Comparison Garments ($ million)

1998-99 1999-2000 2000-01 2001-02

(Base)
Actual Exports 1,394 1,658 1,739 1,724
Growth Rate 18.94% 4.89% -0.86%
Target Low Road 1,421 1,450 1,479
Target Doable 1,589 1,811 2,064
Target High Road 1,672 2,007 2,408
% low Road Realised 117% 120% 117%
% Doable Realised 104% 96% 84%
% High Road Realised 99% 87% 72%

The slow pace of garments export growth is not only due to the internal
factors, certain external factors including the sluggish growth in the American
economy since mid 2000 and most importantly the happenings of September
11, 2001 had a negative effect on the apparel industry of Pakistan. The
apparel sector in almost all the developing countries has been hit by this
phenomenon. The USA is the single largest importer of Pakistani garments,
almost 65% of the total garments are exported to the USA. Such a high
reliance on retail sales in American market places the Pakistani apparel
industry in a vulnerable position, a recession in the USA can play havoc with
the export growth of the apparel industry. There are certain factors that can
never be incorporated in future projections. For obvious reasons issues like
9/11 were also not taken into consideration while formulating the Textile Vision
2005.

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The negative effects of downturn in the American economy are clearly
reflected in the quota utilisations of the Pakistani garment sector. Current mid
year level of quota utlilisation is much more less than previous years
utilisations. In the knit shirts category, the quota utilisations have always
remained above 100% for the USA market but the utilisation figures upto June
2002 suggest that this years utilisation will bearly reach 70%. However, the
utilisations in the EU markets have remained kept their traditional pace.

The knit and men garment segment has traditionally remained the focus of the
apparel industry in Pakistan. There exists some evidence of change in this
segment to realign itself in order to enhance penetration in the woven
garments segment but the women garments area still remains unexplored.
The volume of woven garments has increased by almost 28% since 1998-99,
and during the same period the increase in the volume of knit garments was
only 22%. The Textile Vision specifically figured out that if the garment
industry was to act as the engine of textile exports growth it must broaden its
manufacturing base by aggressively diversifying towards the woven and
women garments. This shift is only possible through greater usage of
synthetic and blended fabrics in the production of garments. The broadening
of the textile base will also be helpful to the industry in enhancing value
addition and maintaining unit price realisations in the international markets.

The Textile Vision 2005, based on the assumption of 7% increase in unit value
of garments, envisioned a high growth in exports of the garments but the
actual performance of unit prices reveals a dismal scenario. The unit prices in
the USA have declined by almost 24% since 1998, and in the EU market this
decline is to the tune of 22%. Considering the effect of negative growth in unit
prices and the global recessionary trends, the garments exports were able to
maintain export levels of 1999-2000.

If the apparel industry were to act as the driver of export growth and the textile
sector as a whole was to progress through sustainable growth, particularly
beyond 2004, massive realignment both through product and market
diversification will be required. Currently only fragmented efforts can be
observed which is the consequence of severe price pressures on the apparel
industry. At this point in time a concentrated effort to restructure the apparel
manufacturing base is needed that will set the platform to enable the
garments export take-off.

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Quota Utilisations and Unit Price (US $) Comparison of Garments
Upto 20th Upto 20th Upto 31st Dec Upto 31st Dec Upto 31st Dec Upto 31st Dec
June, 2002 June, 2001 2001 2000 1999 1998
Quota Unit Quota Unit Quota Unit Quota Unit Quota Unit Quota Unit
Utilised Price Utilised Price Utilised Price Utilised Price Utilised Price Utilised Price
USA
Knitted Shirts M&B (Doz) 33.49% 46.85 53.41% 50.99 102.76% 52.75 107.41% 52.49 100.69% 53.83 93.30% 61.46

Knit Shirts M&B (Doz) 23.00% 22.12 52.55% 30.17 82.31% 32.32 95.34% 32.1 93.21% 27.51 24.80% 37.85

Knit Shirts & Blouses

31.63% 32.15 40.43% 41.72 88.35% 40.31 99.44% 39.55 97.62% 40.46 91.62% 37.58
W&G (Doz)

Shirts Not Knitted M&B

17.13% 36.18 31.86% 45.91 68.88% 43.99 93.28% 43.72 102.43% 47.78 86.27% 53.71
(Doz)

Shirts & Blouses Not

4.48% 28.89 11.12% 32.44 18.84% 33.44 43.73% 34.17 29.09% 33.29 90.26% 38.06
Knitted W&G (Doz)

Trousers,& Shorts M&W 40.84% 56.16 43.43% 66.98 106.43% 64.28 98.88% 70 103.12% 63.35 104.65% 64.2

European Union
Knitted Shirts M&B (Pcs) 40.57% 1.81 40.78% 1.72 79.13% 1.78 92.48% 1.92 94.14% 2.07 86.44% 2.53

Shorts/Trouseer (Pcs) 47.26% 4.34 43.66% 4.22 100.24% 4.35 98.43% 4.41 92.62% 4.57 86.64% 4.81

Blouses (Pcs) 17.78% 1.53 11.90% 1.59 19.92% 1.81 19.48% 2.22 26.70% 2.46 59.19% 2.49

Shirts (Pcs) 7.32% 2.91 6.77% 3.26 18.15% 3.15 21.03% 3.17 32.28% 3.22 46.24% 3.67

Conclusion

The actual performance of the textile sector is a mixed bag with the following
key notes:-

1. Cotton Policy has been on track in terms of production and shift

towards quality enhancement
2. Overall increase in Value of exports, despite adverse extraneous
factors, has held it ground, but not met the envisaged targets.
3. Overall growth in exports is led my made ups and the desired shift
towards garments has yet to materialised.
4. The paradigm shift to value addition through product diversification and
qualitative improvement in every segment of the textile sector has not
occurred, although a basic framework for the shift has been put in
place.
5. Investments in value added products (processing and finishing) are
taking place but at a slower pace than envisaged.
6. When and if the global market situation improves and domestic security
issues are resolved, the fundamental strength of the textile industry is

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in position to take advantage of the opportunities and reach for the
original goals envisaged in the Vision.

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