Textile Sector Faces Stagnation: High Energy Costs and Lack of Diversification Threaten Export Growth

December 31, 2024 Mahi Bukhari

Introduction

The textile sector in Pakistan, once a beacon of hope for substantial export revenues, has encountered significant obstacles in recent years. Despite efforts to bolster this critical industry, 2024 has proven to be a challenging year for Pakistan’s textile sector. This article delves into the multifaceted issues plaguing the industry and the potential strategies to rejuvenate it.

Textile Export Performance in 2024

Fiscal Year 2023-24 Overview

In the fiscal year 2023-24, textile exports demonstrated a marginal growth of 0.93%, accumulating a substantial $16.7 billion in revenue. However, the performance in the initial months of FY25 indicated a mixed trend. The first five months of FY25 saw textile exports reach $7.607 billion, a 10.51% increase compared to the corresponding period of the previous year.

Calendar Year 2024 Summary

Despite early optimism, textile exports for the first 11 months of 2024 totaled only $15.43 billion. Industry experts predict that December’s figures will hover around $1.5 billion, resulting in an annual total slightly below $17 billion.

Factors Contributing to the Stagnation

Political Instability

Political uncertainty has been a significant deterrent for the textile sector. Persistent political turbulence over the past two years has eroded international buyers’ confidence in Pakistani textile millers. This loss of trust has led to a substantial 40% decline in export orders, with many buyers redirecting their orders to countries like Vietnam.

Lack of Product Diversification

Product diversification remains a critical challenge for Pakistan’s textile industry. While international competitors like Vietnam offer a wide range of textile products at competitive prices, Pakistani millers have struggled to expand their product lines to meet diverse market demands. This lack of diversification has impeded the industry’s ability to capitalize on shifting global market dynamics.

Energy Costs and Infrastructure

High energy costs have further exacerbated the challenges faced by the textile sector. The industry’s reliance on costly energy sources has led to the contraction of mills and the redirection of orders to more cost-effective destinations. Additionally, infrastructural deficiencies and inconsistent power supply have hindered the sector’s growth prospects.

Government Policies and Taxation

Recent Tax Reforms

The Federal Board of Revenue (FBR) recently included the textile sector in the normal tax regime, increasing the advance tax rate from 1% to 2%. This change, coupled with stringent requirements for business detail submissions, has placed additional financial burdens on textile millers. As a result, many companies have opted to relocate their operations to more favorable tax jurisdictions like Dubai.

Impact on Export Revenues

The shift to Dubai has led to under-invoicing of export orders by Pakistani millers, potentially resulting in a further decline in export revenue. Industry analysts warn that these tax policies, combined with political tensions, could severely hamper the sector’s recovery efforts.

Future Outlook and Potential Solutions

Anticipated Challenges

Looking ahead, the textile sector faces several looming challenges. High energy costs, a potential cotton crisis due to the shutdown of spinning units, and geopolitical tensions, including the Russia-Ukraine war and Middle East conflicts, are likely to impact global trade dynamics.

Strategic Recommendations

To navigate these challenges, the following strategies are recommended:

Enhanced Product Diversification: Invest in research and development to diversify the product portfolio and meet the evolving demands of international markets.
Energy Efficiency Measures: Implement energy-efficient technologies and alternative energy sources to reduce production costs.
Policy Reforms: Advocate for favorable government policies that support the textile sector’s growth and competitiveness.
Infrastructure Development: Improve infrastructural facilities to ensure a stable and reliable supply chain.
Market Expansion: Explore new markets and strengthen trade relations with emerging economies.

Conclusion

In conclusion, the textile sector in Pakistan is at a critical juncture. Addressing the challenges of high energy costs, political instability, and lack of product diversification is imperative for revitalizing the industry. With strategic interventions and collaborative efforts between the government and industry stakeholders, the textile sector can overcome its current stagnation and achieve sustainable growth.

FAQs

1. What are the main factors contributing to the stagnation of Pakistan’s textile sector?

The primary factors include political instability, high energy costs, lack of product diversification, and recent tax reforms by the FBR.

2. How has political instability affected the textile industry?

Political instability has led to a loss of confidence among international buyers, resulting in a significant decline in export orders and redirection of business to other countries.

3. What steps can be taken to improve product diversification in the textile sector?

Investing in research and development, expanding product lines, and adapting to international market demands are crucial steps for improving product diversification.

4. How can the government support the textile industry?

The government can support the industry by implementing favorable tax policies, providing incentives for energy efficiency, and investing in infrastructure development.

5. What is the impact of high energy costs on the textile sector?

High energy costs have led to increased production expenses, contraction of mills, and redirection of orders to more cost-effective destinations, negatively affecting the sector’s competitiveness.