Once a thriving, prosperous industry, Pakistan’s textile industry went into crisis last year, losing half a million jobs by September as the country’s exports (60% of which are textile products) fell to their lowest in six years.
The textile industry employs approximately 30% of Pakistan’s population—mostly in Karachi and Faisalabad—but this number is decreasing as textile mills and factories close and textile jobs are lost. Since 2014, more than 100 textile manufacturing companies in Pakistan have been forced to close their factories.
Insufficient energy production is the country is one of the root causes of the industry’s woes. Each time the power goes out, production is halted entirely. Often, factories are without electricity for hours at a time. This inconsistency in productivity lowers clients’ confidence in textiles and production from Pakistan, causing them to instead choose to do business with factories in competitor countries like Bangladesh, Vietnam, China, and India. Most of the factories in Pakistan that have been forced to shut down are small and medium-sized ones that were losing too large a percentage of their profits with each power outage. Larger factories that are able to afford their own diesel generators to provide their own power have, for the most part, been able to survive. Shortages of natural gas also have a negative effect on the textile industry’s productivity. It powers the looms, but is often subject to week-long shortages. Some estimates say that demand for natural gas in Pakistan exceeds supply by as much as 15-20%.
This energy shortage has a negative effect on workers, too: when the factories do not have power and the looms are not working, the workers do not get paid. Many who have not been laid off have been forced to leave the industry and find other employment as they are not able to make a living waiting for the lights to come back on. This is resulting in thousands of workers leaving major textile production hubs like Faisalabad and Karachi.
Fortunately, the government coming to the textile industry’s rescue, promising to prioritize the textile industry and end power cuts by 2018. During 2017, improved energy and gas supplies will help to reduce the number of power outages and their impact on textile manufacturing.
On January 10th, 2017, the Pakistan government announced a package worth USD 1.72 billion to revitalize the industry. The package involves tax cuts, including the removal of customs duty and sales tax on imported cotton. Sales tax on imports of textile machinery has also been removed. The government also announced new duty drawback rates on products including textiles and garments (7%), made-up textile articles (6%), processed fabric (5%), and yarn and grey fabric (4%). According to officials from Pakistan’s Textile Ministry, the package will give the textile industry the potential to double its exports to $26 billion and will create 3.5 million textile jobs. The package is expected to reduce the overall cost of doing business for textile manufacturers and will allow textile mills and factories to acquire new, advanced technology, increasing productivity and profits.
Another issue holding back the industry is security. Security issues in Pakistan have deterred many companies concerned about safety from doing business there in recent years. Bangladesh and Vietnam, major competitor countries in this industry, are perceived by many as safer to visit and do business in. In 2015, there were 3,682 terrorism-related deaths in Pakistan compared to 31 in Bangladesh and virtually none in Vietnam. However, Pakistan has worked to increase national security, and the number of terrorism-related deaths in Pakistan in 2016 was reduced significantly to 1,803 in 2016.
With these improvements in security and energy, and beneficial tax cuts provided by the government, Pakistan’s textile industry is set to re-establish itself as a major competitor in the near future. As it has lower wages and production costs than China, it also has the potential to attract business from clients looking to move from China for cheaper sources of labour.
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