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ANALYSIS OF TEXTILE INDUSTRY OF PAKISTAN 2014
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MEHWISH NASEER (55063) Page 1
PAF- KARACHI INSTITUTE OF ECONOMICS AND
TECHNOLOGY
FINAL YEAR PROJECT
FINANCIAL ANALYSIS OF NISHAT TEXTILE MILLS
PAKISTAN LIMITED WITH OVERALL TEXTILE
INDUSTRY OF PAKISTAN
Supervisor
Mr. Jalal Ahmed Khan
April 2014
Submitted By
Mehwish Naseer
(55063)
The Degree Requirement For:
Bachelors of Sciences in Accounting and Finance
Department Of Management Sciences
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THESIS APPROVAL
Thesis title: FINANCIAL ANALYSIS OF NISHAT TEXTILE MILLS PAKISTAN LIMITED WITH OVERALL
TEXTILE INDUSTRY OF PAKISTAN
Submitted By Mehwish Naseer
Thesis Supervisor: Mr. Jalal Ahmed Khan
Academic year: 2010-2014
The board of studies at PAF-KIET has approved this Thesis, submitted in partial fulfillment
of the requirement for the Degree of Bachelors in Sciences of Accounting and Finance.
Approval
Jalal Ahmad Khan Adnan Anwar
(Supervisor and Program Manager) (Director Management
Science)
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LETTER OF TRANSMITTAL
Mr. JALAL AHMED KHAN
Instructor, Finance
PAF KIET
Respected Sir,
I have chosen to do a comparative study on Nishat Textile Mills Pakistan Limited with
Textile Industry. I have chosen this topic to study and analyze the financial reports and
performance which has been assessed through studying various Textile Industry trends and
Karachi Stock Exchange provided information.
During this research, I have analyzed five public listed companies at Karachi Stock Exchange
of Textile Industry and attempted to study their business cycle as well as their business trend.
All the companies chosen are considered as one of the giants of the Pakistan. During the
analysis, all the factors of industry growth are considered and a complete market analysis has
been made. Calculations and different methodologies are used to measure the performance of
textile sector while discussing those areas which has a potential.
I would like to thank you for giving me the opportunity to conduct my research and expand
my horizons. I appreciate the support you have given throughout my efforts. I have tried my
best to provide all the relevant information, and would be pleased to answer any of your
queries.
Regards,
Mehwish Naseer (55063)
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LETTER OF AUTHORIZATION
Dear Reader,
Mr. Jalal Ahmed Khan (Supervisor for Final Year Project), as the requirement of the Final
Year Project authorized this report submission on FINANCIAL ANALYSIS OF NISHAT
TEXTILE MILLS PAKISTAN LIMITED WITH OVERALL TEXTILE INDUSTRY
OF PAKISTAN
For preparing a detailed report on this topic, I thank all those who have provided me with
their valuable assistance so that I have taken the responsibility to complete the report in the
assigned time.
Regards,
Mehwish Naseer (55063)
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ACKNOWLEDGEMENT First Of All I Thankful To Almighty ALLAH Who Gives Me Power To
Complete The Project.
I Owe A Great Many Thanks To A Great Many People Who Helped And
Supported Me During The Work On Project. My Deepest Thanks To My
Supervisor Mr. Jalal Ahmed Khan, He Guided Me In Every Stage Of
Completing Project And Corrected Various Mistakes Of Mine With Attention
And Care. The Material Compiled And Presented In This Report Is A Result Of
Immense Hard Work And Its Subject To Information And Data Provided By
Nishat Textile Mills And Other Members Of The Textile Industry. I Am
Grateful To The Help And Support Extended To Me And I Acknowledge Their
Assistance With Deep Admiration.
I Would Also Thank To My Institution PAF-KIET And My Seniors Without
Whom This Project Would Have Been A Distant Reality. I Also Extend My
Heartfelt Thanks To My Family Specially My Father Hafiz Mohammad
Naseer And My Mother Raeesa Naseer Without Whom I Wasnt Able To
Do Anything, And My All Well Wishers.
Mehwish Naseer
(55063)
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METHODOLOGY
Nishat Mills Limited (standalone) analysis has been compared with Textile industry as a whole.
Five Companies (Gul Ahmed, Ibrahim Fibers, Kohinoor, Din Textile and Deewan) financial data has been gathered, analyzed and considered
as industry for Project purposes and analysis is been done as to compare
the base of company
Trend analysis (horizontal) for seven years has been done for the company and industry.
Comparative analysis (vertical) has been done to compare the company with industry financials.
Ratio analysis for various categories has been done in detail to analyze financial position and performance of the company and the industry.
Theoretical PESTEL, PORTER and SWOT have been undertaken to study the underlying factors affecting the financial performance of the
industry.
The Karachi Stock Market performance has been compared with that of the Textile industry. Risk factors have been analyzed to arrive at the Cost
of Equity of Nishat Mills ltd. and attractiveness of its shares for investors.
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PROJECT DIMENSIONS
COMPANY NAME: Nishat Textile Mills Pakistan Limited
SECTOR: Personal Goods (Textile)
STATUS: Operational
TYPE: Public Listed Company
PRODUCT: Weaving Processing Home Textile Garments Generation Facilities Nishat Linen
REGISTERED:
Karachi Stock Exchange Lahore Stock Exchange Islamabad Stock Exchange
REGISTERED OFFICE &
SHARES DEPARTMENT: Mr. Khalid Mahmood Chohan Company Secretary
Nishat House,
53 - A, Lawrence Road, Lahore.
Total Number of Listed Companies 180
Number of Competitors selected 05
Gul Ahmed
Ibrahim Fibers Limited
Kohinoor Textile Mills Limited
Din Textile Limited
Deewan Textile Mills Limited
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ..................................................................................................................... 11
INVESTORS GUIDE ............................................................................................................................ 13
TEXTILE INDUSTRY ........................................................................................................................... 15
HISTORY OF TEXTILE .................................................................................................................................. 17
GLOBAL TEXTILE INDUSTRY OVERVIEW........................................................................................ 20
TEXTILE INDUSTRY OF PAKISTAN ............................................................................................. 24
OVERVIEW ...................................................................................................................................................... 25
INDUSTRY STRUCTURE IN PAKISTAN .............................................................................................. 26
GROWTH IN PAKISTAN TEXTILE INDUSTRY ................................................................................ 27
INVESTMENT IN TEXTILE SECTOR ..................................................................................................... 29
TEXTILE INDUSTRYS ECONOMIC CONTRIBUTION .................................................................. 30
MAJOR TEXTILE PRODUCERS AND CONSUMERS ....................................................................... 31
GROWTH TREND DURING LAST 5 YEARS ....................................................................................... 32
REASONS FOR DECLINE IN GROWTH ............................................................................................... 34
RECOMMENDATIONS ................................................................................................................................ 36
ROLE OF GOVERNMENT .......................................................................................................................... 38
GOOD NEWS FOR TEXTILE INDUSTRIES ......................................................................................... 39
TEXTILE VALUE CHAIN ............................................................................................................................. 40
EXPORT IN TEXTILE INDUSTRY ........................................................................................................... 41
CONTRIBUTION OF TEXTILE SECTOR: ............................................................................................. 42
PEST ANALYSIS .............................................................................................................................................. 44
PORTERS FIVE FORCES ANALYSIS ....................................................................................................... 49
SWOT ANALYSIS ........................................................................................................................................... 52
TEXTILE MANUFACTURING ..........................................................................................................59
AUTOMATION IN TEXTILE MANUFACTURING IN PAKISTAN ............................................. 59
WHY THE PAKISTAN TEXTILE INDUSTRY CANNOT DIE .................................................. 62
NISHAT MILLS LIMITED .................................................................................................................. 64
VALUES .............................................................................................................................................................. 65
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NISHAT AT A GLANCE ............................................................................................................................... 66
OVER THE YEARS ......................................................................................................................................... 66
VISION STATEMENT ................................................................................................................................... 67
MISSION STATEMENT ................................................................................................................................ 68
THE GROUPS................................................................................................................................................... 69
BUSINESS & PRODUCTS ............................................................................................................................ 71
SPINNING ...................................................................................................................................................... 71
WEAVING...................................................................................................................................................... 71
PROCESSING ................................................................................................................................................ 71
HOME TEXTILE ......................................................................................................................................... 72
GARMENTS.................................................................................................................................................. 72
GENERATION FACILITIES.................................................................................................................... 73
COMBINED HEAT AND POWER PLANT ............................................................................................ 73
NISHAT LINEN ........................................................................................................................................... 74
COMPANY INFORMATION ...................................................................................................................... 75
ORGANIZATIONAL CHART ..................................................................................................................... 77
CORPORATE VALUES & CODE OF CONDUCT ............................................................................... 78
CORPORATE SOCIAL RESPONSIBILITY ............................................................................................. 79
CREDIT RATING ............................................................................................................................................ 80
FUTURE PROSPECTS ................................................................................................................................... 81
STRATEGIC ANALYSIS ............................................................................................................................... 82
PEST ANALYSIS .......................................................................................................................................... 82
PORTER FORCES MODEL ..................................................................................................................... 84
CORE COMPETENCE .................................................................................................................................. 85
SWOT ANALYSIS ....................................................................................................................................... 86
FINANCIAL ANALYSIS ....................................................................................................................... 87
STAND ALONE FINANCIAL ANALYSIS ............................................................................................... 88
NISHAT MILLS LIMITED ............................................................................................................................ 88
FINANCIAL STATEMENTS ................................................................................................................... 89
HORIZONTAL AND VERTICAL ANALYSIS OF FINANCIAL STATEMENTS ................... 93
RATIO ANALYSIS .................................................................................................................................... 104
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EFFICIENCY RATIOS ............................................................................................................................. 104
LIQUIDITY RATIO ................................................................................................................................... 105
SOLVENCY RATIOS ................................................................................................................................ 105
PROFITABILITY RATIOS ...................................................................................................................... 105
CALCULATING COST OF EQUITY THROUGH DIVIDEND GROWTH MODEL ......... 120
CAPITAL ASSET PRICING MODEL FOR CALCULATING BETA .......................................... 121
INDUSTRIAL FINANCIAL ANALYSIS ......................................................................................... 122
COMBINED INDUSTRY BALANCE SHEET ................................................................................... 123
COMBINED INDUSTRY INCOME STATEMENT ........................................................................ 125
COMBINE INDUSTRY CASHFLOW .................................................................................................127
COMPARATIVE ANALYSIS RATIO ...................................................................................................... 128
BIBLIOGRAPHY ................................................................................................................................... 141
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EXECUTIVE SUMMARY
The textile sector is considered to be the backbone of Pakistans economy. Being the 4th largest producer of cotton, Pakistan has the 3rd largest spinning capacity in Asia after China
and India. The importance of textile sector can be gauged from its contribution of around
8.5% to the total GDP of the country.
There are 180 companies listed in the Karachi Stock Exchange of Personal Goods (textile) in
which Nishat Textile Mills Limited is the market leader of Industry of Pakistan. The project
is based on complete analysis of the Industry with overall seven years financial analysis of
Nishat Textile Mills Limited with its comparative analysis with Pakistan Textile Industry.
The report begins with global overview of textile industry in which it contains the brief
introduction of the global Textile Industry and the developments in Textile sector. It also
reveals the current challenges faced by the Global Textile Industry and their causes.
This report is essential reading for any serious investor, providing comprehensive financial
information on a company's performance, position and cash flows over the past 7 years data.
This information, extracted from reported financial statements, forms the building blocks for
any analysis undertaken by investment professionals. - Key Stats and Ratios including;
Valuation Ratios (e.g. Price/Earnings), Per Share Data (e.g. EPS), Profitability Ratios (e.g.
Gross Margin), Management Effectiveness (e.g. Return on Equity), Financial Strength (e.g.
Quick Ratio) and Dividend Information (e.g. Dividend Yield). - 7 years of history are
available for most ratios. - Profit & Loss Account (7 years) - Balance sheet (7 years) - Cash
Flow Statement (7 years) - Educational content- Definitions of ratios and guidance on using
the data - Graphical analysis.
The report also gives the overview and performance of Pakistans Textile Industry and
business conditions prevailing in this sector, Also the financial overview of the Textile
Industry of Pakistan throughout the seven years of performance of industry.
Various segment of the Textile Industry of Pakistan, their imports and exports as well as their
utilization of the raw material and top exporter of textile products and top consumers of
textile product are also discussed in this project report. PESTEL, Porter Five forces and
SWOT analysis of Textile Industry has also been done in this report.
During prior years, variation has been witnessed in the sectors performance on account of
volatility in cotton prices. Being an export oriented industry; the sector is also dependent
upon the demand pattern of textile products by major importing economies. Competition in
the international market remains severe for Pakistan with Bangladesh, China and India being
the major competitors within the region. Growth in exports of these countries superseded that
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of Pakistan. Pakistans underperformance is largely a function of domestic problems faced by
the country. These include energy crises, weak law & order situation and inflationary trends
in the economy
Historically, Pakistans textile industry and clothing sector has always been a major
contributor to the foreign exchange earner and still contributes about 55% to the total export
proceeds.
Our study reveals Nishat textile performance to be outstanding in the years under review
2007 to 2013.howevr year 2012 was the full of challenges due unstability situation in the
country which directly reflected the economy of Pakistan. But the whole scenario has been
diverted towards growth in the year 2013 which can be observed further in report. In a nut
shell I will categorize NML as the growing company in the textile sector.
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INVESTORS GUIDE The Nishat textile mill is a market leader of textile industry of Pakistan. After analysis through
various financial aspects, Nishat textile is representing the most suitable company for all those
investors who are interest to invest their amount in this textile sector. NML has current market share
price of 116.06 PKR with an increase of Rs. 0.58% on 2nd
May 2014. The following table shows the
investors worthiness for Nishat Textile Mills.
PARTICULARS
2007 2008 2009 2010 2011 2012
2013
EARNING PER SHARE Rs. 7.58 36.86 6.23 10.50 13.78 10.04 16.63
PRICE EARNING RATIO Times 17.21 5.67 4.74 3.65 4.11 6.07 2.33
DIVIDEND PAYOUT
RATIO % 32.98 24.05 34.86 23.95 23.81 32.10 6.78
DIVIDEND YEILD % 1.92 2.91 5.29 5.80 6.56 7.36 4.25
DIVIDEND Rs. 2.50 2.50 2.00 2.50 3.30 3.50 4.00
BETA 0.37
2007 2008 2009 2010 2011 2012 2013
EARNING PER SHARE 7.58 36.86 6.23 10.50 13.78 10.04 16.63
DIVIDEND 2.50 2.50 2.00 2.50 3.30 3.50 4.00
0
5
10
15
20
25
30
35
40
Rs.
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Nishat textile does not have any risk of solvency because the Company is equity financed.
Nishat has maintained a strong financial position in the Textile Industry of Pakistan and they have well stable business, investors can invest in their business without any fear. It can be analyze by
the above graph that in 2013 company earning price share and dividend have been increased and
expected to be more stable for upcoming years. The overall analysis of NMLs reflect well established market position as a leading export oriented composite unit in the countys textile sector. The wide array of the companys product portfolio, extensive market outreach, and growing customer base are key growth drivers. The entity continues to maintain low leveraged capital structure, in turn, strong
coverages, and engendering sound risk absorption capacity. The financial profile of the company takes comfort from consistently growing dividend stream emanating from a sizable and prudently
diversified portfolio of strategic investments. Meanwhile, NMLs association with Nishat Group as its flagship company remains a key rating factor. Nishat textile is a favorable business for investors
and the Company is working hard for improving their strategies to satisfy their investors. It is
advisable to invest in Nishat Shares.
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TEXTILE INDUSTRY
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TEXTILE INDUSTRY The textile industry is primarily concerned with the production of yarn, and cloth and the subsequent design or
manufacture of clothing and their distribution. The raw material may be natural or synthetic using
products of the chemical industry. The word textile may be simply defined in two ways: as a woven or
knit cloth and as fiber (collective term for filaments). Filament is a very fine thread or threadlike
structure. White yarn is thread made by twisting fibers used in making cloth. Textile is any product
manufactured from fibers through twisting, interlacing, bonding, looping and any other means, in such
a manner that the flexibility, strength and other characteristic properties of individual fibers are not
suppressed.
Textile manufacturing is a major industry. It is based in the conversion of three types of fiber
into yarn, then fabric, then textiles. These are then fabricated into clothes or other artifacts. Cotton remains
the most important natural fiber, so is treated in depth. There are many variable processes available at
the spinning and fabric-forming stages coupled with the complexities of the finishing and coloration
processes to the production of wide ranges of products. There remains a large industry that uses hand
techniques to achieve the same results.
Fibers are the smallest units from which fabrics are made, by on process or another. Some fibers are
short, other is very long, some are kinky, others are straight and smooth, some are scaly and some are
twisted.
Varieties of Textile Fibers (according to nature of source)
1. Natural- found in nature in fibrous form.
Example:
Vegetable fiber, animal fiber and mineral fiber
2. Man-made-
Transformed by man from non-fibrous sources
Example: natural polymer and synthetic fibers
3. Manufactured made from cellulose or protein
Example: viscose rayon, acetate, olefins the difference between manufactured and synthetic fibers is that the manufactured fibers are derived from naturally-occurring cellulose or protein, while
synthetic fibers are not. And manufactured fibers are unlike natural fibers because they require
extensive processing (or at least more than is required by natural fibers) to become the finished
product.
The category of manufactured fibers is often called regenerated cellulose fibers.
Cellulose is a carbohydrate and the chief component in the walls of plants.
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HISTORY OF TEXTILE
No one knows when exactly the spinning and weaving of textile began. It has been said that
people knew how to weave even 27000 years ago. This was even before humans were able to
domesticate animals. The oldest actual fragment of cloth found was in southern Turkey.
People used fibers found in nature and hand processes to make fibers into cloth. Even
though high technology was not available, skilled weavers created a wide variety
of fabrics. Dyeing of fabrics was done to satisfy the universal human need for
beauty. Within time, more complex social and political organization of people evolved. With the
growth of cities and nations, improvements in technology came into place and there was a substantial
development in the international trade, both of which involved textiles. Chinese textile was considered
to be the most significant in international trade. Historians have claimed that silk from China has
reached ancient Greece and Rome along a trade route called the Silk Road in the latter part of the
second century B.C. and Egypt in 1000B.C. The Romans also imported cotton from nearby Egypt and
from India. Archaeologists have found facilities for dyeing and finishing cotton fabrics in settlements
throughout the Roman world. During the middle ages, the production and trading of the plant
called woad,
An important source of dye was a highly developed industry. During the fifteenth century, Trade Fairs
in southern France provided a place for the active exchange of wools from England and silks from the
Middle East. The economic activities surrounding these events gave rise to the first international
banking arrangements. Even the discovery of America was a result of the desire of
Europeans to find a faster route not only to the spices but also to the textiles of the Orient.
Textile trade quickly took root in America, as colonists sold native dyes such as indigo and
cochineal to Europe and bought cottons from India. Although advances were being made in the
technology of textile production, the manufacture of cloth in Western Europe in 1700 was still
essentially a hand process. Yarns were spun on a spinning wheel and fabrics were woven by hand-
operated looms. A major reorganization of manufacturing of a variety of goods occurred during the
latter h a l f o f t h e 1 7 0 0 s i n W e s t e r n E u r o p e . T h e s e c h a n g e s , k n o w n a s t h e
I n d u s t r i a l Revolution, altered not only technology, but also social, economic, and cultural life.
The p roduct ion o f t ex t i l e s was t he f i r s t a r ea t o unde rgo indus t r i a l i za t i on
dur ing t he seventeenth and eighteenth centuries as the result of an economic crisis. Good
quality textile products, produced inexpensively in India and the Far East, were
gradually replacing European goods in the international market. In Britain, it became
imperative that some means be found to increase domestic production, to lower costs, and to improve
the quality of textiles. The solution was found in the substitution of machine or nonhuman power for
hand processes and human power. Many important inventions, most importantly spinning
machines, automatic looms, and the cotton gin, improved the output and quality of fabrics. These
inventions provided the technological base for the industrialization of the textile
industry. Each invention improved one step of the process. For example, an improvement that
increased the speed of spinning meant that looms were needed that consumed yarn more rapidly.
More rapid yarn production required greater quantities of fiber. The growth of the textile industry was
further hastened by the use of machines that were driven first by waterpower, then by steam,
and finally by electricity. The textile industry was fully mechanized by the early part of the
nineteenth century. The next major developments in the field were to take place in the
chemists laboratory. Experimentation with the synthesis of dyestuffs in the laboratory rather than
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from natural plant materials led to the development and use of synthetic dyes in the latter half
of the nineteenth century. Other experiments proved that certain natural materials could be
dissolved in chemical solvents and re -formed into fibrous form. By 1910, the first plant for
manufacturing rayon had been established in the United States.
20th Century
Major changes came to the textile industry during the 20th century, with continuing technological
innovations in machinery, synthetic fiber, logistics, and globalization of the business. The business
model that had dominated the industry for centuries was to change radically. Cotton and wool
producers were not the only source for fibers, as chemical companies created new synthetic fibers that
had superior qualities for many uses, such as rayon, invented in 1910, and DuPont's nylon, invented in
1935 as in inexpensive silk substitute, and used for products ranging from women's stockings to tooth
brushes and military parachutes.
The variety of synthetic fibers used in manufacturing fiber grew steadily throughout the 20th century.
In the 1920s, acetate was invented; in the 1940s, acetate, modacrylic, metal fibers, and saran were
developed; acrylic, polyester, and spandex were introduced in the 1950s. Polyester became hugely
popular in the apparel market, and by the late 1970s, more polyester was sold in the United States
than cotton.
By the early 20th century, the industry in the developed world often involved immigrants in "sweat
shops", which were usually legal but were sometimes illegally operated. They employed people in
crowded conditions, working manual sewing machines, and being paid less than a living wage. This
trend worsened due to attempts to protect existing industries which were being challenged by
developing countries in South East Asia, the Indian subcontinent and Central America. Although
globalization saw the manufacturing largely outsourced to overseas labour markets, there has been a
trend for the areas historically associated with the trade to shift focus to the more white collar
associated industries of fashion design, fashion modeling and retail. Areas historically involved
heavily in the "rag trade" include London and Milan in Europe, and the SoHo district in New York
City.
By the late 1980s, the apparel segment was no longer the largest market for fiber products, with
industrial and home furnishings together representing a larger proportion of the fiber market. Industry
integration and global manufacturing led to many small firms closing for good during the 1970s and
1980s in the United States; during those decades, 95 percent of the looms in North Carolina, South
Carolina and Georgia shut down, and Alabama and Virginia also saw many factories close.
21st Century
In 2002, textiles and apparel manufacturing accounted for $400 billion in global exports, representing
6% of world trade and 8% of world trade in manufactured goods. In the early years of the 21st
century, the largest importing and exporting countries were developed countries, including the
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European Union, the United States, Canada and Japan. The countries with the largest share of their
exports being textiles and apparel were as follows (2002):
Bangladesh: 85.9%
Macau: 84.4%
Cambodia: 72.5%
Pakistan: 72.1%
El Salvador: 60.2%
Mauritius: 56.6%
Sri Lanka: 54.3%
Dominican Republic: 50.9%
Nepal: 48.7%
Tunisia: 42.4%
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GLOBAL TEXTILE INDUSTRY OVERVIEW
After the exclusion of global quota scheme, the textile industry is flourishing at high speed. The world
is on a new corridor of industrial revolution. Analysts are anticipating more expansion with latest
technologies in Textile Machineries. The textile machinery manufacturing hubs like China, Germany,
Italy, Switzerland and India have already jumped in gigantic competition to craft and bid best
technologies in textile machineries. Global Industry Analysts, Inc. (GIA) has declared that the global
bazaar for textile machinery is estimated to reach US$22.9 billion by 2017.Demand for sophisticated
machines that produce high quality cloth is increasing. Whatever is the technology, the purchasing
decision is greatly influenced by the machines versatility, flexibility, and price offers. Key factors for
dynamic growth in the textile machinery market contain economic revival post recession, rising
demand for nonwoven disposable textile products, increasing demand from promising regions,
especially Asia-Pacific, and going up demand for environmentally-friendly fibers. This article
analyzes some of the world leading textile machinery manufacturing countries.
China Is Going High-Tech in both Textile Machinery and Product
The Chinese textile manufacturers are developing some of the best answers in technical aspects of
textile industry, along with very competitive prices. With the rapid expansion of textile industry,
China s textile machinery industry also enjoys an occasion for development, and become the world s
largest textile machinery manufacturer. China started industrialized machine virtually 80 years ago.
At present, China-made textile machinery and equipment account for 80 percent of domestic textile
machinery market. But, the industry is facing 50 percent less of sales share, and only 15 percent of
gross margin, so loss coverage is high.
China is still the biggest machinery manufacturer in the global textile arena. Many countries in Asia
are facing adjustment of product structure, so demand of high-end and complete sets of textile
machinery are in demand. Chinese industry has obvious advantages compared with textile trade
powers of India, Pakistan, Bangladesh, and Turkey, particularly in cotton spinning equipment,
complete sets of polyester equipment and dyeing-printing equipment due to price.
As China is clearly emphasizing on high tech and high value added products, textile machinery would
be a key area for the country to focus this year and onward. Ministry of Industry and Information
Technology of China specifies that the percentage of high-tech products in sales should increase from
original 40 percent to 60 percent and the proportion of research and development fund of high-tech
products in total corporate sales should increase from original 2 percent to 5 percent each year.
China is not only exporter of textile machinery but also a potential importer of textile machinery. The
potential import markets for textile machineries were Chinese provinces like Jiangsu, Zhejiang and
Guangdong, which accounted for roughly 71% of the China s overall textile machinery imports. The
last year machinery manufacturers experienced orders pouring in and the market witnessed attention
of the world on Chinese machinery. Many leading machinery manufacturers around the world chose
China for expanding their production base and established their manufacturing unit in China.
Rapid industrialization and subsequent economic development in China over the last decade has
contributed to a significant rise in Asian textile production. China Government initiatives such as
China s 12th Five-Year Plan (2011-2015) which prioritizes technological advancement and
improvement in craftsmanship and equipment on par with the international levels for textile and other
industry sectors is expected to turn momentous growth in the Asian market.
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China is clearly focusing more on technical textiles and use of high tech automation in textile
manufacturing, hence machineries for those industries will move towards China. Recently Shanghai
has become one of the most fashion conscious cities in Asia. As China is producing fabric and
apparels and look for value addition, they are moving for fast fashion products hence investments
would take place for those production lines.
India Looks Forward To Improve In Technology
Indian textile machinery industry is more than 50 years old and the industry is increasing day by day.
About 750 machinery and equipment manufacturing units are in India, of which over 250 units
produce complete machines, and the rest produce parts and accessories. Textile machinery
manufacturing sector at present is meeting 45-50 per cent of the overall demand of the domestic
textile industry, whose main constituent is ginning, spinning, weaving and processing. The country is
very good in manufacturing accessories, machine mountings & consumable parts but still the sector
needs further development producing weaving machinery (shuttle less looms) and some high- tech
processing machinery.
Indias machinery exporters, though, have been employing various strategies to make sure that they remain competitive in the liberalized trading environment of 2013 and beyond. Many manufacturers
are taking action for improving production efficiency through advanced automatic system, re-
engineering of manufacturing systems, merging separate production units and Scheme for
modernization, technology up gradation and productivity advancement in anticipation of enhanced
demand in 2013 and beyond among other manufacturer are seeking changes through Encouragement
to the old used technology even for modernization under the subsidy scheme, encouragement to the
decentralized power loom sector to expand its capacity with obsolete technology and some of are
planning to raise added value by setting up joint ventures with foreign firms, to take benefit of their
technical, design and marketing proficiency. Others are making relationships with foreign importers
to increase their marketing capability.
As a textile product manufacturer, India faced some export decay during global economic slump
during 2009-10, but then they recovered and remained slightly above the target during 2010-11. In the
2011-12 fiscal years the country has fulfilled the target of export of textiles and garments to around
USD 28-30 billion. The US and EU, account for about two third of India s textiles exports. The other
major export destinations are Canada, UAE, Japan, Saudi Arabia, Republic of Korea, Bangladesh and
Turkey.
India is not only exporter of textile machinery but also importer of the textile machinery. Textile
machinery import has risen from US$ 0.92billion during 2010-2011 to US$1.38billion (estimated)
during 2011-2012. Exports during 2011-2012 were estimated at US$ 147 million as against US$ 168
million achieved during 2010-2011.The gloomy global market is responsible for lower exports.
Italian Textile Machinery Industry Grows Strongly
Italian textile machinery industrial sector is one of the foremost machinery manufacturers comprising
around 300 companies (employing roughly 12,400 people) and producing machinery for an overall
value of US$ 3.41 billion per year, with exports amounting to 80% of total sales. The quality of Italian
textile technology is evidenced by the high number of countries in which Italian machinery is sold:
around 130 countries worldwide.
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Exports were always the driving force behind the sector s growth in Italy. The enthusiasm of major
textile markets, combined with the capability of Italian machinery manufacturers to assert them on a
global scale, contributed to sustained growth in exports. Almost 25 per cent of the sector s sales
abroad are directed to China, with Asian markets generally accounting for 50 per cent of all foreign
sales.
During the fourth quarter of 2012, the orders index for textile machinery rose by 22 per cent
compared to the previous quarter. Even more significant was the increase with respect to the same
period of the previous year (+46 per cent).
Overall orders also benefitted from a positive trend on the domestic market, for which a 47 per cent
increase was actually recorded compared to the three previous months. Growth on foreign markets
was slightly more contained at +20 per cent. Whereas the value of Italian textile machinery
production for 2011 registered a 9 per cent increase compared to 2010, from US$ 3.072 to US$ 3.328
billion. A similar increase was recorded for exports (+10 per cent), valued at just over US$ 2.688
billion.
In contrast, Demand has remained especially weak from the domestic market. In Italy, as throughout
the European Union in general, current economic uncertainty is hindering a recovery in investments,
even in the textile industry. In spite of the growth experienced in 2012, Italian machinery
manufacturers remain extremely cautious for the current year.
Spain Tries To Increase Its Capacity in Textile Machine Manufacturing
Spanish textile machinery industry has thrived with the arrangement of small and medium sized
companies with the strength of less than 50 employees. These companies are still looking very hard
competition with the world leaders to attain the international standards of price, design, quality and
service. Weaving machine spare parts, knitting, sewing, accessories and spinning are the different
categories integrated under the textile machinery sector of Spain. About 80 machinery companies gain
fiscal credit value 260 million Euros in the Spain.
The exports in the countries like Latin America, North America and Middle East is also noteworthy.
New destinations like USA, Mexico, France, Turkey and India have new developing markets which
are the motives for the go up in the demand of evolution.
Dyeing and finishing sector consists of 35 companies and is the leading sector of country. The other
sector which follows it is a spinning machinery section with 25 companies. Both sub sectors has an
eventual for new innovations in the machinery. The export of machinery in Spain is of 70% of its total
production.
Germany Provides Reliable Technology in Machine Manufacturing
Germany has jumped out as crucial manufacturer of textile machinery and has secured its place by the
5th rank worldwide in machinery export. The key strengths of German machinery manufacturers
become obvious if one considers the entire life cycle of a machine. During the entire lifetime of a
machine, the investment costs represent only about 10 to 50 per cent of the overall costs.
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After two excellent years, the business climate in the global textile industry became more moderate in
2012. It was also reflected in the order intake of the German textile machinery industry that was
below the figures of 2011, but still on a satisfying level. German textile machinery exports reached
1.82 billion Euros in the first half of 2012 (minus 2.7 per cent year-on-year). Based upon weak fiscal
conditions within the most important markets, the industry had to go through a difficult year.
Asia is the biggest market as it absorbed 40% of the German textile machinery exports. India is the
single largest client in Asia in the last year. Between January and July 2012, German textile
machinery worth 111 million Euros was shipped to India. The second popular for German textile
machine is USA. The 10 largest export markets for German textile machines and accessories are
India, China (including Hong Kong), Turkey, US, Italy, Czech Republic, Brazil, Saudi Arabia and
Pakistan.
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TEXTILE INDUSTRY OF PAKISTAN
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OVERVIEW
Textiles is the most important manufacturing sector of Pakistan and has the longest production chain,
with inherent potential for value addition at each stage of processing, from cotton to ginning,
spinning, fabric, processing, made-ups and garments. The sector contributes nearly one-fourth of
industrial value-added, provides employment to about 40% of industrial labor force, consumers more
than 40% of banking credit to manufacturing sector and accounts for 8% of GDP. Barring seasonal
and cyclical fluctuations, textile products have maintained an average share of about 60% in national
exports. However, despite being the 4th largest producer and 3rd largest consumer of cotton globally,
Pakistans comparative advantage is largely pre-empted by low value added exports as reflected in countrys 12th rank in world textiles exports.
There is a strong causal link between industry structure and investment trends which impacts exports.
The growth of the textiles sector was marred by lopsided structural development. Whereas the
spinning capacity increased over the years, the highest value added sector failed to attract adequate
investment. Also, the degree of fragmentation of the sector downstream of spinning has risen
significantly. For instance, nearly 90% of cloth production is in the non-mill sector where bulk of the
production capacity is concentrated in inefficient small power loom units. The overall technological
configuration of the industry needs major up-gradation as it comprises, mostly, machinery that is
obsolete or has outlived its economic life. Balancing of machinery configuration and capacities across
different sub-sectors is also missing.
The industry has also suffered for lack of adequate infrastructure facilities needed for its smooth
operations. Apart from absence of exclusive areas dedicated to textiles production, some of the key
services, such as power, gas and clean water are not available with reliable supplies. Skilled
manpower is also significantly deficient with the result that the sector is suffering from low
productivity. Equally importantly, numerous regulations applicable to industry in general also add to
higher cost of doing business and retard entrepreneurial spirit of investors. Major efforts will have to
be undertaken to alleviate the non-economic irritants that impose significant economic costs, which
ultimate hurt countrys competitive position.
The growth of the sector was also affected by certain historical external factors which shaped the
pattern of developments in the textiles sector. One such factor was quantitative restrictions introduced by the major importing countries. The quota regimes effectively restricted the growth potential based on comparative advantage of home grown cotton, an abundant supply of labor and
cheaper cost of production. Quotas encouraged export of raw materials and semi-manufactured
products limiting access for high end products, including garments. However, adequate preparations
for effectively facing the competition after the abolishment of quota regime and requisite investments
for this purpose were not made. Consequently, the overall textiles exports of the country, expected to
rise in a quota free regime, actually started to stagnate.
On the other hand, the quota-free environment has brought challenges of its own. A number of
competing countries have been granted unilateral concessions besides preferential trade agreements
by the countries of leading export markets. Reliance on traditional markets and products, therefore,
has made exports vulnerable to increasing competition and preferential regimes, which has been
accentuated through direct interventions by governments of textiles exporting countries.
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INDUSTRY STRUCTURE IN PAKISTAN
Presently, the industry consists of large-scale organized sector and a highly fragmented cottage /
small-scale sector. The organized sector comprises of integrated Textile mills i.e. spinning units with
Shuttle less looms. The downstream industry (Weaving -Finishing -Garment - Towels & Hosiery),
with great export potential, is mostly in the unorganized sector.
Spinning Pakistans spinning sector caters not only to the requirements of domestic industry but about one third of the total production of yarn is also exported. Spinning industry operates in the organized sector and
over 200,000 individuals are employed in this sector. Pakistan is the fourth largest producer and
second largest exporter of cotton yarn in the world.
Weaving This sector includes production of cotton and synthetic fabric and accounts for almost 70% of the
woven fabric production. Majority of the units in this segment are small and medium sized entities.
Nearly 300,000 individuals are employed by the weaving industry in the country.
Processing The processing sector mainly comprises of dyeing, printing and finishing sub-sectors. There are over
650 units with an estimated number of 30-40 units operating in the organized sector at a large scales,
whereas rest of the units operate as small and medium sized units. This sector employs around
100,000 individuals. The printing segment dominates the overall processing industry with a share of
52% of the total installed fabric processing capacity in the country, followed by Textile dyeing
industry having a share of 26% and fabric bleaching facilities with a share of 22%.
Garments The garments manufacturing segment generates the highest employment within the Textile value
chain. Over 730,000 jobs are created by more than 4500 units. 80% of the units comprise small sized
units. The knitwear industry operates at 60% capacity in the country with a large number of factories
operating as integrated units. The following table depicts the magnitude of the Textile industry.
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GROWTH IN PAKISTAN TEXTILE INDUSTRY
According to a report compiled by Topline Securities, growth in the industry was witnessed because
of improved demand and stable yarn margins, while a depreciating rupee (the rupee fell 7% against
the dollar in 1HFY14) and declining finance costs managed to boost revenue.
The brokerage houses analysis is based on listed textile companies (78 firms) which includes all
textile units below Rs250-million market capitalization at the Karachi Stock Exchange (KSE).
However, for the sake of comparability, Azgard Nine and Amtex Limited have been omitted due to
volatility in their net profits.
Profits of the sample textile firms increased by 26% to reach Rs17.5 billion while gross profits posted
a growth of 14% to Rs39 billion in 1HFY14. Net profits grew more than gross profits mainly because
of the decline in financial charges.
Though the sample covers 60% of textile sector market capitalization, it is very small compared to the
total Pakistan textile industry. Therefore, actual profit growth of the textile industry would be much
more than Rs3.6 billion. The same was also reflected at the local bourse as shares of companies in the
sample gained 53% against the benchmark KSE 100-Indexs return of 20% in 1HFY14.
Sales up 7% led by exports
Overall, textile output in 1HFY14 jumped by 6.8% due to the uptick in sales of the sample
companies to Rs283 billion. This can also be observed from 7.8% growth in the countrys total textile
exports for the period to .9 billion. In terms of Pakistan rupee, overall textile exports went up 19%
year on year (YoY) to Rs730 billion.
Strong cotton yarn, grey cloth and bed wear demand from China and neighboring countries has
contributed to higher units sales, while margins increased due to stable cotton prices and around 7%
Pak rupee depreciation against the dollar in the same period.
In 1HFY14, local cotton prices remained in the range of Rs6, 806-7,771 per 40kg compared to Rs5,
573-6,645 in 1HFY13, depicting less volatility this time.
2QFY14 was not good
The textile sector performed well in 1QFY14 but profits declined slightly by 0.3% quarter to quarter
(QoQ) in 2QFY14 due to a massive surge in fuel and power cost and less textile exports in second
quarter of the current fiscal year.
Exports of textile products decreased by 5% QoQ to .4 billion compared to .6 billion in 1QFY14. A
major decline can be seen in cotton yarn followed by bed wear, which decreased by 18% QoQ and
12% QoQ, respectively.
However, rupee depreciation by almost 4% QoQ during the period provided some support to the
companies falling profits.
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Outlook for 2HFY14
The recent rupee appreciation, relatively less orders from China, dumping of Indian yarn in the
country and materialization of proposed 2%-17% tax on textile exports may exert pressure on profits
of textile sector in coming months, the report forecast.
However, the recently-awarded Generalized System Preference (GSP) Plus status from the European
Union (EU) and resultant surge in local demand will likely ease-off this pressure to some extent.
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INVESTMENT IN TEXTILE SECTOR Pakistans Textile industry has shown a huge investment for the last five years in modernization and the improvement of the production base and at the same time skill development has increased at a
greater pace. Keeping in view the importance of post quota regime the Textile industry is trying to
convert this into an opportunity and has been preparing to face this challenge. Accordingly, over the
last five years this sector has invested $ 5.0 billion in modernization and higher value addition.
Table: Sub Sector Share in Textile Industry
SECTORS
SECTORAL SHARES IN TOTAL
INVESTMENT IN THE SECTOR
Spinning
46 %
Weaving
24 %
Textile Processing
12 %
Knitwear & Garments
5 %
Made-Ups
8 %
Synthetic Textile
5 %
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TEXTILE INDUSTRYS ECONOMIC CONTRIBUTION
Exports 60%
Manufacturing 46%
Employment 38%
Source: Economic Survey of Pakistan
Exports42%
Manufacturing32%
Employment26%
TEXTILE INDUSTRYS ECONOMIC CONTRIBUTION
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MAJOR TEXTILE PRODUCERS AND CONSUMERS
The global textile industry is highly dependents on the world cotton industry, as cotton provides the
main raw material for textiles. Hence, textile production and consumption patterns follow cotton
production and consumption trends worldwide.
Much of the growth of cotton production since the end of the Second World War (WWII) was due to
improved yield(output per hectare more than quadrupled between 1945/46 and 2006/07, from 0.2 per
hectare (t/ha) to 0.8 tons per hectare, according to the International Cotton Advisory Committee \
ICAC), rather than to expanded area (cultivated land increased by only 35% over the 1945/46-
2006/07 period, expanding from 22.3 million hectares to 34.8 millions). In 2007, cotton was grown in
90 countries. In 2006/07, the four main producing countries were China, India, the USA and Pakistan
and accounted for approximately three quarters of world output. Since the beginning of the 1940s,
world cotton consumption has increased at an average annual growth rate of about 2% (roughly the
same as production). Growth in the demand for cotton was comparatively higher in the 1950s and
1980s, with an average growth rate of 4.6% a year during the 1950s and 3% in the 1980s. Developing
countries accounted for approximately 78% of global cotton consumption between 1981 and 1999;
since 2000 this ratio has been above 80%; according to projections based on ICAC figures, in 2010
they would absorb almost 94% of global cotton output.
Source: http://www.rcci.org.pk/wp-content/uploads/2012/12/gtopti.pdf
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GROWTH TREND DURING LAST 5 YEARS Pakistan's textile industry is going through one of the toughest periods in last 5 years. 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 has significantly raised the cost of imported inputs. Furthermore,
double digit inflation and energy crises have affected the overall textile sector.
Source: Economic Survey of Pakistan, by State Bank of Pakistan
This table shows the trend to textile sector. In starting textile growth is not more than 1.01 % the in
next year growth is badly affected by energy and other crises and growth will go in negative number
its done first time in Pakistan textile history. After that its move towards better side gradually and in
2011-2012 over all textile growth become 5 % after some bad period. Now according to State bank
economical survey a textile growth rises at 13 %. Benazir Bhuttos assassination followed by unstable
law and order situations. Moving ahead in 2008 the textile sector showed record negative growth due
to financial church in global economy resulting in slow down in economy growth chased by soaring
Years GROWTH
2008-2009 -0.70%
2009-2010 -1.78%
2010-2011 1%
2011-2012 4.80%
2012-2013 13.02%
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
GROWTH -0.70% -1.78% 1% 4.80% 13.02%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
GROWTH OF TEXTILE INDUSTRY
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oil, food and other commodity prices, softening of external demand and turmoil in the international
financial market. The economy is also going through the most terrible energy crisis affecting the
performance of the textile industry.
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REASONS FOR DECLINE IN GROWTH
Main reasons of crisis in textile industry in Pakistan are as follows:
Lack of Research & Development (R&D)
The lack of research & development (R&D) in the cotton sector of Pakistan has resulted in low
quality of cotton in comparison to rest of Asia. Because of the subsequent low profitability in cotton
crops, farmers are shifting to other cash crops, such as sugar cane.
Lack Of Modernize Equipment
The textile industry has obsolete equipment and machinery except few major producers. The inability
to timely modernize the equipment and machinery has led to the decline of Pakistani textile
competitiveness. Due to obsolete technology the cost of production is higher in Pakistan as compared
to other countries like India, Bangladesh & China.
Increasing Cost of Production
The cost of production of textile rises due to many reasons like increasing interest rate, double digit
inflation & decreasing value of Pakistani rupee. The increasing interest rate caused barrier in opening
new manufacturing units & also increase the production cost of existing units. The value of Pakistani
rupee is continuously decreasing which increased the cost of imported raw material. The removal of
subsidy & implementation of new taxes from government also increase the cost of production. The
instant increase in cost of electricity also caused an increase in production. The above all reason
increased the cost of production of textile industry which create problem for a textile industry to
compete in international market.
Energy Crisis
As a consequence of load shedding the textile production capacity of various sub-sectors has been
reduced. The representatives of the all textile associations presented their serious concerns on the
huge losses being incurred due to electricity & gas load shedding and the instant rise in the Electricity
tariff. They said that the industry has already been crippled due to record high load shedding.
Raw Material Prices
Prices of cotton & other raw material used in textile industry fluctuate rapidly in Pakistan. The rapid
increase in the price raw material affects the cost of production badly. Due to increase in the cost of
production the demand for export & home as well decreased which result in terms of downsizing of a
firms resulting in unemployment.
Effect of Inflation
The increase in inflation causes the increase in the cost of production of textile good which return in
downsizing. The double digit inflation is also affecting exports of textiles.
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United States & EU Cuts Imports of Textile from Pakistan
US & EU are the major importer of Pakistan textile which creates a huge difference in export of
Pakistan textile after imposing a restriction on import of Pakistani textile goods.
Removal of Subsidy on Textile Sector
The provisions of Finance Bill 2009-10 are not textile industry friendly at all. Provisions like
reintroduction of 0.5% minimum tax on domestic sales, 1% withholding tax on import of textile and
articles, 16% Federal Excise Duty on banking and insurance services besides withdrawal of
exemption of 16% sales tax and 4% withholding tax on machinery and parts in the Finance Bill 2009-
10 are badly affecting already crippled industry.
Export Performance of the Textile Sector
Due to high cost of production, power shortage and stiff competition with regional players, the export
performance of Pakistan textile sector is suffering badly.
Lack of New Investment
Pakistan textile industry is facing problem of Low productivity due to its obsolete textile machineries.
To overcome this problem and to stand in competition, Pakistan Textile Industry will require high
investments.
Supply Chain Management
Another problem contributing in the poor performance of our textile sector is the absence of efficient
supply chain management and centralized framework. Many economic and political factors limit the
ability of the exporters to meet their commitment timely and may also result in losing business in
future.
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RECOMMENDATIONS
Recommendations for the growth of the textile sector are as follows;
Revision of Government policies is required
There are non-conducive government policies in term of bank loans and interest rates. It is the need of
the hour to develop a coherent plan by the government that allows some sort of exemption/concession
to the textile sector. For example as in India; the Export-Import Bank was set up for the purpose of
financing and facilitating the industries, especially textile. The government may give subsidies to
share the burden of the industry.
Reducing the cost of doing Business in Pakistan
At present cost of doing business in Pakistan is higher as compared to the regional countries, which
has resulted in bitter competitiveness to Pakistani Products in Foreign Markets. China and India are
the bigger competitors of Pakistan. We fear if cost of doing business in Pakistan is not brought at par
with other Asian countries, our products would find no place in Market both in terms of quality and
price. In the context of future trade, there is an urgent need to bring all the utility charges and levy of
taxes down to the minimum level.
Focus on Value Addition
Pakistan is a leading exporting nation in raw yarn, cotton, and fabrics. If we emphasis on the value
added products like garments, Hosiery, knitwear and other textile made-up, the export volume of
textiles can be increased by manifolds. In this respect top priority should be given to stitching industry
that leads to highest value addition and employment generation.
Technology Interventions
Sophisticated technology should be introduced to compete with the other countries (India, Bangladesh
& China) in the global market in term of cost and quality.
Human Resources Development
The Textile Board should establish a separate training wing as a Center of Human Resource
Development where training courses should be conducted for the capacity building of labor. There is
also urgent need to increase the number of such Vocational Institutions where modern technical
education is provided.
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Proper Energy Supply
According to sources, it is estimated that in recent past around 800 units have closed in Punjab during
electricity and gas load shedding while approx. 500,000 workers lost their jobs. In order to save the
industry there must be a preferential treatment with the industry in uninterrupted energy supply.
Investment in Textile Sector
The investment volume is not satisfactory in the textile sector as compared to the potential available.
Government should take serious step to survive the textile industry. In order to decrease the price raw
material for textile we need to increase our production capability.
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ROLE OF GOVERNMENT
Textile industries are the backbone of a Pakistan economy and Pakistan government always taking
interest in textile sector. The share of textile industry in the economy along with its contribution to
exports, employment, foreign exchange earnings, investment and value added makes it the single
largest manufacturing sector for Pakistan. It contributes around 8.5 percent to GDP, employs 38
percent of the total manufacturing labor force, and contributes between 60-70 percent to total
merchandise exports.
So that way Government start many of project in textile sector by support of ministry of textile and
some other private investors, for achieving peak position in the world.
Near about 6 to 7 textile projects are under process that will be completed in next coming years. Name
lists of project are given below.
Export development plan implementation unit (EDPI)
Pak_ Korea Garment technology instituted (PKGTI)
Lahore Garment city (LGC)
Faisalabad Garment city (FGC)
Karachi Garment city (KGC)
Pakistan textile city limited (PTCL)
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GOOD NEWS FOR TEXTILE INDUSTRIES
Finally Pakistan government take great imitative for reducing the problems of textile industries
because they know, if they do not take strictly action on serious problem than 55 % of Pakistan
economy going toward downsize. In previous couple of months little bit work done by CM Punjab.
Some happiest news for industries is given below.
1. CM Punjab Shahbaz Shareef assure a consisting of hourly and quota based gas supply for 8 hours a
day to the textile industry located in Punjab in combination of gas and electricity, which has helped
industry in its operations and an increase of 20 percent of exports in quantity terms from July to
September 2013. "Prime Minister Nawaz Sharif has also shown concern and I am very much hopeful
that gas supply to the textile industry during December will remain intact," he said.
2. Shahbaz Sharif said the PML-N government was pursuing a solid strategy for promoting trade,
economic and industrial activities. He assured that all possible steps would be taken for resolving
genuine problems of industrialists. Pakistan would make tremendous progress in textile sector after
getting the status of GSP Plus (Generalized System of Preferences), besides increasing job
opportunities and exports.
3. Government is fully committed to solve the energy crisis as it has become a major challenge that is
not only hurting the industrial activities but also badly affecting the country's economy. Government's
economic team had fully prepared with pragmatic strategy to cope with all the challenges, which
country is facing today, said Chaudhry Abid Sher Ali. He assured that he will make all efforts for
immediate payment of pending refund claims of textile exporters as exporters are facing financial
crunch owing to this problem. If that amounts are released, exporters can deploy that capital towards
expanding their businesses, which in turn will help Pakistan's export earnings grow. He termed
approval of GSP plus status as a milestone achievement of the Pakistan government and Approval of
duty free access to European markets is a good sign for the ailing value-added textile industry which
is badly suffering due to various factors.
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TEXTILE VALUE CHAIN
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EXPORT IN TEXTILE INDUSTRY
Export of textiles posts 7pc growth
According to Pakistan Bureau of Statistics here on Thursday, textile and clothing exports reached
$8.035 billion in July-Jan period this year as against $7.468bn over the corresponding period last year.
Only three products witnessed negative growth in exports among all textile and clothing categories
during the period under review.
On monthly basis, export of textile and clothing witnessed a growth of over three per cent in January
2014 over the corresponding month of last year.
In terms of rupees, export proceeds witnessed a growth of 18.07pc in July-Jan period this year from a
year ago.
Export of low value-added products, such as cotton cloth, was up by 7.62pc, cotton carded 459pc,
yarn other than cotton yarn 17.22pc, and made-up articles excluding towels, bed wear 18.52pc during
the months under review over the corresponding months of last year.
In the value added sector, export of bed wear increased by 19.83pc, knitwear 6.82pc, and readymade
garments 7.65pc.
Exports of towels dipped by 5.19pc; cotton yarn 5.10pc and tents 17.34 pc
Raw cotton export witnessed a robust growth of 70.21pc.
Total export proceeds witnessed a growth of 4.64pc to $14.699bn in July-Jan 2014 from $14.047bn
over the corresponding period of last year.
Source: http://www.dawn.com/news/1088364/export-of-textiles-posts-7pc-growth
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CONTRIBUTION OF TEXTILE SECTOR:
Since independence, textile sector has grown considerably in extent and magnitude despite
intermittent set-backs due to ill-conceived policy and neglect of the needs of time. Despite its
meager strength and strong need for developing further potential it has grown to become the
backbone of the economy. This fact can easily be grasped by a mere glance at the
contributions this sector has made to the economy and society of the country as a whole.
Economic Contributions
Any development in the country does not restrict its effects to one or two sectors rather; the
implications of any such development can be felt across multi- sector pathways. Same has
been the case with Textile sector. Here, the discussion is limited contributions and effects of
development in Textile industry to the Economic and Social spheres of the country.
Increase in National Income
Any development in the industrial sectors greatly contributes to the Gross Domestic Product
of country. Currently, Textile sector alone contributes 9.5% to the GDP. Development of
industrial sector means more investment, employment and production and hence, higher
contribution towards GDP.
Economic Stability
Growth in Textile sector has immensely contributed towards economic stability of the
country. This sector alone employs 15 million work force of the country. Moreover, when the
finished goods are domestically available, it helps keep prices down and fluctuations due to
international market influences are less likely to strike populace.
Improvement in Balance of Payments
Textile industry has brought structural changes in the pattern of foreign trade of the country.
Today, the Textile sector account for about US$ 10.2 billion export of the country. On one
hand, this sector helps reduce import bills of textile products and on the other hand, it
contributes in earning foreign exchange thereby helping towards keeping balance of payment
in control. Following table presents a comparison of years 2008-09 and 2009-10 with respect
to exports of different textile products.
Agricultural Development
Development in Textile sector greatly affected the agricultural development in turn. It is
evident from the fact that if number of textile mills increased from 3 to 600 and spindles from
about 177,000 to 805 million respectively in 1947 to 2010 then cotton bales increased from
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1.1 million bales in 1947 to 10 million bales by 2010. Increased demand of cotton contributed
towards better life of farmer by offering greater market for the raw material.
Greater Employment
As already mentioned, this sector employs about 15 million or 38 percent of total workforce
of the country. If the employment rate is added with the upstream and downstream
employment, like in agriculture or export related work opportunities due to this sector then
the economic effect of this sector increased manifold.
Collateral Industrial Development
Development of one industry leads to the development and expansion of other industries. A
number of industries and work opportunities are directly or indirectly related with Textile
Sector. For example, colors and dies, plastics, printing, machinery etc are equally affected by
booms or busts in Textile sector.
Enhanced Government Revenues
Any industrial development is bound to increase government revenues. Though textile sector
is still zero rated for the purposes of sales tax on exports yet the tax on domestic supply and
income tax contribute greatly to government revenues.
Diversification of Economy
Development in textile sector has helped in diversifying economy by reducing dependence on
mere production and export of raw material. It also instilled diversification by stimulating
collateral industrial development.
Social contributions
Better Living Standards Textile sector development helped in increasing the value of output
per worker. The income of the labour, due to higher productivity increased resulting in better
living standards of growing middle class.
Social Welfare
Growth in textile sector enhanced social welfare in a multitude of ways. Better and greater
employment opportunities, meeting domestic needs, generating revenue and thereby
positively affecting public social spending etc all lead to social welfare.
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PEST ANALYSIS
PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a
framework of macro-environmental factors used in the environmental scanning.
Following is the PEST analysis of textile industry of Pakistan.
Political Factors:
Following are the political factors that affect the textile industry of Pakistan
Labor Law
The labor in Pakistan is cheap as compared to other competing countries. The labor law specifies a
minimum wages of 7000 rupees for a worker for a month, which gives an advantage to the textile
industry in terms of low cost.
Environmental Laws
The processing industry in the textile value chain holds an important position as far as value addition
is concerned. Garments and made-ups comprising the downstream industry rely heavily on the
processing sector for the provision of value added fabrics and materials.
Unfortunately the processing segment also is the most susceptible area that can be affected by global
environmental regulations regime. More than 650 units are in operations majority of which operate at
a small and medium sized scale. These units carry out processes including:
Bleaching of fabric
Dyeing and finishing of fabric
Printing and finishing of fabric
The major area of concern for the textile processing sector is wastewater. Textile processing is water
intensive process. Almost .08-0.15 m3 of water is consumed to produce one kilogram of finished
fabric, translating into 1,000-3,000 m3 of wastewater generation per day against a production of 12-20
ton/day of finished fabric.
Currently the wastewater generated by the industry is discharged into the local environment without
any treatment that serious negative effect on the environment.
A wide range of chemicals are used by the processing industry for dyeing and printing operations.
These include bleaching agents, vat dyes, azo dyes, sulphur dyes, disperse dyes and color pigments,
which are manufactured by using chemicals such as formaldehydes, hydrochloric acid, ammonia,
chromium salt, soda ash, caustic soda, sodium sulphate , sulphuric acid, etc.
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Extensive usage of these chemicals by the processing industry results in discharge of toxic elements
as effluents, which if not treated properly have the potential to cause significant environmental
degradation.
Though there are environmental laws in the country but still there is no strict implementation and the
industry is not facing any problem in the form of high costs in complying with the environmental
laws. But if there are strict implementations it will reasonably affect the textile industry of Pakistan.
Trade restrictions
A trade restriction is an artificial restriction on the trade of goods between two countries. It is the
result of protectionism. It may be direct or indirect in the form of tariffs, quotas or other duties and
taxes. Following are a few restrictions the textile industry of Pakistan is facing
Import duty and Anti-dumping duty
Government of Pakistan has imposed six percent import duty and anti-dumping duty imposed on the
import of
Polyester Staple Fiber (PSF) to allow the textile industry to manufacture competitive blended textile
products for both domestic and export markets.
The textile industry which was heavily dependent on PSF was faced by a shortfall of 10,000 tons each
month mainly due to restricted production within the country. The tariff of six percent at the import
stage and countervailing duties ranging up to 10 percent has rendered import of PSF economically
infeasible and the manufacture of blended yarn textile products more difficult.
PSF constituted a direct substitute for cotton, a commodity in short supply, and timely removal of
import duties on
PSF would secure the textile industry competitiveness on an international and regional level.
Anti dumping Imposed on Pakistan by European Union:
An anti-dumping of 5.8% has been imposed by the European Union on Pakistan, which has put
Pakistan in a desperate position to match competitiveness posed by Bangladesh, India, China, Sri-
Lanka and Vietnam.
Infrastructure
The important resources and infrastructure, such as adequate of supply of water, continuous supply of
electricity and gas, efficient logistics and transportation, tax structure, raw material supply are all
basic requirements for the development of industrial base, which are not adequate for competing with
foreign competitors.
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However, on the other hand, the industry is faced with rising charges of the energy sector, which
increases the cost of production, making it difficult to compete with the other regional rivals. The
governments should work in this regard for maintaining a textile sector which is so important to
Pakistans economy.
Political Stability
Political unrest, strikes and terrorism have critically affected the economy of Pakistan. Frequent
changing of the government has adversely maligned the policies of the textile sector. According to the
World Trade Review
Pakistan has failed to take necessary steps needed to meet post Multi Fiber Agreement (MFA)
challenges for its textile industry owing to lack of political will by the successive governments.
In 1978 World Bank surveyed the Pakistan textile industry and reported many deficiencies in this
sector. It also gave certain measures to resolve these issues, but unfortunately all these problems still
persist and the industry is still unable to keep its pace with the international market.
Successive governments lacked the will to reform human resources and adapt the marketing
techniques that resulted present scenario in this industry.
Economic Factors:
Following are the economic factors that are affecting the textile industry of Pakistan.
Interest rates
Pakistan has highest interest rates as compared to its competitors. For instance, Bangladesh, India and
China enjoy comparatively low interest rates than Pakistan. The prevailing rates are 8.5 to 9.0 per cent
in Bangladesh,
5.25 per cent in India. Market rate is 10.25 per cent, however exemption of 5 percent is provided to