One hears that the government is contemplating announcing some sort of a textile package to help resurrect declining textile exports. However, before doing so, it will be well advised to consult professionals with hands-on experience and having a deep understanding of both domestic and international textile markets rather than just relying on the often self-serving advice of association representatives or on the stereotyped solutions presented by the bureaucracy. As we know, most Pakistani business and trade associations/chambers stand hijacked by interest groups who do precious little work to find sustainable and holistic solutions for the industry they represent and instead simply endeavour to seek short-term gains for their own clique. As for the sub-continent bureaucracy, it is an open secret that it is designed with an in-built mind set to complicate procedures to an extent where it ensures its suzerainty and perhaps its self-serving monetary stakes!

To be fair to the government it has recently taken some well meaning cum proactive steps: in trying to give priority to the industry in supplies of energy and power; prudently rationalising the Pak Rupee’s value; and in announcing a relief package for the farmers since without a supportive cotton crop the industrial measures become meaningless. However, a successful policy always entails broader outreach and overall growth of the sector it is meant for and unless the upcoming textile package can ensure this, it will not serve its intended purpose. Given that in textiles two of our main markets, European Union and China, are still suffering from a demand slow down and the third, USA, is also not yet fully back to its pre 2008 consumption figures, the present pressure on Pak textiles exports is not only understandable, but is also likely to remain for quite some time. The global competition in the coming days is going to get more fierce and it is here that we essentially need to insure that our ‘competitiveness’ vis-à-vis our global and regional competitors does not deteriorate. But sadly, our economic leadership appears to be failing in this regard since from a regional perspective, Bangladesh, India and Sri-Lanka and from an Asian outlook, Vietnam, have all posted growth in their textile exports, whereas, our figures in the same period have dropped. Shortcoming of this government being that in its quest for single-mindedly following lender (IMF) dictates such as, indiscriminate taxation drives, across the board removal of subsidies, generalised tariff rationalisation, etc it has ended up eroding its own space to govern effectively. It forgets, that the most important lesson for economic leaderships emanating from the 2008 global financial crisis and the ensuing recession thereafter (being billed as even greater than the 1930s depression), is that in recent economic history too many times policymakers repeatedly made the mistake of purely letting the market forces and market sentiments determine the outcome in key economic sectors and tradable commodities. This obviously turned out to be an error because in this new age of information technology the misuse of information itself can be used to tangibly influence the very market forces previously considered to be independent. Meaning, present day economic leaderships need to assume hands-on responsibility where necessary, as they can no longer rely merely on free market mechanisms to deliver desired results. And this is precisely what the Pak textile sector also needs from its policymakers today.

Following would be some of my main recommendations in this regard:

1) Availability and price of power or electricity, being the second highest cost after basic raw materials in the textile manufacturing process, is always going to be the key in the industry’s ability of compete internationally. A prudent but ‘absolute’ unit rate needs to be announced without being clever by applying levies on top of the basic rate, i.e. as being done now (these extras today add as much as 40% over and above the actual applicable tariff). Further, priority needs to be given to industry in supply to help achieve continuous process efficiencies and reduced costs of production through economies of scale cum operational synergies. However, it is important that a mechanism is devised to see to it that this facilitation does not ignore or exclude the small and medium sized operations since bulk of the value addition at present is taking place in the SME sector - The current supply priority is directed through independent feeders, which does not cover the smaller producers. Unless the benefits of having a fixed standardised electricity tariff and prioritised electricity supply advantage also reach the SME sector, the real potential of exportable surplus will not be achieved and subsequently the fruits of value addition and job creation will not be realised.

2) The temptation of market demand to determine the price of cotton should be avoided. The global demand for Pakistani cotton has been non-existent for quite some time now and is not likely to pick up in the near-term. If the government today does not support the prices of local cotton varieties there exists real danger that these might drop by another 10-12% owing to its underlying parity in-turn based on prices being fetched by Pakistani yarn and cloth in international markets. And as already discussed, since we are going through a period where consumer demand in our main customer economies is falling, a decline in cotton prices can push us on to a very slippery slope where lower cotton prices invariably result in even more lower yarn and fabric prices and so on, making it a never ending cycle. Also, unlike other crops cotton is high risk that requires a lot of care and investment, as it is not only highly dependent on weather conditions but also easily attacked by viruses, pests, etc that can seriously affect its yield and quality. If the farmers do not get their due return there is that risk that the smaller farming families may get financially destroyed (leading to suicides, etc) and the larger ones may end up shifting to other undesirable but less risky crops. Already one is hearing that farmers in the key cotton districts of Hasilpur and Rahim Yar Khan are shifting to sugar cane for the next season, and this is not good news. India as we know, even today, keeps its cotton prices propped up to support its farmers and instead subsidises in numerous ways the remaining industrial chain to ensure competitiveness of its end products.

3) Being WTO compliant is important but this should in no way stop us from protecting our home manufacturing. In the quest to protect national industry and save domestic jobs every thinking government these days is going that extra mile to ensure backyard protection through tariff and dumping controls; in addition to also using other means to make domestic manufacturing more competitive. Prime examples of protection: through tariff (tangible & intangible) and border controls being India and Turkey; through energy subsidisation and labor reforms being the USA where the domestic textile manufacturing is back on the rise; and through clever preferential arrangements to curtail un-wanted imports being China and Vietnam. We also need to ensure that any product imports from India or China that in-turn hamper our export competitiveness should be checked.

4) Whether the government appreciates or not the small unorganised sector in the textile chain is of vital importance. Pakistan being quite low down in the value addition ladder as compared to Bangladesh, India, and Sri Lanka, these low cost producers of Faisalabad, Multan, Sheikhupura, Jhang, Gujranwala, Toba Tek Singh, Jhumra, Hyderabad, Kasur, Swat and other such small stations serve as the backbone of commercial textile exporters, who require their services to get low cost products made at globally competitive prices. These small manufacturing houses, often family operations, not only provide employment where the government is unable to help but are also instrumental in creating niche market segments not otherwise accessible by the organised sector. This network of yarn-market traders, middlemen, independent sizing operations and hand or power-loom producers – who contribute significantly in enhancing our national textile exports - have now been functioning for nearly 50 years, surviving not due to any help from the government, but courtesy its absence. And these are in no way are peculiar to Pakistan as similar small or cottage scale operations in India, Turkey and even in the first world of Italy are generally left alone by allowing them to remain functional under the taxation radar. In trying to bring them into the organised domain by coercion and by unwisely imposing non-productive taxes (withholding, surcharges, etc) on them this government is risking their eventual closure. Better sense should prevail.

5) There are many ways to facilitate a sector and no better way than allowing it to flourish by removing its non-productive bureaucratic-oversight burden and by enabling in it an environment where private sector entrepreneurial juices can flow freely. In textiles also it is time to remove needless obstacles to investment, do away with unhealthy bureaucratic interference, simplify compliance regulations, prudently handle any environment and standardisation requirements and to undertake labor reforms on the pattern of ones being implemented by India, Bangladesh and interestingly now also by USA, Spain and Finland. To re-introduce zero-rating in sales tax and to avoid going down the refund and export rebate routes, which as we know from past experience, only lead to corruption and rise in unfair business practices.

6) Last but not least, after a fair devaluation of the Pak Rupee of nearly 3%, it should be further devalued by 2% (bringing the total to about 5%) and thereafter be held stable. Having helped competitiveness through one-time devaluation this practice should be avoided as market and price disruptions more often than not turn out to be counter productive. The growth through exports stories of China, Japan and the Asian Tigers, offer one common lesson: their exports grew the most in periods when their currencies were most stable.