Textiles ? Pakistan Sector Report Textile Pakistan Produced by: Ahmer Arif Deputy Director of Trade and Investment September 2009 Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation and Skills, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published September 2009 by UK Trade & Investment. Crown Copyright © 1 Textiles ? Pakistan Table of Contents Overview........................................................................................................................3 Characteristics of the Market .........................................................................................3 Import of Textile Machinery..........................................................................................5 Technical Textiles..........................................................................................................6 Opportunities..................................................................................................................7 Key Methods of Doing Business ...................................................................................8 More Detailed Sector Reports........................................................................................8 Publication .....................................................................................................................9 Events.............................................................................................................................9 Contact Lists ................................................................................................................10 2 Textiles ? Pakistan Overview Textile sector being the biggest manufacturing sector in Pakistan offers a lot of opportunities for British companies. Pakistan relies heavily on its textile sector as it accounts for nearly 45% of the country?s total manufacturing output and around 8% of the GDP. Textile and clothing products constitute around 55% of Pakistan?s exports and this sector generates employment for around 40% of the manufacturing labour force. The sector is continuously changing and growing and thus needs a constant flow of new, innovative inputs like high tech machinery, improved processes that can reduce costs and an advanced skilled workforce. British retailers can source high quality textile products from Pakistan and undertake joint research projects with the various textile institutes and companies. There is also a huge scope in setting up modern fashion and design institutes. Pakistan was a big importer of textile machinery from the UK, however that has now declined and the main UK exports in this area are in the form of second hand machinery and lab testing equipment. Although there is demand for some specialist products that enhance supply chain efficiency. Pakistan now imports majority of its textile machinery from Germany, Japan, China and Italy. Currently the textile sector is facing problems on all fronts. Production is being hampered by the frequent power cuts due to power shortages. Furthermore, new investment is slow at the moment due to high interest rates and low business activity. The industry is facing competition from other developing countries like Bangladesh, India and China in its major export markets i.e. the EU and the USA. Also the current recession in the West has resulted in a slow down in demand for textile products. Characteristics of the Market Pakistan?s textile manufacturing is composed of various key processes like cotton ginning, spinning to produce cotton yarn, weaving and knitting to make cotton fabric, fabric processing like dyeing, bleaching and then finishing. Through these processes Pakistan produces the following main products that are well renowned: ? Raw Cotton ? Cotton Yarn ? Cotton Cloth ? Hosiery and Knitwear ? Readymade Garments ? Towels ? Home Textile ? bed sheets; curtains According to the All Pakistan Textile Mills Association (APTMA), Pakistan has a total number of 521 textile units with 10.1 million spindles and 114 thousand rotors in operation. This translates as Pakistan having the third largest spinning capacity in Asia and around 5% of the total world capacity. In the weaving sector, Pakistan has an installed capacity of 7,600 units and around 300,000 small power looms operating all around the country especially in the industrial cities like Lahore, Faisalabad and Karachi. In the ginning sector, Pakistan has 1,221 ginning factories in the major cotton growing areas of Pakistan in Sindh and Punjab. There are about 7,000 towel looms of various sizes and around 12,000 knitting machines all over the country. 3 Textiles ? Pakistan Textile is seen as a major export revenue earner for the country. In 2007-08 Pakistan exported around $1.5 billion worth of readymade garments, $1.9 billion of knitwear, nearly $ 2 billion in bedwear, $1.3 billion of cotton yarn, $500 million of other made ups and $70 million of raw cotton. Textile industry in Pakistan is going through a difficult phase in Pakistan. Textile companies have lost some export orders as their buyers in the West are struggling with a recession and reduced consumer spending. Textile mills are facing rising costs as the interest rates at which they borrowed money to buy machinery between 2002-05 was around 6-7% and now the rate is around 15- 16%. Such high rates have also stopped any new investment in the sector. The country is facing an energy crisis with a 5,500 MW shortage that is causing massive load shedding. This again increases cost of providing alternative power solutions as well as loss of efficiency and time. Pakistan?s textile industry is facing immense competition from other developing countries mainly India, China and Bangladesh. However, Pakistan?s textile sector is vibrant and like other industries is a resilient sector of the economy. It is the biggest provider of jobs and the largest in terms of manufacturing output. Top quality cotton is grown in Pakistan, which is one of the biggest producer and the consumer of the crop. Pakistan?s cotton production figures are shown below: Year Production (000 bales) % change 2003-04 10,048 -1.6 2004-05 14,265 42.0 2005-06 13,019 -8.7 2006-07 12,856 -1.2 2007-08 11,655 -9.4 Source: MINFAL, Federal Bureau of Statistics Pakistan consumes more cotton than it produces meaning that cotton has to be imported. In order to meet domestic demand and to reduce imports the government is keen to increase the growth of the cotton crop by increasing the yield of cotton production. Some initiatives undertaken to achieve these are as follows: ? Availability of around 63,000 metric tons of certified seeds of approved cotton varieties. ? Research in development of better seeds and crop management techniques. ? Providing subsidy on the use of fertilisers. ? Availability of adequate pesticides to be ensured throughout the crop growth and development period, particularly for mealy bugs and white fly. ? Using BT cotton seeds. The government of Pakistan is keen to improve the conditions of the textile industry in Pakistan and has taken various initiatives and policy decisions to give boost to the industry. This has resulted in the formation of a separate Ministry of Textiles who have recently announced the first ever Textile Policy (2009-2014) highlighting a comprehensive set of initiatives and incentives to boost the textile sector in Pakistan. Some of these are as follows: 4 Textiles ? Pakistan ? Duty drawback rates ranging from 1% to 3% on value added textile exports. ? To facilitate new investments government will pick up to 50% of the interest cost of investment in new plant and machinery. For small investments, government will contribute up to 20% of capital cost as grants. ? Government to treat local sales of yarn and fabric to large exporters as Exports. ? Availability of export refinance at 5%. ? Establishment of the Textile Skills Development Board and the Textile Training Institute Management Board. Also government will be seeking foreign expertise in enhancing local skills and productivity. ? To build fashion and design skills, new fashion and design institutions will be formed. Import of Textile Machinery Year Million ($) % Change 2002-03 531.9 30.7 2003-04 597.9 12.4 2004-05 928.6 55.3 2005-06 771.5 -17.0 2006-07 503.0 -34.8 2007-08 424.3 -0.16 Source: Federal Bureau of Statistics As seen in the table above, import of textile machinery rose between the years 2002 ? 2005 and then began declining thereafter. The reason for this was that government policy in those years was favourable to some extent and the world economy was booming. These effects were also felt in Pakistan where the economy, especially the manufacturing sector was growing. Textile sector was earning good profits and reinvested in new machinery for balancing, modernising, and restructuring (BMR) and for expanding their industry. This was also helped by low interest rates and increased bank lending due to excess liquidity in the banking system. According to figures, exports of British textile machinery to Pakistan rose between 2002 ? 2004 where it reached its peak of around £5 million and then declined every year to around £0.5 million in 2008. This is in tandem with the overall increase between 2001-2005 where the peak imports were around $900 million in 2004. Demand for textile machinery declined thereafter as there was already an influx of machines till 2004-05. Also the industry started facing difficulties as the power crisis gripped the country and recession started in the West. Excess liquidity in the financial system dried up and as a result borrowing rates started to increase. This however is not the only reason why British imports particularly suffered and there are many other reasons for this decline that the British manufacturers and suppliers need to understand. In Pakistan the spinning, weaving and knitting sector was the biggest recipient of textile machinery and modernisation. Britain had a big textile industry a few decades back, however now that has come to an end. Hence the expertise to manufacture and test new machines for the spinning sector has been greatly reduced. A lot of old textile mills in Pakistan began their life with British machines but now they are equipped with Japanese, German and Italian machines as those 5 Textiles ? Pakistan are considered more technologically advanced. Some British companies have also shifted their manufacturing in China. British machines are not considered cost effective due to the high exchange rate of the pound versus the rupee (Rs. 130=£1). Due to this reason, buyers find Japanese, Chinese and other machinery cheaper, however the recent increase in the Euro rate will make British machines attractive when compared to other European manufacturers (Germans and Italians). Technical Textiles World market of technical textiles is projected towards the annual growth rate of 3.6% during the period 2000-2010. For Asian region, the annual growth rate projected is more at 4.33%. In many industrialised countries, technical textiles account for over 50% of the total textile activity, while this figure for China is around 20%. Pakistan lags behind in the development of Technical Textiles, as major Pakistani textile companies have only kept focus on conventional textile products. Also the Pakistan government has not done much to promote this sector. However, the focus on technical textiles is increasing and more and more companies are getting involved in this area. Although, the involvement of these companies is mainly experimental at the moment. Pakistan academics and textile experts see this area of technical textiles with great optimism, highlighting it as an area of new development in the textile sector. For this reason all major textile institutes are working for the promotion of technical textiles and are keen to establish industry-academia linkages. Textile institutes/ universities are also very keen to develop joint research and training programmes with foreign universities. One such example is the Textile Institute of Pakistan (TIP) where only recently a new Textile Research and Innovation Centre (TRIC) has been formed. TIP has signed a MOU with the University of Bolton for co-operation in this area. Similarly, various other institutes have shown interest in undertaking such initiatives. The demand for technical textiles is directly related to overall economic developments and textile technology. The economic growth in Pakistan in recent years has fuelled demand for technical textile and nonwoven products such as diapers, medical textiles and disposables. There is also growth in the use of technical textiles in areas like agriculture (tunnel farming fabric), geotextiles (canal lining, roads) and medical textiles (bandages, compression stockings). The annual procurement of products related medical textiles are around PKR 100 million with imports accounting for around 70%. The production of technical textiles is very slowly gathering pace in Pakistan. The textile sector possesses suitable infrastructure to improve and grow in technical textiles, and not a lot of investment is needed in technology. However, Pakistan is still way behind in using advanced techniques in the production of high tech technical textiles and high performance fibres due to a lack of skills and knowledge. 6 Textiles ? Pakistan Opportunities Textile is one of the most important manufacturing sectors in Pakistan and as such opportunities for UK companies exist in abundance. Some of the major opportunities are in the areas of: ? Raw Materials Exporting specialist raw materials to Pakistan to improve products manufactured in Pakistan. For example, yarn, fibres, twine, ropes, cables and other materials that are coated, covered and laminated used for making sanitary, hygienic and medical textile products. ? Sourcing of textile products Pakistan has a very strong textile base with reputed companies who have evolved over decades to become world leaders. These companies employ top designers and experts and are equipped with the latest technology. They produce goods on orders from all the major fashion brands and retail stores in the world, namely Wal-Mart, IKEA, Debenhams, Ralph Lauren and many others. ? Finished goods There is huge potential for exporting products made in the UK like bandages, surgical gowns, tarpaulins, awnings and sunblind, tents, sails for boats, sailboards or landcraft, camping goods. ? Machinery Most of Pakistan?s textile sector started its life with British machinery, however the use of these has declined due to the reasons stated already in the report. Opportunities still exist for British machines that are innovative and can lead to supply chain efficiencies like RFID tagging systems for fabrics, machinery to produce specialist materials, lab testing equipment and power efficiency solutions for textile companies. ? Research and Development UK has a vibrant research sector and some of that research can be used in Pakistan to produce innovative products. There is huge scope for research and development projects with textile companies and institutions that can enhance technology and knowledge transfer. UK companies can use the huge Pakistan market for developing and testing their products cost effectively. ? Education and Training The area of education and training is the most important and the one that has the most opportunities for UK companies and institutions. The area of technical textiles is attracting a lot of interest and already some educational institutes have signed co-operation agreement with their counterparts in the UK. Raising awareness is also a key activity that representatives of the textile sector are involved in and for that there is potential for UK organisation to participate in various events so Pakistan?s textile industry stakeholders can benefit from the knowledge and expertise. Another important area is that of Marketing. International marketing trends and techniques are an important element in trade that Pakistani institutions need to learn. UKTI publishes international business opportunities gathered by our network of British Embassies, High Commissions and Consulates worldwide. These opportunities appear in the Opportunities portal on the relevant sector and 7 Textiles ? Pakistan country pages on the UKTI website. By setting up a profile you can be alerted by email when relevant new opportunities are published. New or updated alert profiles can be set in My Account on the website. Key Methods of Doing Business The best way to operate in the local market is through an agent who can represent the UK based company in Pakistan. However, companies wishing to establish an office should consider doing so in partnership with a suitable local company. The most common arrangement is the exclusive agency agreement, under which the supplier agrees to neither appoint another dealer/distributor, nor to negotiate sales through any other party. In return, the agent is barred from handling similar items produced by other companies. Under this arrangement, the agent receives commissions on all sales of the product regardless of the channels through which the order is placed. The companies considering doing business in Pakistan should bear the following general principals in mind: ? Be pro-active and aggressive in pursuing business opportunities; ? Take a strategic, long term view; ? Carry out basic research and systematically gain information on doing business in Pakistan; ? Seek specialist advice from the relevant trade associations and authorities; ? Appoint a carefully selected, reputable agent in Pakistan; ? Ensure all necessary Pakistan government and other approvals have been obtained; ? Be prepared to transfer the latest technology, design, quality, manufacturing and operating techniques and principles; ? Other background information on doing business in Pakistan can be found on UKTI?s website. Simply go to the Pakistan country page where you will find information on: ? Economic background and geography ? Customs & regulations ? Selling & communications ? Contacts & setting up ? Visiting and social hints and tips More Detailed Sector Reports Research is critical when considering new markets. UKTI provides market research services that can help UK companies doing business overseas including: ? Overseas Market Introduction Service (OMIS). Bespoke research into potential markets, and support during your visits overseas ? Export Marketing Research Scheme. In-depth and subsidised service administered by the British chambers of Commerce on behalf of UKTI Contact your local International Trade Advisor if you are interested in accessing these services, or for general advice in developing your export strategy. 8 Textiles ? Pakistan When considering doing business in Pakistan, it is essential to obtain legal, financial and taxation advice. For further details, please contact: Ahmer Arif Deputy Director UK Trade & Investment British Deputy High Commission Shahrah-e-Iran Clifton Karachi - 74600 Tel: + 92 21 5827000 Fax: + 92 21 5827005 Email: ahmer.arif@fco.gov.uk Publication ? Pakistan Textile Journal www.ptj.com.pk Events ? TEXTILE ASIA ? LAHORE Date: 10 ? 13 October 2009 Venue: Lahore Expo Centre Industry: Fabric & Textile Organiser: E- Commerce Gateway Pakistan Private Limited Textile Asia - Lahore is being organised at the most opportune time when the government is looking forward to modernise and upgrade the textile sector of the country for better quality products and enhanced productivity. The exhibition aims to focus on the immense potential of textile and garment machinery, accessories, raw material supplies, chemicals and allied services under one roof. ? IGATEX PAKISTAN 2010 Date: March 2010 Venue: Lahore Expo Centre Industry: Textile Organisers: CEMBS Pakistan (Pvt) Ltd. International Garment, Textile & Leather Machinery, Accessories & Fabrics Exhibition, Leather & Fur, Fabrics ? Clothing Textiles, Fashion, Clothing Machines. th ? 7 Textile Asia ? International Textile & Garment Machinery Show th th Date: 4 to 7 April 2010 Venue: Karachi Expo Centre Industry: Textile Organisers: E- Commerce Gateway Pakistan Private Limited The International Textile Asia 2010 Exhibition, the official event of the Federal Ministry of Textile Industry. It aims to bring all the stakeholders in the industry 9 Textiles ? Pakistan under one roof. Exhibitors include all the major textile and garment related companies. ? MEGATECH PAKISTAN 2010 th th Date: 4 to 6 March 2010 Venue: Karachi Expo Centre Organisers: Pegasus Consultancy (Pvt) Limited Megatech is a promising event for garments and textile technology machinery and is a unique platform where local and international prospective buyers and manufacturers of textile and garment machinery can interact under on roof. UK Trade & Investment?s Tradeshow Access Programme (TAP) can help eligible UK businesses take part in overseas exhibitions. Attendance at TAP events offers significant benefits: ? possibilities for business opportunities both at the show and in the future ? a chance to assess new markets and develop useful contacts ? grants are available if you meet the criteria ? UKTI staff overseas will be available to assist delegates Find out if you are eligible to apply to attend this event, and more about the support UKTI can offer on our website. Details of TAP events can be found in the Events section on the Pakistan page. Other Market Visit Support may be available via your local International Trade Advisor. Contact Lists ? All Pakistan Textile Mills Association www.aptma.org.pk ? Pakistan Cotton Ginners Association www.pcga.org ? Towel Manufacturers Association of Pak www.towelassociation.com/ ? National Textile University -NTU (Faisalabad) www.ntu.edu.pk/ ? Textile Institute in Pakistan-TIP (Karachi) www.tip.edu.pk/ UKTI?s International Trade Advisers can provide you with essential and impartial advice on all aspects of international trade. Every UK region also has dedicated sector specialists who can provide advice tailored to your industry. You can trace your nearest advisor by entering your postcode into the Contacts in your region the homepage of our website. 10 Textiles ? Pakistan For new and inexperienced exporters, our Passport to Export process will take you through the mechanics of exporting. An International Trade Adviser will provide professional advice on a range of services, including financial subsidies, export documentation, contacts in overseas markets, overseas visits, translating marketing material, e-commerce, subsidised export training and market research. 11