Impact of the Textile Industry on Pakistans Economy

Impact of the material Industry on Pakistans EconomyCHAPTER 1The study investigated the strengths of stuff industry on the ripening of economy of Pakistan before and after(prenominal)ward introduction of world peachy deal organization, 1995. The set out of the study was to gain insight virtually the effects of framework industry on the reaping of Pakistans economy.The debate for selecting the idea The effects of material industry on the growth of economy of Pakistan before and after creation of world slew organization, 1995 was to seek this topic in Pakistan that how our fabric industry is directly affects our economy. Although thither ar m whatsoever seekes conducted just to explore that how Pakistans economy is affected before and after the g overnance of world employment organization.Industry is considered as the basic element of any country especially fabric industry contributes all entailmentant(p)ly to the countrys GDP (Gross domestic product), ex portings as well as interlocking. The stuff industry is one of the well-nigh master(prenominal) vault of heavens of Pakistan. It is, in fact, the prickle of the Pakistani economy. It has a positive established rotate capacity of 1550 one million million kgs of yarn, distort capacity of 4368 million squ ar meters of fabric and finishing capacity of 4000 million square meters. The industry has a production capacity of 670 million units of garments, 400 million units of knitwear and 53 million kgs of towels.The industry has a total of 1221 units engaged in ginning and 442 units engaged in spinning. There are close to 124 large units that under appropriate interweave and 425 small units. There are around 20600 power looms in operation in the industry. The industry in any case houses around 10 large finishing units and 625 small units.Pakistani material industry has about 50 large and 2500 small garment manufacturing units. Moreover, it also houses around 600 knitwear-prod ucing units and 400 towel-producing units.According to Dr. Mirza Ikhtiar Baig (2010) the current global situation of the framework industry and the luck of the Pakistan in global cloth industry is the main subject of our topic. The cloth demand in the world make upd massively in put out few decades. The global luck of the cloth add about 18$ trillion and it is expected to increase 6.5% in future year. chinaware is known as the major(ip) exporter country of the fabric goods in the world. The world wide material export is around 400$ zillion. The Asian Countries train the major share in global fabric export .The share of the china is around 55$ billion, the share of the Hong Kong is around 38$ billion, the share of the Korea is around 35$ billion, the share of the Taiwan is around 16$ billion and the share of the Indonesia is around 9$ billion, India also emerged as the major exporter of textile goods. In case of Pakistan, Pakistan also emerged as the textile export er in the world. Pakistan emerged as the major exporter of the cotton and cotton yarn, Pakistan export the 30% of textile cotton yarn and 8% cotton fabric to the world. Pakistan total textile export is 7.4$ billion in 2002 which account the 1.2% share in the world textile export. Pakistan mostly exports the textile stark(a) materials to the world and did non export the care for added items, this is the main trouble of Pakistan textile sphere. Pakistan should learn from Bangladesh who imports the raw cotton from Pakistan and other countries and then make the value added items and export it to the world. If we want to increase our textile revenue then we tenseness on the value added items in future exports.1 fabric INDUSTRY IN Nationwide Financial SystemFabric visualization-2005 has been aimed at an open merchandise, unique, market goaded and vibrant textile heavens, which is globally incorporated, worldwide spirited and fully equipped to abuse the opportunities shaped by Fa bric goods are the vital individual necessities after then food. Textile sector in Pakistan performing the important role in the growth of our national economy, it has the big share in our GDP growth rate. It is playing the impotent role in our export sector, employment sector and enthronement sector. It has the major share in our conflicting exchange earnings. It has the largest share in our manufacturing sector. Textile share in overall manufacturing is about 46% distant export earning is about 68% and 38% share in serve sector. In spite of the governments efforts to diversify the exports sector and as well as industrial sector, the textiles sector of Pakistan still the sense of industrial activity in the country.FABRIC VISUALIZATION 2005According to survey (2005) Fabric visualization 2005 is a vision about the peeled techniques introduce in sector. The vision about the, lighten entry and exist, barricade free markets, concept of belligerent markets, dynamic and innovativ e which is internationally integrated and fully equipped to utilise opportunities created by the Multi Fiber arrangement at international level. At present Pakistan hold the 8th part in Asian countries Pakistan can take the 5th or 4th position if Pakistan fully exploits the opportunities created by MFA.THE FUTURE AND DEVELOPMENT OF THE TEXTILE EXPORTSThe development of the textile industry is heavily expecting upon the GATT rounds which ultimately become the intellectual of the establishment of WTO in 1995. The main ag ceasea of the GATT rounds is to obligation of quotas system, unilaterally, bilaterally, multilaterally in the textile sector. It means that there get out be no quota on textile products. Pakistan is also the member of the GATT rounds and then after the member of the WTO and the benefits of the GATT rules. In GATT rounds and WTO, the States and EU was in favor of the most restraint on Chinas textile exports. Pakistan and India treated most favorite nation becaus e both are the founding nations.1.1.3. QUOTA NATIONS PART IN PSKISTANS TEXTILE EXPORTSUSA44.5%EU50%CANADA1.7%TURKEY3.6%1.1.4. STRENGTH AND LIMITATIONS OF PAKISTANThe share of the textile sector of overall world export is around 6%, which is accounted nearly370$ billion. The share of the clothing goods is around 210$ billion and remaining the share of the yarn and raw cotton. In case of Pakistan, the textile sector has the major share in Pakistan export. The 60% to 70% export of the Pakistan is dep prohibit on the textile sector which is accounted nearly 7$billion in year 2002-2003.The share of the raw cotton and yarn is about 30% and share of the fabric is nearly 35% (Ayesha Fayyaz, 2010).1 The 15 EU members countries are the highly developed countries of the world and they are the main importers of textile goods. On beginning(a) may 2004 the ten others countries are also join the EU, these 10 newly members are comparatively less(prenominal) developed and to a greater extent econom ical to differentiate with 15 countries thus EU companies relocate their units in those countries for cheapjack textile manufacturing and export more textile goods. The EU export increased and became 11% of the world textile export.2. The EU members countries increase the employment level in this sector. Thats why they are more focus on development of this sector. The 2.5 to 3.5 million people are occupied in this sector.3. Presently another threat of Pakistani exporter is that if EU withdraws his 0% duty under EU GSP scheme, then Pakistani exporters fount the damages in her expert volume.4. In case of the USA more than one million people are employed in the textile sector. In USA there are thousands of companies who produce the textile goods. The companies mainly in South Carolina, North Carolina, Georgia, Virginia and state of Alabama. These state protested against the 0% duty on textile goods. After the establishment of WTO and Asian crises nearly 250 units shut down and more then two laces people upset their jobs. frankincense in 2004-2005 the USA governing body impose the quota with different percentage on textile goods.Composition of Quota GoodsUSAEUCANADATURKEYTOTALFabric69%12.4%Quota free2.2%21.5%Garments30%18.4%1.1%0%49.5%Made Up7.6%17.2%0.6%0%25.4%YarnQuota free2.2%Quota free1.4%3.6%Total44.6%52.2%1.7%3.6%100%At present USA pass on also concentrate on the high tech textile goods to compete the modern world. USA focuses on non-woven, particularly focus on the hygiene products like childrens diapers and wipes, feminine hygiene, adult incontinence and highly end fashion items, particularly for womens wear.USA and EU wants the better market access to their textile products and on the other hand they also want to follow through the rules of the WTO on tariffs, quota and intellectual property rights. They also want to implement the rules which are mentioned in GATS and WTO like environmental conditions, laborers facilities, wage rate and tax coll ection system. Pakistani exporters lead prepare to fight these challenges of the modern world.USA imposes safety measures on textile exports, which can also effect on Pakistan exports, but the Pakistani exporters having the ascertain to get the benefit from the quota restriction on China and Vietnam compel by the USA in 2005 as cited in Dawn News the Economist Magazines (2000).Corporation in different sectors is key to success if the Pakistan Government and the private sectors cooperate with each other it is unspoiled for the Pakistan textile industry. The government should be encouraged of production of MMF synthetics, and the private sector should be encouraged the buffer sprout scheme of cotton and stock pile schemes. The Government should reduce the duties on textile machinery and other equipments. The Pakistan Government should deliver the goods the facilities to the exporters to start the business. The cost of start new business in Pakistan is really high to compare wi th the regional countries so the Government, Ministry of Commerce and Stat Bank of Pakistan should take steps to facilitate the business man. The ministry of Commerce focuses on three weakest links in the textile like dying, marketing and ginning.The Government of Pakistan and State bank of Pakistan should provide loans to the exporters to expand her businesses and improve the calibre of the goods at international standard. The interest rate on the loans must be low to compare with market.1.1.5. RISE IN FABRIC EXPORTS MANUFACTURING IN PAKIn international market there sharp propaganda against the quality of the Pakistan textile products. Pakistan side of meatd the challenges of the high quality and the competition with the regional countries. After the abolition of the textile quota from January 2005 Pakistan surprised the all competitive countries to increase its global share of exports and get additional foreign exchange. Pakistan also improve its quality of the textile products t hats became the fountain to earn extra revenue.According to The Nations Money magazine publisher (2005) after the abolition of the quota free world trade on textile products the Pakistan textile sector earns 3.6$ billion through exporting textile products, which show the 10% growth over the corresponding period of the last year. The different textile experts having the opinion that the textile exports of the Pakistan is expected to increase 5$ billion during the first half dozen months after the abolition of the quota regime (January June 2005). The total export of the year 2004- 2005 is expected to increase 8.5$ billion.In 11 months of year 2005 the textile industry of Pakistan earn 7.70$ billion expenditure of foreign exchange earnings, which show the importantly increase in the foreign exchange earnings to compare with the precedent years. In May 2005 the textile exports of the Pakistan increase 830$ million as against 650$ million in April, its show the pleasant trend in textile sector of Pakistan.The Pakistani textile manufacturers are very optimistic in nature and want to increase the international share, and they have target to increase the exports around 10$ billion US dollars. The textile industry can achieve this target if the industry is steadily increase its exports share in the international market. The Pakistani textile manufacturers claim that the textile products such as, yarn, fabrics, cloth and bed linen are the most competitive items in the world, the quality of these products are very fine to compare with other world. These items have a major share in our overall textile exports. They claim that the leading textile producers and the exporters of the world like China, Germany, Bangladesh, and Sri Lanka import these products from Pakistan and convert them into high fashion items and export the world.After few months of establishing the quota-free global trade of textile, the knitwear and readymade garment sectors in Pakistan faced a p ressure, but now these two segments of the Pakistan textile industry also show utility in manufacturing of the products. The other segments of the Pakistan textile like yarn, bed linen, clothing, are doing well before and after the new WTO regime. Since 1999 to 2005 a sizeable investment nearly 5$ billion to 6$ billion US dollars are invested in Pakistan, which have pleasant effects on local anaesthetic textile industry.There is huge investment in Pakistan textile industry this investment developed the textile sector. The investment in the textile sector is divided mingled with different segments of the industry. The spinning has made 46% of the total investment the weaving sector has made 24%. Textile processing has made 12%, made-up 8%, knitwear and garments 5%and 5% invest in the synthetic textile sector. The textile industry of Pakistan is expected to receive investment more than 6$ billion US dollars by the year 2010 and this investment will increase the capacity and the qua lity of the products.According Tariq Mahmood Acting chairman all Pakistan mills association The USA imposed some restriction on Chinese textile products this restriction is also beneficial for the Pakistan textile exporters. The EU and USA gives the legal age of the textile orders to the Pakistan because the Pakistan has the capacity to achieve the target on time. Presently the USA and Europe became the major market of Pakistan textile products, and Pakistan gene judge large amount of the revenue. .Soon after launching the quota-free international trade under the rules of WTO, Chinese started marketing their textile products vigorously in the USA, Europe and other major consumer countries of the world and wants to capture the local market. This behavior of the china badly dishonored the local textile industry of the Europe and USA, and ultimately this became the reason of the trade war between china and EU, USA so the EU and USA wants to impose some restriction on textile products . For the last few days a tug of war started between china and USA on the issues of the revaluation of the Yuan (Chinese currency), Dumping, terrifies and this war between USA and China is beneficial for the Pakistan textile sector.The Tsunami factor had also become the reason of the development of the Pakistani textile industry, because Tsunami heavily damaged the textile industry of the Indonesia, India and Bangladesh.The re-location of the textile industry in EU and USA had also beneficial for the Pakistani textile exporters, because they mostly fulfils there textile needs from Pakistan. They import the different products from Pakistan and used it in her products. The textile industry of Pakistan had equipped itself at the international standard after the abolition of the quota system and imports the advanced textile machinery to improve the capacity and quality.The textile sector invest more than 4$billion US dollars in last four to five years, investment on the latest machinery , infrastructure, communication, amplification, manpower and designing. The industry believes that this investment in industry will comfortably meet the up comings challenges of the advanced world.Cotton is the basic need of the textile industry, and Pakistan is the leading producer of the cotton in the world. Pakistan producing the 12 to 14 million bales of the cotton annually. The Government of Pakistan should take step to promote the research on cotton which increases the production and the quality of the cotton through research on cotton we can produce the disease free cotton. After the abolition of the quota system the textile industry has believe to need the 16 million bales of cotton annually, the 14 million of bales produce locally and 2 million of bales import from the other countries. If we focus on the research we can fulfils the need of textile industry, and also export the other countries.1.1.6. Complication and Problems in Textile InvestmentLack of road and running network facilities in the country.Poor management by the different governmental agencies.Bad governance and silly law and order condition in the country (especially in Karachi and Khyber Pukhtunkhawah.Bad image of Pakistan portrayed by the international media and international agencies.Warnings, which are issued by the foreign countries to their citizens to stop travelling of Pakistan is also the big burial vault in Pakistan development.Pakistan is the member of the WTO and signs many international agreements like intellectual property rights and international arbitration agreements which enforce Pakistan to obey the rules.Poor communication facilities are also the major hurdle in Pakistan textile development. degeneracy in Governmental department is also the major issue of the Pakistan development.Severe electricity shortfall in the country.Financial instability in the country which became the reason of the decrease in foreign investment.Our utility rates are too such(prenominal ) high to compare with the regional countries.Our tax collection system is very weak, which also one of the main hurdle in our development.Energy crises in the country (crises in innate(p) gas/ crises in the accessibility of petrol).The good quality soft water is not available for our textile sector (especially in Karachi).Negative impact of SROs culture.1.2. MOTIVATION OF RESEARCHThere is a need to explore the factors influencing the overall productivity and development of the textile industry of Pakistan and the problems faced by the textile industry of Pakistan, so that it can help the policy makers to shape the different policies to tackle with the various issues of the textile industry, and it can sole(prenominal) be done with the help of the research.There is a need to conduct study on this topic so that it can be beneficial for the individuals as well as the Pakistans economy. The issues faced by the textile industry at current need to be studied and can only be lick throu gh proper policy implications.There is a need to explain the various factors affecting the textile industry of Pakistan so that the policy makers have an idea to explore the responsiveness of the textile industry payable to current trade policies which will in turn help them to identify the different policy measures to fire the textile industry in our country.1.3. RESEARCH QUESTIONIt is believed that the textile industry acts as the backbone of any economy, and the development and prosperity of the economy depends by and large on the development of this sector. Here in this research, an attempt is made to study the effect of textile industry on the growth of the economy before and after the establishment of WTO (1995) from 1947 till current. The basic research question filchs from the discussion is that whether the textile industry contributed positively towards economic growth in the country? The research tries to find out the accurate answers of this question by using econometr ic theoretical accounts.1.4 RESEARCH OBJECTIVESThe textile industry acts as the backbone of any economy, and the development and prosperity of the economy depends largely on the development of this sector. This study was conducted how the textile industry is contributing significantly towards economic growth1.4.1 possiblenessH0 Textile industry does not directly link up to the development of the economy.H1 Textile industry directly related to the development of the economyCHAPTER 2 BACKGROUNDAccording to Dawn News the Economist Magazines (2008), in 1947 after self-rule, only two textile mills were working with 80,000 spindles and 3,000 looms. At that time our domestic need was 8 % only.1950The organized development of cotton textile mills started in the late 50s. In 1952 PIDC and in 1953 Vatika Textile Mill at Karachi was organized.1960By mid 60s about 180 units of textile bleaching, printing and processingunits in Pakistan. A number of spinning units comp locomote of only 12,50 0 spindles were set up. Newly established mills were based upon merchandise technology but there was lack of technical staff and shortage of capitals. Pakistans textile industry has lost its relatively more prominent position of the 1960s and 1970s, and today holds a little over 2 per cent of the world market. Pakistan enjoyed a very dynamic performance in the 1960s, and was among the leading underdeveloped countries that were emergent in the world cotton textile market. In fact, Pakistans record was quite envious, as between 1962 and 1970 it control over 11 per cent of the world market (Admin, 2010).1970During the era of 70-71 there were 113 textile units and the industry had 2,605 spindles and 30 thousands looms. After the separation of East Pakistan, Cotton export Corporation of Pakistan was established this meant that most of the private sector was taken over by the state. The textile industry suffered heavy looses because the export cotton controlled by CEC (Cotton Export C orporation of Pakistan), and the import of machinery was made difficult due to shortages of foreign exchange (Admin, 2010).1980This phase brought a suspension to the textile Industry of Pakistan. There was a rapid growth in spinning sector. Till 1980-81 spinning continued to expand to 4033 thousand spindles in 203 spinning units, and working capacity amounted to 2833 thousand spindles. The textile sector holds a very important position in Pakistans economy in terms of employment value added and exports. It has the highest manufacturing value added for any industry amounting to 17.5 per cent. Similarly, about one-third of the entire manufactured employment is in the textile sector. In terms of exports, approximately 30 per cent of Pakistans total export came from cotton textiles in 1990/1, up from 20 per cent in 1982-3. Cotton yarns contribution to exports increased from 10 in 1982 to 18 percent in 1990.1990Machinery for producing garments and made-up was also freed from import duty . As a result, a huge expansion in the spinning sector took place in the first five years of the 1990s. World demand for good quality, wide width fabrics grew and replacement and a modernization process started. With these developments, production and export value-added items such as bed-sheets and home furnishing started. Structural changes with the replacement of outdated machinery and modernization in the industry still continued inview of world competition. In 1991-92 Pakistan produced a record high crop of 12.8 million bales.1993 to 1998 Pakistan recorded a development of 101% per year in cloth manufacture while its position is third after China and India in the world wide yarn manufacturing. The place of Pakistans textile manufacturing relatively persist and save following the full execution of WTO (World plow Organization) contract from 2005 beyond when a period of open trade will establish internationally. In 2000-2001 Pakistans Cotton production and expending was almost equal around 10.45 million bales (Arshiya Fayyaz, 2008).World Trade Organization and textile industryWorld Trade Organization (WTO) a foreign organization which support deal between member countries, look after nationwide trade contracts and resolves disputes when they arise (Business dictionary, 2010).According to Kimberly Amadeo, the WTO (World Trade Organization) is a set where associate administration goes, to try to solve the trade issues they face with one another. At its heart are the WTO agreements, discussed and noticed by the volume of the worlds dealing states. But the WTO is not just about relaxing trade, but in some conditions its rules hold up trade forestall for example to defend clients, avoid the increase of virus or look after the glory.World Trade Organizations (WTO) Impact on Textile Industry in PakistanAccording to Jabir Rafique The contract on fabric and clothes, which were factor of the Uruguay Round trade discussions aim to abolish the component of inequ ity in textile and clothing. An agreement on textile and clothing (ATC) actually does is to give marketplace entre to ontogeny nations and does these throughout two belongings.A amalgamationB development tariffWe should not observe the scientific feature of ATC (agreements on textile and clothing) now, but focus on what is happening since January 1, 2005. There is a crowd of questions that would turn into greatly important for trade in textiles and apparel. Pakistans exports of textiles and apparel are likely to rise 8-billion us dollars score in 2003-04 to previous years about US$7-billion exports, current sky-scraping prices of yarn not withstanding. Pakistan will face equally intimidation and opportunities from January 1, 2005.The fundamental problem which will crash exports in 2004, but not yet determined areWhether the EU (European Union) and U.S.A. will permit carry-forward in 2004 as required by all rising nations.Whether delivery received January 1, 2005 beyond will be fr ee irrespective of the year of delivery or may be, for these, suitable quota permit could be essential, or these supplies may be drove back or taken away by customs.How the EU make a strategy to contract with free activities of supplies from the 10 fresh associate nations which will connect the Europe union on May 1, 2004.Pakistan by no means is capable to completely use part available to it usually, 25% of the quotas stay unutilized. The proportion consumption of quotas remains unutilized. In 2002, an entirety amount of 4,646 million cube meters be offered to Pakistan from the listed nations. An amount of 1,147 million sash unutilized. Per unit price obtain in 2002 the unutilized value explains US$600 million (Osaka Senken, 2004).Cotton and fabrics have the superlative industrialized base. In the previous years, the section of knitwear, blanket, dry items and chosen stuff of handy clothes have shown an significant increasing trend in exports. Though, the Pakistani cloth mill is c omparatively weak in artificial fiber goods, natural fiber clothes and fancy clothing.The impact of complete addition is probable to hit this sector hard. Because of back-loading, the limitations would stay in place till the end of 2004. As a result, no alteration era would be offered to the manufacturing. This unexpected swap from a limited to a open atmosphere would surely attach to the alteration difficulties of untrained units (Osaka Senken, 2004).The further influential feature since January 1, 2005 will beSkills on which there has not been adequate center until now. The customary vision of negotiators, so as to contemptible employment and a rich delivery of yarn is not true any longer.After that is user flavor. extremity for cotton and for fabric and clothing is common. So we should develop a spirited benefit on the goods and services that we had a relatively gain on it.While there will be no restrictions on exports however rivalry from China and the Asian tigers with apparen t additions in the non-tariff fence should be kept in view.Uruguay round was established because it was thought that in year 2005 this round would be a round to end other rounds. EU, Japan and other countries made a lobby to initiate a new round. In November 2001, 4th WTO Ministerial meeting, the Doha expansion program, basically the start of a new polygonal trade negotiation round was certified. Fresh problems were raised, and these problems were discussed in 2005. The 5th Ministerial Conference commence in Cancum, Mexico gave the view that the urbanized world required to eat its cake and have it too.On the other hand the ungrateful act, skill, transformation, important reserves, marketplace, particular tax talks and particular local provision should be followed.To sum up, the Pakistani cloth manufacturing should not relay on usual marketplace, models and conventional ways, because there is no assurance that the offered model will persist as it is..CHAPTER 3LITERATURE REVIEWDr. N oor Ahmed Mammon, (2010) analyzed the establishment and development of the jean sub sector. According to him, the weaving part in Pakistan generally is paying intense attention to the significant success of the denim sub sector. The clothing industry of Pakistan openly benefits from the latest developments in the denim adding up advanced price to the textile formed in Pakistan. The Denim area in Pakistan still much smaller in terms of scale is leading the system for the whole industry.Aftab A caravanserai Mehreen Khan (2010) examine the challenges of this decades, and examine that Pakistan faces the toughest challenges in this decades. According to their research the internal condition of Pakistan is very bad and the exporters face the huge challenges. The exporters of Pakistan face crises of electricity breakdown, Shortfall of Gas, high inflation rate, political instability, terrorism, high interest rate, and problem of the foreign visas. According to their report the Government of Pakistan should take steps to solve these problems because textile industry is backbone of our exports.Jodie Keane et al, (2008) examine the job of fabric and clothing industry in enlargement and expansion strategies in developing countries. They propose that textile and clothing industry are significant in economic and social conditions, in the short-run by providing income, jobs, particularly for women, and foreign exchange receipts and in the long-run by providing countries the chance for continued economic growth. According to them, the potential of the fabric and clothing industry to contribute to long-run expansion and progress will depend not only on the characteristics of the investor, but also on the worth as well as efficiency of government policies and institutions in rising countries to put up on this deal.Dr. A. Ali Mohammad Munir (2008) analyzed the Pakistans textile export in international market. They analyze that the share of the bed wear, towels and knitwear h as increased over the last six to seven years and they became the major export of our textile sector. The share of the other textile items like hosiery, denim and other textile items remained inactive and changed marginally. The study also tell that after the quota free regime in textile the competition increased too much so Pakistan need to focus on the quality of the product.Afia Malik, (2004) examines the situation of Pakistan textile industry after the establishment of WTO (1995). After the establishment of WTO in 1995 the trade