However, there are many other companies that have the potential to grow
at a much higher pace because of their relatively smaller size. The
positive sentiments are across the board where many players are
aggressively expanding. The potential is in value addition. There are
multiple reasons for exuberance – currency devaluation, subsidy to
textile, and availability of energy at regional competitive rates are
known to all.
One big booster is improvement in perception. The overall image of the
country is improving and the opening up of visa regimes is helping as
well. The buyers are visiting and new orders are being placed, and there
is soft commitment of new businesses, given that the expansions are
carried out.
The textile exports, in volume terms, stopped growing, in the last
decade. The problem of currency overvaluation is more of a recent
phenomenon – started in 2014. Prior to that, energy and security started
hitting the exports bad. Enough has been said on the energy, and its
availability is paying dividends.
The perception improvement needs to be highlighted. The textile and
other exporters swayed away from exporting to domestic sector, before
the currency was capped by Dar. Buyers were not coming and it was hard
to get new business. There were fears of getting shipment delayed from
Pakistan and that had helped Bangladesh to grow.
Now the situation is changing. If the travel advisory from the US is
relaxed, it would be a game changer for Pakistan exports – be it in
goods or services. With recent tariff war between US and China, and
protests against low wages in Bangladesh, buyers are thinking to
diversify from these two markets. Pakistan has the opportunity to grab
its lost share.
However, building requisite backward linkages are required. Three big
textile players resonated that without enhancing cotton production, it
is hard for textile industry to reach its true potential. One of the
reasons for competitiveness erosion is fall in cotton production, which
has reduced from its peak of 14-15 million bales per annum to around 10
million bales.
The long term strategy should be to take annual cotton production to 20
million bales in 5 years or so. The need is to work on our agriculture
strength. The cotton seed market is orphan today with too many kids on
the street – every district has multiple unregulated seed companies. The
stewardship is missing. Industry players are of the opinion that the
seed industry needs to be regulated and serious consolidation is
required to improve the yield. The other factor is to do away with price
support to other crops – such as sugarcane, which has resulted in
substitution to sugarcane from cotton.
Concurrently, the need is to find new markets. The FTA with China is
being revised and industry players expect Chinese market to open for
value added sector. These all will take time. The need is to move step
by step. There is no magic wand to boost the exports right after
correcting currency or by giving subsidy. The capacity expansion takes
time, buyers’ perception improves slowly, and human skill set needs to
be built.
Importantly, the government has to do away with these cash subsidies –
it’s not sustainable in the long run. And along with that, the refunds
do not have to be just cleared, but their buildup should be stopped. The
government role has to be in facilitation across the value chain, while
the entrepreneurs will enter where they smell value.