The grant of the GSP Plus status to Pakistan by the European
Union (EU) has been welcomed by Pakistan as this is likely to increase
Pakistan’s total exports by $2 billion (out of which, the increase in textile
exports will be $650 million). The EU, being our third-largest export partner,
has allowed 20 per cent of Pakistani products to enter 27 EU countries without
any tariffs. With most of the tariff lines with tariff concessions belonging to
the textile industry, it is likely to be the greatest beneficiary of the GSP
Plus status. However, this will be conditional on the export performance of the
industry, for which short-term policy interventions are needed.
Having said this, a number of challenges face the textile
industry, the foremost being the need for diversification of its export base.
Keeping in view the worsening energy crisis, this appears a major hindrance to
expanding the product base for textile exports. Many textile units were closed
down at the end of 2012, owing to shortage of power supply for a long time. Many
textile units even moved to Bangladesh, Turkey and Sri Lanka due to tariff
concessions, easy market access and adequate energy supply in these countries.
Punjab-based textiles were particularly hard hit by the energy crisis, which
contribute 75 per cent to the total textile industry. However, in March 2013,
the export performance of these textile industries improved to a large extent,
mainly as a result of the contribution of few large-scale textile industries
developing their own power producing units.
Another challenge facing the textile industry is obsolete
infrastructure. Diversification in the export base is not possible unless new
and efficient production units are set up, which is not attainable in the short
run. Moreover, foreign direct investment (FDI) in the textile sector has been
on the decline for the last few years, which explains the poor condition of the
textile infrastructure. According to the Board of Investment (BOI), FDI inflows
in textiles have decreased from $29.8 million (2012) to $10 million (2013).
Other factors adding to the misery of the industry include rapidly fluctuating
prices of raw materials, increasing cost of production, bureaucratic hurdles
faced by textile exporters and a tight monetary policy.
Keeping in view the current situation, it would be difficult
to expand the export base of textile products on an adhoc basis. However,
timely policy actions can help this sector enjoy the privileges of the GSP Plus
status. First, the government can extend its support to small- and medium-scale
textile units. Loans for working capital on low interest rate can be offered so
as to make them operational. This would enhance the production capability of
the existing production units. Moreover, financial support can be offered in
establishing small-scale bio-fuel electricity generating plants or other
alternative low-cost plants to ensure that production is sustainable.
Second, efforts should be made to attract FDI towards this
sector. When the GSP Plus status was granted to Bangladesh, it attracted
massive amounts of FDI. In order to attract a substantial amount of FDI in
Pakistan, the BOI must ensure the security of foreign assets and profits. To
attract FDI, Bangladesh had offered unconditional 100 per cent foreign equity
for industrial investments. Tax exemptions of five to seven years were granted.
Bangladeshi citizenship was also offered on investment of $75,000. The process
of repatriation of capital investments was simplified and was allowed without
any prior permission of any authority. Pakistan can also consider relaxing its
investment policy in light of the aforementioned steps taken in Bangladesh.
The government can also refrain from intervening in setting
the prices of raw materials and promote greater competition in the production
of intermediate goods so that prices of inputs are lowered and small textile
units can operate at a low cost. The replacement of exports from high duty
countries to EU countries can also help. Outsourcing of the production process
and the import of low-cost raw materials from India would also enable our
textile industry to fully reap the benefits of the GSP Plus status.
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