Pakistan lags behind competitors: World Bank


Pakistan has a fast-growing apparel sector with low prices, but lags behind competitors in reliability, compliance and political stability, says the World Bank (WB). The Bank report issued here on Tuesday, “Stitches to Riches? Apparel Employment, Trade, and Economic Development in South Asia”, says that Pakistan offers low prices in most product categories, but it lags behind competitors in reliability and political stability.

Pakistan has a fast-growing apparel sector that accounts for 19 percent of its exports and firms are competitive with global exporters in terms of prices. Yet, despite low prices in most apparel products’ categories, Pakistan lags behind competitors in reliability and political stability.

Pakistan is considered a “growth supplier” (like Bangladesh)-rather than a “stable supplier” (like India and Sri Lanka)-in that it has increased export value and global market share since the early 1990s.

One major problem for not performing well is due to a lack of product diversity, with the country almost entirely dependent on cotton products and trouser exports. Other problems are reliability, compliance, and political stability and safety-especially regarding Foreign Direct Investment (FDI).

Pakistan also has a large labour pool, but productivity is hurt by the limited availability of good sector-specific training institutes and gaps in technical, design, and middle management skills.

In Pakistan, a major challenge is political instability. Many buyers will not travel to Pakistan because of security concerns, so domestic firms often travel to Dubai to meet them, which makes sourcing complicated.

The report further states that textile industry in Pakistan also suffered due to lack of adequate infrastructure facilities, especially in the Punjab province (Lahore) where approximately 65 percent of the industrial units are located.

Pakistan ranks fourth in terms of value ($4.2 billion) with the same global market share (1.2 percent) as Sri Lanka, though apparel’s share of total exports is lower at 19 percent. FDI has not played an important role; in the apparel sector, the share of foreign-owned firms is estimated to be less than 2 percent, and only slightly higher in the textile sector.

Pakistan specialises in basic cotton, woven, denim, and chino trousers, low-priced knitwear such as polo shirts and T-shirts, and fleece sweatshirts, the report maintains.

India and Pakistan face the most hurdles-notably not enough product diversity; Sri Lanka needs to expand end markets or develop capabilities in other higher-value, lower-volume product categories; and Bangladesh, now reaping the benefits of low costs, needs to tackle social compliance and product diversity to remain competitive.

According to the report, Bangladesh leads the pack with 6.4 percent of the global market, followed by India (3.5 percent), and Sri Lanka and Pakistan (1.2 percent). The same pattern holds for global value: Bangladesh ($22.8 billion), followed by India ($12.5 billion), then Sri Lanka ($4.4 billion), and Pakistan ($4.2 billion).

Both Bangladesh and Pakistan increased exports at a faster growth rate than the world average-with Bangladesh enjoying the largest increase in global market share whereas Pakistan’s growth was more modest.

The elasticity estimates suggest that a 10 percent increase in China’s prices would increase Pakistan’s exports by 316.2 percent. By comparison, the system estimation estimates seem quite plausible.

Pakistan also stands to gain a lot of jobs from the apparel sector. A 10 percent increase in Chinese prices to the United States would increase Pakistan’s male employment by 8.93 percent and female employment by 8.5 percent.

Working conditions are better in formal industry than in the large cottage sector, but short-term or temporary contracts are widely used, particularly for women, and the factory fire in Karachi in September 2012 highlighted poor safety standards, maintained the report.

Pakistan could benefit by polices such as increasing product diversity by reducing barriers on imports so as to ease access to man-made fibers (such as duty and tax remission for exports and export processing zones (EPZs)).

Attract FDI by adopting policies to reduce red tape and increase transparency to close the gap with South Asian countries whose textile and apparel industries are located primarily on the coast.

Diversify markets by taking advantage of market access to emerging markets. Shorten lead times by improving road infrastructure to facilitate access to ports for exporting firms. Shorten lead times by clustering strategies to provide key infrastructure and common facilities. Enhance perceptions of stability.

Source: Business Recorder