PEST-The Textile Industry in Pakistan

9 Pages   |   2,807 Words

1-Political Forces

Political factors include rules are regulations spelled by the government and policies which have been set by the government for the Textile Industry in Pakistan. These rules and regulations which the Textile Industry in Pakistan has to follow are:

Taxes

According to Pakistan Textile Journal (April, 2011), the government exempted the Textile industry from Sales Tax from 2007. But, 17 percent sales tax has been imposed again since 16th March, 2011 (Express Tribune). This imposition has ended with seizing of textile activities all over the Pakistan, hitting the employment of people working on daily wages and an expected loss of Rs. 1 Billion every day. Also, the industry has to pay 2.5 percent excise duty to the government. On the other hand, duty paid to the government for services such as fire insurances, theft insurances, etc provided by the financial institutions have been increased to 10 percent which was 5 percent in the past.  (Business Recorder, 26 March, 2011). Ahmad (2009) explains that according to the provisions of the Finance Bill (2009-2010), provisions have been made which explain that 0.5 percent tax on domestic sales should be reintroduced with the imposition of 1 percent withholding tax on textile imports. There was another 4 percent withholding tax on machinery parts that are imported. This situation has narrowed the profitability base of the textile unit owners and requires serious steps to be ensured by having additional subsidies for the textile industry.

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 Environment Laws

Presently, Textile Industry has been working under the Pakistan Environmental Protection Act, 1997. Before the act was passed, the overall situation has been not in a good shape. Besides, National Environmental Quality Standards (Self-monitoring and Reporting by Industries Rules, 2001), Composition of Offences and Payment of Administrative Penalty Rules 2000, Pakistan Environmental Protection Agency, etc has also been in their active forms. These have contributed a lot for creating awareness in the textile industry to protect the industry. APTMA (All Pakistan Textile Mills Association) has played a very positive role in bringing awareness regarding protecting the environment in the industry (Malik, 2002).

Employment Regulations

According to (Ahmed, 2010), the textile industry provides employment opportunities to around 15 million people, which constitutes approximately 30 percent of the total work force in Pakistan. Due to unstable prices of commodities and power load-shedding, employment in the textile industry is one of the most uncertain one. Irfan (2008) explains that the government has fixed a minimum wage rate which should amount Rs. 7000 per month. The same rule applies for the textile industry in Pakistan.

1-Economic Factors

Cohen (1953) explains that since 1947, the independence of Pakistan, the textile industry has been playing a key role in supporting the economic conditions of Pakistan. But, the situation right now is completely different after 9/11 and global economic crises. Textile is the major export of Pakistan (Ahmad, 2009). Right now, despite the maximum contribution in exports, Pakistan has been severe trade deficit in the last ten years (Khan, 2011). The textile bills owners and APTAMA are generally much pessimistic about the current macro economic situation in Pakistan. According to Khalid (20112), there has been hiking inflation in double digits which has narrowed the purchasing power of the local textile manufacturers. Following are the key economic issues regarding the textile industry in Pakistan.
  1. Economic Growth
  2. Inflation
  3. Fluctuating Exchange rate
  4. Interest Rates

Economic growth in the industry

According to Ahmed (2010) due to increase in Export Finance Scheme (EFS), the textile industry in Pakistan has been facing a decline due to intense power and energy crises. On the other hand, there is an additional burden of 100 basis-points for the value added sector of Pakistan; where the EFS rate grew from 8.5 percent to 9.5 percent. Also, there has been an increase of gas (Ahmadani, 2011). This would definitely create further problems from the textile industry of Pakistan.
Taking a glimpse, textile industry grew by an annual percentage of around 7.85 in 2008-2009, which was approximately 7.2 percent in 2007. The net change does not support the argument of stable and flourishing economic situation in the industry. Due to severe taxes, investment and capital starved conditions, strict rules imposed by the government, and power load-shedding, there has been a pessimistic view seen in the investors and textile mills owners (Idrees, 2011). Power load-shedding on the other side of the coin has massively destructed the very roots of the textile industry in Pakistan. Also, energy shortages and frequent load-shedding schedules by Water and Power Development Authority (WAPDA), there has been a loss of more than 35 percent in the overall textile production capacity. This has hit the Balance of Payment (BOP) of Pakistan and huge losses to investors in the industry due to cancellation of orders (Ahmad, 2009).

Inflation

Inflation has been the worst economic problem of Pakistan (Soligo, 1967). Due to double digit inflation figures, the cost of production of the textile industry has risen in the last ten years. Khalid (2011) explains that inflation has also caused a decreased purchasing power for investors in the textile industry. On the other hand, Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA) has also showed its fear of losing profitability and sales due to increasing inflation in the country (Business Recorder, 2011). Inflation has been marked by the entire stakeholder as a potential threat to the viability and sustainability of the textile industry.  Inflation has also decreased the purchasing power of the domestic textile buyer; hence decrease in sales has severely affected the textile industry in Pakistan.  As a matter of fact, Consumer Price has jumped beyond 17 percent in FY 2009, which explains the gravity of situation (Idrees, 2011).

Fluctuating Exchange Rate

Another reason for higher cost of production in the textile manufacturing is the unstable and ever-fluctuating exchange rate of Pakistani Rupees. The value of Pakistani Rupees has been incessantly facing a downfall as compared to U.S. Dollar. This has also decreased the purchasing power of importing spare-parts, related training and heavy machinery from abroad due to weak value of Pakistani Rupees. This has also created a problem for purchasing of important raw material, dyes, adhesives and other material related to textile production, which is not present in Pakistan. Thus, fluctuating exchange rate has caused severe problems for the textile industry of Pakistan (Ahmad, 2009).

Interest Rates

As explained by Aftab (2010), the monetary policy has also been showing worst effects on the textile industry of Pakistan. The permanence of tense monetary policy has also played an important part in increasing the cost of production of the textile productions. As a matter of fact, increased cost of financing has also created investment starved situation due to high interest rates. The cost of doing business on such strict policies has injured the financial stability of the textile industry in Pakistan.  We also see that the interest rate in Pakistan is around 14 percent as compared to Bangladesh having 7.5 percent and 8 percent in China and India. APTMA and Government of Pakistan have been considering seriously solving the problem in order to revive the lost status of the industry (Recorder Report, 2011).

Social

Due to new rules and regulations of Government of Pakistan, the minimum wage rate has been increased from Rs. 6000 to Rs. 7000 (Irfan, 2008).  This has definitely helped for the workers and employees getting a better living. On the other hand, the textile industry has revolutionized into the production of products which are western oriented. Thus, due to an overall awareness, there has been a social transformation in the textile industry of Pakistan.

Technological Factors

It has been in hot discussion that Pakistan’s textile industry lacks in technology which can lead to better production and cost efficiency through ‘Economies of scale’ (Ahmed, 2010).Reviewers of the textile industry also argue that the textile industry is still been using obsolete equipment which has also created many hurdles in covering the costs. Pakistan’s textile industry not only has to compete in the local scenario, but globally too. The same has caused a marginal increase in cost of production of textile products in Pakistan if compared to Bangladesh, China and India. The industry also lacks in Research and Development (R&D) for the cotton production. The same has been the key issue of low quality cotton production than China and India.  Government has also not been in a good character to finance and subsidize R&D. Also, the profound machinery and spare parts are not available in Pakistan, which are always to be imported. Heavy import duties and quotas are imposed by the government in order to deal with a negative balance of trade. The argument supports the fact that Pakistan has not been self sufficient in producing technological competitiveness in the field of textile production and always been relying on costly foreign technology and support which again causes higher cost of production and break-even delays. Government needs to take an adequate action for technological advancement for the textile industry in Pakistan.
 
PEST – The Textile Industry in Syria

1-Political Forces

The textile industry is one of the largest single manufacturing industries in Syria. The growth of cotton yarn has been on the increasing trend since the overall industry flourished in the last couple of years. According to Just-Style (2006), Spinning and weaving sectors in Syria is on the boom due to an adequate supply of raw material in the region. On the other hand, ‘General Organization for Textile Industry’, a state owned organization which has also been playing a positive role in the industry betterment. General Organization for Textile Industry (GOTI) also owns and directly runs all of the public spinning and weaving mills Syria’s textile plants and mills. GOTI is monitored and run by the Ministry of Industry in the Syrian Arab Republic. GOTI has the authorities and powers to manage any kind of textile business and related affairs as it wants. Also, the organization is responsible for making profits and economic decisions which are directly linked with the Ministry of Industry. GOT is particularly responsible for effective and efficient execution of decisions related to productions, optimum utilization of resources and maintain profitable returns into the system (El-Zaim, 2002). GOTI particularly deals with:

Decision making

General Organization for Textile Industry (GOTI) has the basic responsibility in making following crucial decision with respect to the textile industry in Syria:
  1. Securitizing the annual investment plans and rolling forecasts for effective production operations
  2. Managing and executing trade plans with potential industrial buyers, intermediaries and customers. It also has the duty to find profitable customers.
  3. Executing workforce plan and taking relevant decisions is another domain dealt by GOTI.
  4. Decisions regarding costs and profitable execution of 27 textile production units.

Current and future

It is explained by El-Zain (2002) that GOTI has diverse job description of taking into account all the renovation, maintenance , machinery  and quality issues which can help in reducing total manufacturing costs. Also, maximum workforce utility is stressed by GOTI in order to have profitable returns. The organization is also responsible in injecting profits back in the system.  Right now, the overall efficiency of GOTI is challenged in many arguments and is alleged of being corrupted and inefficient. GOTI has also not been able to give adequate profits since 2008 (Intelligence, 2006).

Economic Factors

According to Ministry of industry (2006) the public sector in the textile industry of Syria has been showing huge losses in FY 1991 – FY 2001. GOTI accounts for losing a total sum of 7.30 billion Syrian Pound (SP), with a total loss of 7.92 Billion SP. On the other side of the coin, the private sector has been showing good growth. The private sector dominates the knitting and synthetic fabrics production (El-Zaim, 2002). Due to sustaining global crises, it is speculated that the Syrian textile industry has been hit hard. There have also been episodes of depletion of oil reserves. Also, inflation played its part, where more than 80 percent of the domestic textile demands crashed between FY 2009 – FY 2009. The textile industry of Syria was the most affected sector since the global financial crises let China provide textile products with cheaper rates; hence it became difficult for the Syrian textile industry to cover its cost of production and maintain a healthy profitability base. Syrian economy also became the capital and investment starved. Since, the textile industry also require huge capital investment for fixed assets, investors were unable to raise enough capitals from the financial institutions. This caused the textile industry to get collapsed in Syria (Haddad, 2011).

Social Factors

According to El-Zaim (2002), the socio-economic situation related to Syrian textile industry and employees is not in a good picture. With huge losses of up to 3179 million SP, it has directly affected the labor class of the industry. Consequently, there was downsizing done on a huge scale in the industry with an overall lowering of income levels. This has definitely caused severe negative effects on the social levels of livelihood creating inconvenience and psychological issues to the workers on a larger level. As a matter of fact, GOTI and Ministry of Industry has been ensuring adequate steps to provide a cushion to declining social ease of the people related to the textile industry in Syria. Employee education programs have been suggested in which all employees who fall in ‘category A’ should be enrolled in courses of English language and computer literacy for increasing overall production capability. Also, the employees, falling in ‘category B’ should be enrolled in courses regarding computer literacy and practical nature.  It is speculated that all these steps would ensure better social standards and ease to the people associated with the textile industry.

Technological Forces  

Technology and advance machinery is one of the important elements in the textile industry. In the textile context of Syria, there has been Memorandum of understandings been signed between France and Syrian to increase competitiveness of Syrian textile products in the international market (Fibre2fashion, 2006). The mutual collaborations have been agreed to exchange latest technologies and technical know-how. Also, joint workshops have also been conducted since then between Syria and France. This has helped Syria a lot in increasing their textile exports, which has grew from 95 Billion SP in 2008 from 18 Billion SP in 2005. Also, there is a need shown by GOTI which spells an immediate need to invest further in acquiring modern textile technology in the public sectors. The private textile sector in Syria has been doing well due to modern facilities of textile engineering and state of the art equipment. GOTI speculates for getting adequate funds by the Ministry of Industries to fulfill the gap on technological grounds faced by the textile industry. Also explained by intelligence (2006), that ‘economies of scale’ has been a main problem for covering the cost incurred in the production. This is mainly because of unavailability of machinery spare-parts on local levels, which are imported paying huge costs and import duties.

Works Cited

Aftab A. Khan, M. K. (2010). Pakistan Textile Industry Facing New Challenges. Research Journal of Internatıonal Studıes .
Ahmad, T. (2009). Crisis in Textile Industry. Lahore: PAK AIMS (Institute of Management Sciences).
Ahmadani, A. (2011, 08 07). 13pc hike in gas prices planned. Retrieved 08 15, 2011, from The Nation: http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Regional/Islamabad/07-Aug-2011/13pc-hike-in-gas-prices-planned
Ahmed, Y. (2010). Report on Textile Industry of Pakistan . Horizon Securities Pvt. Limited.
Business Recorder. (2011, 03 27). Textile industry: FBR agrees to amend SRO 231. Retrieved 08 15, 2011, from www.brecoder.com: http://www.brecorder.com/component/news/single/623:news.html?id=1170947
Cohen, J. B. (1953). Economic Development in Pakistan. Land Economics , 1-12.
El-Zaim, I. (2002). The Public Spinning, and Garment Manufacturing Sub-sector In Syria - A techno-economic Assessment. Minister of Industry.
Fibre2fashion. (2006, 03 23). Syria : TEXTIC 2006 for technological advancement in textile. Retrieved 08 15, 2011, from fibre2fashion: http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=14504
Haddad, B. (2011). The Political Economy of Syria: Realities and Challenges. Middle East Policy Council .
Idrees, F. (2011). Textile Industry crises. Lahore: Azgard Nine Limited .
Intelligence, T. (2006, 05 1). Profile of the Textile and Clothing Industry in Syria. Retrieved 08 15, 2011, from marketresearch: http://www.marketresearch.com/product/display.asp?productid=1317721
Irfan, D. M. (2008). Pakistan's Wage Structure. Pakistan Instuitute of Development Economics .
Malik, A. S. (2002). Impact of Environmental Regulations on the Textile Sector of Pakistan. Geneva: Country Paper Prepared for Expert Meeting on Environmental Requirements and International Trade.
Ministry of Industry. (2006, 1 1). The actual financial performance of the textile public sector’s companies. Retrieved 08 15, 2011, from syrianindustry.org: http://www.syrianindustry.org/modules.php?op=modload&name=Subjects&file=index&req=viewpageext&pageid=231
Recorder Report. (2011, 06 30). 'Double-digit inflation to hit garment industry hard'. Retrieved 08 15, 2011, from Business recorder: http://www.brecorder.com/cotton-a-textiles/single/625/185/1206929/?date=2011-06-30
Recorder Report. (2011, 07 16). Zardari urged to intervene in lowering interest rates. Retrieved 08 15, 2011, from Business Recorder: http://www.brecorder.com/cotton-a-textiles/single/625/185/1212253/?date=2011-07-16
Soligo, R. (1967). Monetary Problems of Pakistan. Journal of Political Economy , 635-650.

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