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Perspective Plan Project Pakistan Steering Committee Meeting for

Perspective Plan Project Pakistan Steering Committee Meeting for. DRAFT FINAL REPORT. MINISTRY OF TEXTILE INDUSTRY PAKISTAN. by. 26.02.2009. MAJOR OBJECTIVES OF THE GHERZI STUDY PROJECT. Perspective Plan Project Pakistan – Steering Committee Meeting 26 February 2009.

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Perspective Plan Project Pakistan Steering Committee Meeting for

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  1. Perspective Plan Project Pakistan Steering Committee Meeting for DRAFT FINAL REPORT MINISTRY OF TEXTILE INDUSTRY PAKISTAN by 26.02.2009

  2. MAJOR OBJECTIVES OF THE GHERZI STUDY PROJECT Perspective Plan Project Pakistan – Steering Committee Meeting 26 February 2009 • THE MAJOR OBJECTIVES OF THE PERSPECTIVE PLAN ARE: • To safeguard the Industry • To arrest the decline in Exports • To prepare for the Post Crisis Years • To adjust thinking from “Business as Usual” to the culture of “Immediate Action” • To prepare Recommendations and Action Plans for the further development of Sustainable Textile and Garment Sectors

  3. MAJOR OBJECTIVES OF THE GHERZI STUDY Perspective Plan Project Pakistan – Steering Committee Meeting 26 February 2009 The Textile and Garment Sectors in Pakistan have been derailed in line with the Textile and Garment Sectors of other countries Gherzi has tried to address some of the immediate challenges caused by the crisis during the course of the present contracted project

  4. THE WORLD ECONOMIC CRISIS; IMPACT ON TEXTILES & CLOTHING WHERE ARE WE TODAY? Perspective Plan Project Pakistan - Karachi/ Lahore Workshops “THE PRESENT ECONOMIC CRISIS HAS DERAILED ALL COUNTRIES’ PLANS” “THERE ARE NOW NO SUCCESSFUL BUSINESS MODELS TO FOLLOW. STRATEGIES HAVE TO BE REVISED ” “CONSEQUENTLY, ONLY SHORT TERM STRATEGIES CAN BE FOLLOWED”

  5. WORLD ECONOMIC CRISIS; IMPACT ON TEXTILES and CLOTHING. WHERE ARE WE TODAY? Perspective Plan Project Pakistan – Steering Committee Meeting 26 February 2009 • In place of Growth Oriented Strategies pursued by most countries, the Revised Strategies have to be focused on arresting the decline in exports. • Which are the product segments needing a Protection Strategy? • Where does Pakistan have inherent and sustainable strengths? How can they be protected? • What are the instruments for applying protection? ~ Free Trade Agreements with the US– what is today’s position? ~ For what products has asked for Duty Free Preference? ~ What has been the benefit of the FTAs signed until now? ~ Have the export gains for these products been evaluated? ~ If granted, what would be the impact on export performance?

  6. THE WORLD ECONOMIC CRISIS; IMPACT ON TEXTILES & CLOTHING WHERE ARE WE TODAY? Perspective Plan Project Pakistan – Steering Committee 26 February 2009 • Global Supply Capacity FAR EXCEEDS World Demand in 2008/09 • Global Markets: As a result of Globalisation, • 15 Retail Buyers control 80% of Textile & Clothing Trade • from 4,000 suppliers. • 3. Global Trend – Reducing Demand for an uncertain period resulting in Supply Capacity Closures around the World

  7. THE WORLD ECONOMIC CRISIS; IMPACT ON TEXTILES & CLOTHING WHERE ARE WE TODAY? Perspective Plan Project Pakistan – Steering Committee Meeting 26 February 2009 • IMPACT ON WORLD MANUFACTURING COMPANIES: • 2009: Mill closures • 2010: More mill closures • 2011 – Hopefully Consolidation • IMPACT ON PAKISTAN MANUCTURING COMPANIES: • 2009: Mill closures; job losses* • [10% Mills closed; 20% partly closed; 30,000 jobs lost in last 3 months] • Estimate of jobs that will be lost in 2009 = 300,000 {industry sources} • [*Immediate damage limitation action required] • 2010: More mill closures & job looses • 2011: Consolidation

  8. 1. The investment bubble following the end of the MFA regime created an over supply capacity in 2007/08 when exports were monopolised by China. 2. The realities for 2007 Exports are: ~ CHINA: US$ 180 bn - target achieved ~ PAKISTAN: US$ 11 bn - target not achieved ~ INDIA US$ 20 bn - target not achieved ~ BANGLADESH: US$ 11 bn - target achieved 3. Export Targets framed in 2005/06 for some countries are unrealistic for the actual economic situation, e.g. ~ CHINA: US$ 180 bn (with Macao) ~ PAKISTAN: US$ 22-25bn [VISION MINTEX(ACGR 13-18%) ~ INDIA: US$ 50 bn [VISION 2012] ~ BANGLADESH: US$ 11 bn Perspective Plan Project Pakistan – Steering Committee Meeting 26 February 2009 THE WORLD ECONOMIC CRISIS: IMPACT ON TEXTILES & CLOTHING WHERE ARE WE TODAY? Pakistan and other countries had over ambitious export targets ……..

  9. Completed Questionnaires Submitted to Gherzi 1 Perspective Plan Project Pakistan – Steering Committee Meeting 26 February 2009 Type of Organization Number Completed Questionnaires* Trade Associations 8 Companies 80 Total 88 * Note: The study has been based on questionnaires; mill visits were not included in the project

  10. THE PAKISTAN TEXTILE AND CLOTHING SECTORS Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • The Textile and Garment Sectors are the Drivers of the Pakistan Economy today and are the potential Engine for Future Growth and for Job Creation • Contributes more than 60% to Exports • Represents about 50% of Pakistan’s Manufacturing Industry over the Formal and Informal Sectors • The Industry employs about 2.85 million persons in links along the Textile Chain from Spinning to Consumer Products representing 38% of jobs in manufacturing. • Indirect jobs in service sectors- Machinery, Dyes & Chemicals, Printing, Packing Materials, Transport, Banking, Insurance, Courier Services, etc • Industry contributes 8.5% to Total GDP • 5,000 Textile & Clothing Exporters

  11. THE PAKISTAN TEXTILE AND CLOTHING SECTORS: STRENGTHS Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • Indigenous, Short Staple Cotton: 4th largest global producer • Some Companies achieve Best International Practice Standards • Large Spinning Capacity • Large Weaving Capacity – the majority in the Undocumented Sector • High Quality, Wide Width Fabric Dyeing, Printing & Finishing Capacities • Modern, semi-integrated Knitting Mills • Home Textiles – Bed wear, Towels • Major Clothing Sector [Denims & Bottom eights] – growth potential • Competitive Labour Costs • Some companies have positive positions in the export markets • Large Position in the EU and USA Markets

  12. THE PAKISTAN TEXTILE and CLOTHING SECTORS: WEAKNESSES Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • Industry did not prepare for the ending of Quotas (2004) –next slide • Country Perception: Law & Order • Country Image: Volume Producer, Basic Products, Low Prices • Cotton Contamination: continues to be a serious issue • Power outages and Gas supply issues disrupt production, add to costs and delay deliveries • The Documented Sector has cost and operating disadvantages compared to the Un-documented Sector • Limited Rotor Spinning and Narrow Width Processing capacities in the Supply Chain • Fabrics for Clothing are mainly limited to Denims & Bottom Weights • Low HR Skills at all levels resulting in Low Productivity- limited mill and institutional training

  13. THE PAKISTAN TEXTILE and CLOTHING SECTORS: WEAKNESSES: unlike China, investments started late.. Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • TEXTILE MACHINERY IMPORTS: 1999/2000 – 2008/2009 (US$ bn) Exports of US$ 10 bn a year need annual investments of US$ 1 bn * Quotas ended 31.12 04

  14. THE PAKISTAN TEXTILE and CLOTHING SECTORS: WEAKNESSEScontinued Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • Domestic Market swamped by cheap, smuggled goods, e.g. from China • Many companies have limited knowledge of the export markets’ dynamics, buyers’ specific needs and the strengths / weaknesses of their competitors. This restricts their attractiveness to buyers and contributes to low prices • Reliability in terms of service, honouring delivery dates, quality issues due to political instability, infra-structure, country perception, • Investment Climate – weak due to the recent export performance, uncertainty of the industry’s future

  15. Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 THE PAKISTAN TEXTILE and CLOTHING SECTORS: CHANGES IN EXPORTS AT THE START OF THE WORLD ECONOMIC CRISIS. Decline in key products … except Cotton Cloth, Towels & Knit Garments

  16. THE WAY FORWARD: CHALLENGES TO BE ADDRESSED Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • Assist the Industry to sustain its existing market shares • Synergise all policy initiatives to support the Industry to develop its competitiveness in the changing global environment • Focus on Short Term Strategies with result oriented approaches to help companies progress • Promotion of the Clothing Sector – the Sector achieved exports of US$ 2.9 bn in 2005 and US$ 2.7 bn in 2008 and has potential to increase foreign currency earnings. This Sector has the possibility to create more than 1 million additional jobs – more than any other sector

  17. THE WAY FORWARD: CHALLENGES TO BE ADDRESSED IMMEDIATELY Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • Assist the Industry to sustain its existing market shares • Availability of: • Utilities- Power, Gas, Water at international prices, reflecting all changes in oil and gas prices. Stop cross subsidies of all products. Identify areas for continuous supplies at competitive prices. • Raw Materials at competitive prices / delivery times- Cotton, Man Made Fibre, Dyes, Chemicals, Accessories • Finance (capital investments, working capital) at competitive rates • Zero rating of taxes along the Supply Chain • Implementation of the Trade Policy / Budget Initiatives already approved and announced

  18. THE WAY FORWARD: CHALLENGES TO BE ADDRESSED Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • Synergise all policy initiatives to support the Industry to fully develop its competitiveness in the changing global environment • A single policy for all stakeholders / Ministries to be developed on a “war footing” • “Level Playing Field” • Government to support companies wanting to develop / invest in brands • Review the “cost of doing business” • Foreign Exchange Loss: Identify opportunity to compensate for losses caused when the foreign exchange rate changes adversely in the case of shipments in the pipeline from overseas • Clusters and Mergers: Examine the possibility for setting up ROZs with all facilities (power, gas, water & waste water treatment), to assist exports. ROZs to ensure anti-waste programmes are included.

  19. THE WAY FORWARD: CHALLENGES TO BE ADDRESSED Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • Focus on Short Term Strategies with result oriented approaches to help companies progress • Productivity increase through training at all levels • Increase in unit value • Diversification – increase product base, including Technical Textiles • Market Access – finalise Free Trade Agreements- Option A; aim for reduced rates as Option B • Education: Industry has too few good managers. Duration of training is long term – facilitate expatriate staff at zero income tax • Infra-Structure – wet/ dry ports, container handling in ports, container prices, shipping lines/ services. • Re-structuring the Industry – The undocumented weaving sector to convert to the documented sector to benefit from ‘Upgrading Support’

  20. THE WAY FORWARD: CHALLENGES TO BE ADDRESSED Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 4. Promotion of theClothing Sector. • The Clothing Sector is based on denims & bottom weights (trousers). There are opportunities to increase these exports • Other garments were made for export earlier, e.g. shirts, but the fabrics are not made locally. The procedures for importing fabrics are costly, time consuming and bureaucratic. • TDAP / SMEDA help clothing companies. What additional support is required to facilitate exports? ~ Assistance with Business Strategies for individual companies ~ “One Stop Shop” import / export procedures – duty free import for re- export (bonded warehouse system) ~ Training Institutes- upgrade: Consider association with international institutes

  21. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 1.1 Utilities- Gas & Power Budget:

  22. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 1.2 Raw Materials - Cotton Budget:

  23. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 1.2 Raw Materials - Budget:

  24. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 1.3 Finance at competitive rates Budget:

  25. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 1.4 Zero rating of taxes along the supply chain Budget:

  26. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 1.5 Implementation of Trade Policy / Budget initiatives Budget:

  27. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 2.1 Synergise all policy initiatives………… Budget:

  28. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 3. Focus on Short Term Strategies to help companies progress Budget:

  29. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 3. Focus on Short Term Strategies Budget:

  30. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 3. Focus on Short Term Strategies Budget:

  31. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 3. Focus on Short Term Strategies Budget:

  32. THE PAKISTAN TEXTILE INDUSTRY – MACHINE INVESTMENTS REQUIRED Perspective Project Plan Pakistan Steering Committee Meeting 26 February 2009 • ANALYSIS SUGGESTS THAT INVESTMENTS IN THE FOLLOWING MACHINE AREAS ARE REQUIRED: Costs, technologies and quantities have yet to be determined. • Automatic Winders, to assist in the production of cleaner yarn • Fancy Yarn Machines • Yarn Dyeing Units • Weaving Preparation • Shuttle less Looms • Narrow Width (165 cms) Dyeing, Printing & Finishing • Garmenting • Accessories

  33. THE WAY FORWARD In this section, these challenges are addressed individually Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • 4. Promotion of the Clothing Sector Budget:

  34. TEXTILE and CLOTHING SECTORS; an essential need……. Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • TEXTILE and CLOTHING SECTORS RE-STRUCTURING UNIT – in the Ministry of Textile Industry • Responsible for co-ordination of the Task Forces & their meetings • Task Force Members with the authority to take decisions on behalf of Ministries, Stakeholders and Institutions • Undertaking the required field work and analysis [consultants] • Preparation of all Recommended Action Plans, on the basis of the Task Forces work, and of a budget for each Action Plan • Agreeing the Action Plans and Time Frames needed for complete Implementation • Implementation of the Action Plans • Monitoring all progress- fine tuning, costs/budgets, progress • Maintain a library of all data relating to the Textile & Clothing Sectors and their markets

  35. Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • CONCLUSION • THE FINDINGS OF THE STUDY HIGHLIGHT THE FACT THAT IMMEDIATE GOVERNMENT INTERVENTION IS REQUIRED ACROSS ASPECTS OF THE INDUSTRY. • ALL STAKEHOLDERS NEED TO BE INVOLVED AND TO REFORMULATE THE TEXTILE AND CLOTHING POLICY THAT TAKES INTO ACCOUNT THE CHANGED MARKET CONDITIONS. • THERE ARE OPPORTUNITIES FOR THE INDUSTRY TO GROW IN THE FUTURE PROVIDED ALL THE PRESENT POLICY ISSUES ARE RESOLVED NOW.

  36. Perspective Plan Project Pakistan Steering Committee Meeting 26 February 2009 • THE NEXT STEPS • To Finalise Draft Final Report • Gherzi to submit power, water, steam and labour for China, Egypt, India, Bangladesh and Turkey • Complete - The recovery of Labour related and other Federal, Provincial and Local Government Levies from textile Units as “One Window Operations” • Complete - Review the Taxation Policies and the rationalisation of existing taxes and duties.

  37. THE WORLD ECONOMIC CRISIS; IMPACT ON TEXTILES & CLOTHING: WHERE ARE WE TODAY? Perspective Plan Project Pakistan – Steering Committee Meeting 26 February 2009 Pakistan Textile & Clothing Exports: 2007, 2008, 2009 est 2009 & Revised Target 2012 [US$ bn]

  38. Perspective Plan Project Pakistan: Terms of Reference The TOR will address the following three specific points: Draw a Perspective Plan for the Pakistan Textile and Clothing Industry up to the year 2013 in 2 phases: Phase 1 for the period 2007 to 2013 and Phase 2 for the period 2013 to 2020. [Phase 2 will be a separate proposal to be prepared at the conclusion of Phase 1.] Suggest measures for reducing the cost of doing business by identifying the various costs and suggest measures for reducing each cost factor. Propose measures for skills development in the different sectors of the Textile and Clothing Industry, especially in textile processing, garment and home textiles.

  39. Perspective Plan Project Pakistan: Terms of Reference 2. In order to achieve the 3 points of the TOR, the consultants will: Identify the market issues that Pakistan exporters need to address Make a SWOT analysis of the Industry Address the need to increase the competitiveness of the Pakistan, Textile & Clothing Industry keeping in mind the strategies of China, India, Bangladesh, Sri Lanka, etc, to increase their shares of the global markets Update/ revise Textile Vision 2005 to strengthen the Value Chain in Textiles and Clothing The recovery of labour related and other Federal, Provincial and Local Government Levies from Textile Units as “One Window” operations Review the Taxation Policies and the rationalisation of existing taxes & duties

  40. Perspective Plan Project Pakistan: Terms of Reference 3. The Phase 1 will be a quick assessment of the situation and preparation of short to medium term plans: The Market Performance- What are buyers’ views of Pakistan Exporters’ performance in the markets? What is their performance relative to the major competing supply countries? Amongst the aspects to be considered are customer service levels, knowledge of the markets, reliability, response times, quality consistency, new product development, competitiveness and other issues. Margins: As Pakistan manufacturers have competitively priced, indigenous raw materials and low manufacturing costs, do they achieve competitive product costs and selling prices that earn reasonable margins? If not, why not? Are these issues concerning limited manufacturing efficiencies and productivity levels that need to be addressed? Can these issues be related to management & production operative skills? What other production issues need to be addressed?

  41. Perspective Plan Project Pakistan: Terms of Reference 3. The Phase 1 will be a quick assessment of the situation and preparation of short to medium term plans: continued Access to the Markets- Does Pakistan have access to the global markets as per competitors through bi/ multi- lateral trade agreements? At a time when buyers demand shorter lead times from their suppliers [and getting them], can Pakistan respond with improved transportation times from the factories to the ports, through the ports and from the ports to buyers around the world? Operating Environment: Is the operating environment in which Pakistan companies work, one that enables them to achieve export competitiveness? Does the Government’s Policy Framework need to be adjusted to facilitate export competitiveness?

  42. Perspective Plan Project Pakistan: Terms of Reference 4. 5 Modules: Module 1: Project preparation – collection of earlier reports, including reports to Government by Trade Associations, Preparation of questionnaires & identification of target companies Module 2: Market Performance – EU, US, Dubai Module 3: Analysis of returned questionnaires Module 4: Conduct workshops Module 5: Perspective Plan – Phase 1

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