Cotton country running aground

The Indus valley is credited with being the home of many ancient civilisations stretching back thousands of years that gave mankind a rich heritage of fascinating ancient cities, organized agriculture, art, culture, philosophy and governance. The Indus valley with its huge water resources, alluvial lands and conducive weather conditions, suitable for easy wealth production was a magnet for migration and conquest since recorded history. From Mohenjo Daro to Mehr Garh, from Harappa to Gandhara, Roti, Kapra aur Makaan was easily available with ‘Kapra’ forming the lynchpin of the economy.

Lying between latitude 27 degree north to 36 degree north it represented an ideal location with ideal conditions for cotton production. The earliest signs of production of cotton and clothing were discovered at Mehr Garh, the 7000-year-old archaeological site. The first spinners with their spindles, the first ginners with their saws and vibrators, and the first weavers with their khadis were amongst our ancestors.

In his fascinating book, ‘Empire of Cotton, A New History of Global Capitalism’, Sven Beckert of Harvard University describes cotton as the cradle of industrialisation. The British Empire’s industrial revolution centered around the textile industry. Its manufacturing capital was headquartered in Manchester. Fed by global cotton production from India to the West Indies and customers all over the world, British Cotton and textile business was truly a globalise business. Following Britain, Europe, the United States and then Japan all ascended the ladder of industrialisation through the clothing and textile business.

As the textile technology proliferated and earlier textile countries graduated to higher value added industries, textile production shifted from high labour cost countries of the west to lower cost countries in the east. Subsequently Korea, China, India, Pakistan and others became host to the emerging textile business, while the West imposed quotas to protect their non competitive textile industry. In 2005 when the textile quotas were phased out Pakistan was amongst the largest quota-holder in the United States market and Pakistan cotton economy was the dominant segment of Pakistan’s agriculture, industry and manufacturing. Textile exports constituted the largest share of exports and the largest share of Jobs, every Pakistani was involved with the cotton economy as a consumer, farmer, manufacturer, distributor, exporter, wholesaler or retailer. The linkages of the cotton economy went from every rural hamlet to every urban settlement spanning Pakistan.

Post-2005 things started to go wrong. The expected textile boom in Pakistan did not materialise and it dawned on us that the textiles and clothing are the most competitive business in the world and only the most competitive nations can survive in this global value chain. To our chagrin while we sit on the sidelines in 2016 licking our wounds and nursing a sick textile industry, we are helplessly witnessing the export of textile jobs from the Chinese juggernaut to countries like Vietnam, India, Bangladesh and Cambodia which are emerging as the new competitive countries. Pakistan, which was the original cotton country, seemed to have run out of steam; it seems to be increasingly becoming non-competitive in global markets. In spite of several textile policies and half-hearted initiatives we have stagnating and declining cotton production, declining textile exports, declining investment in textiles and loss of employment through the closing down of factories dotted all over the country particularly in Faisalabad; the Manchester of Pakistan. This decline is a direct result of our neglect, incompetence, power shortages, cost of doing business, mismanagement and terrorism. Yet within this dismal situation also lies the kernel of Christine Lagarde’s ‘moment of opportunity for Pakistan’.

The Cotton-Textile-Clothing value chain has two distinct components. The cotton production part is a major activity of the agriculture sector while the Textile and Clothing (T&C) is the major part of the manufacturing sector. Our great friend to the north has totally mastered both parts of this value chain and is center of the contemporary global cotton economy. From the scientific genetically modified cotton plantations to global export houses China has achieved excellence in every segment of the cotton-textile-clothing chain. We can seize the moment of opportunity if we can position ourselves for being the major beneficiary and partner with China in the inevitable relocation of the Chinese textile colossus to a lower labor cost country.

The Indus valley is still the most conducive natural location for irrigated cotton production in the world yet its yields are half of Chinese yields and forty percent of Australian yields. This clearly indicates total neglect of a great natural advantage. Cotton production is now dependent on world class research, development of superior seeds, scientific land preparation, planting technology, post planting care, fertilization systems, pest control, harvesting and water management technologies. This requires a co-ordinated strategic effort of government institutions, farmer skills, transfer of technology providers and business networks to achieve a breakthrough in boosting national yields to Chinese standards with close Chinese collaboration.

For this purpose, Pakistan needs to develop a strategic plan with Chinese know-how and experience to achieve a doubling of our current output capability and achieve efficient production of say 25 million bales of competitively priced quality cotton by 2020. This would require a Pakistan Inc approach to the textile sector. First the government entities involved in the cotton supply chain need to be revamped and cleared of deadwood. These entities would have to be put under a strict monitoring system to ensure that the sector targets for 2020 are met. From the minister down to the extension worker and researcher each have to be subject to stringent performance auditing and monitoring.

The plan should involve our agricultural departments, universities and cotton research outfits to dovetail and tap into Chinese expertise in seed technology, modern farm level practices, technology and water management. The Pakistani private sector fertiliser and pest control companies along with their extension services would have to provide a complete package backed by scientific research at the farmers’ doorstep to achieve the needed breakthrough.

Doubling our cotton output would give a huge supply side boost to the textile and clothing sector and will forever change its dynamics. The spinning sector would need to double its capacity and feed into the value-added segments of weaving, processing, dyeing, finishing and clothing which will have to respond to the supply side push with demand-enhancing strategies in line with the vagaries of global demand.

The Pakistani exports of textile and clothing into the US and European markets have traditionally been at the lower end of product quality and prices. Product and country branding and technology upgradation constitute an important component for achieving higher value exports and profitability. To make a major breakthrough in the textile exports of the country to say $25 billion by 2020 would require a bold and aggressive multi-pronged strategic plan to boost our competitiveness encompassing: (1) Enhancing the country brand image and creating organisational marketing capabilities that can perform at a very large scale; (2) Ensuring availability of raw materials, accessories and energy at competitive prices for the production process; (3) ensuring availability of finances for working capital and technology upgradation; (4) programs for boosting labour productivity up to Chinese standards through skill development and corporate organisational development; (5) ensuring competitive tax and regulatory environment; and (6) ensuring security in at least the textile enclaves of the country.

Some of the Pakistani manufacturers and exporters have done well in global markets. But unlike India and China, Pakistan has not been able to spawn sufficient number of large export houses that can buy or build brands and source the production to numerous production units in the country under strict quality control standards. The Chinese on the other hand, have been a very effective player in the global textile T&C business. They have mastered the ability to penetrate global markets with outstanding quality, branding, pricing, volumes and just in time delivery pipelines that work.

With The Chinese seeking to relocate their T&C industry to more cost effective regional bases Pakistan-China collaboration would be a win-win for both countries if a substantial number of Chinese businesses relocated to Pakistan. For this purpose, the Pakistan Textile Ministry, Ministry of Commerce, Trade Development Authority of Pakistan and the Board of Investment have to work in tandem to create the necessary environment and frameworks under which Pakistan can become a base of Chinese T&C production. Chinese FDI and joint ventures with Pakistani T&C partners in Faisalabad, Karachi and Lahore or in the CPEC Special Economic Zones would be a major step towards transforming Pakistan into a ‘Cotton Country’ once again. This is critical as it is the cotton economy that will ultimately service the horrendous external debt we are accumulating. (The writer is a former Finance Minister)