Let me start by thanking the Board and the President for having invited me to this Convocation. It is an honor for me to speak to you all. Having agreed to participate in this convocation several months ago, I have been thinking about what I could say to a group like yours. Perhaps the best thing for me to do would be to provide a perspective on the textile sector from my own professional background as a development economist.
When you take a long view of the textile sector, both over time and space, there are at least two aspects that bear highlighting. The first is that much of the sector is now fully globalized and organized in the form of global supply chains. The second is that the characteristics of the sector within a country can change rapidly over time depending on trade and technology.
Textiles today are enmeshed in a huge global supply chain. There is a book by Pietra Rivoli that illustrates this perfectly. It describes how a T shirt is made, from cotton to yarn to weaving and stitching and printing and final sale to customers, with each stage possibly in different countries. It is called The Travels of a T Shirt in the Global Economy. The book shows how the textile sector epitomizes globalization today, the good, the bad and the ugly!
Here is how the global supply chain works for a simple T shirt. My illustration has the chain originating and finishing in the US. But such chains can start and finish at many different geographical locations.
The chain starts with cotton growing. The US is the biggest producer of cotton today. Why is this the case when the US has a per capita income of $50,000 and corresponding high average wage rate for industrial labor? The answer lies in the fact that the cotton growing process there is almost fully automated from sowing to harvesting. Farm wages are not a major constraint for this sector. Cotton farms are industrial enterprises in their own right. One farm in Mississippi, for example, grows enough cotton for 9 million T shirts every year.
The next stage is that of spinning yarn from cotton. There used to be a significant yarn industry in the US which, together with the UK, established the modern textile industry in the 19th century. As industrial wages grew with overall prosperity, labor saving technology came in. But this technology was soon available to all in the rest of the world and the US yarn industry could not survive the competition from cheaper producers elsewhere. The most competitive yarn mills are now in Southeast Asia, in countries like Indonesia. So US cotton is sold to those countries to be spun into yarn.
The next stage is that of weaving into cloth and stitching into garments. This is a stage where labor costs are critical. Much of the sewing needed for garment-making, in particular, is still done by hand. Over the decades, garment manufacturing hubs have migrated in search of cheap labor from western countries to East Asian countries like Korea and China and now on to South and Southeast Asian countries like Bangladesh and Vietnam. So today's T shirt is likely to be stitched in its wearable form in one of these countries.
The next stage involves finishing. This requires high quality chemicals as well as design and printing processes. For this, our T shirt often comes back to the West. Once finished, it is marketed to US and other customers through a variety of retail channels.
I have taken T shirts to illustrate the importance of globalization in a very important industry that now accounts for sales of $2 trillion per year which is close to 2.5% of global GDP. Other apparel items are also enmeshed in similar global chains with different countries accounting for different stages of processing in accordance with cost calculations.
Where does the Pakistani textile sector fit in all this?
There are two sides to the textile story in Pakistan. On the one hand, the textile industry dominates manufacturing: it provides almost 60% of total exports; it is the second largest employment sector; and it accounts for close to 9% of GDP. On the other hand, the industry has not diversified as much into value added products as in many other countries; it has not seized the opportunity of moving into garments in a big way as Bangladesh has; and its share of global trade remains very small.
We have not gone far up the ladder of value added in Pakistan and are still producing much the same stuff we were producing and exporting say 30 years ago. Our share in the global textile trade has declined in the last 30 years. We have made modest gains in production and exports while other countries have made major gains.
The sector is also heavily dominated by male labor. This makes it atypical of the pattern observed in general over the past 200 years in which the sector has usually been associated with female employment. Even in a fellow Muslim country like Bangladesh, the garment industry mostly employs female labor. This has important implications for female empowerment. The availability of jobs and incomes to young women is a major determinant of the pace at which female empowerment takes place in society.
What are the future prospects for the Pakistani textile sector? At present, three sets of factors seem important in assessing future prospects. The first is cost. Pakistan may have low labor costs but it has high energy costs. Unless energy costs can brought down to the levels prevailing in other South Asian countries, Pakistan's competitive advantage will continue eroding. The second is logistics. Countries with good logistics can guarantee timely production and shipment, an important feature for the modern textile industry, and especially its garment subsector. Pakistan compares unfavorably on several logistics indicators. The third is product mix and diversity. Pakistan continues to produce cotton-based textile outputs while global demand is shifting towards man-made fibers processed to meet a wide range of demand preferences.
By this reckoning, future prospects can only be described as modest. The sector will continue to serve a market niche for relatively low quality textiles. Indeed, the expansion of China as an export destination for apparel offers opportunities for Pakistan even if demand declines in its traditional markets in the West.
On the other hand, prospects may be brighter for well-trained individuals. This is because modern information and communications technology embodied in the Internet allows more flexible ways of integrating with global supply chains. For example, creative designers sitting in Pakistan can become suppliers of services to international companies based elsewhere without being hampered by the energy costs, logistical challenges and product mix considerations that apply to the industry at large. All that is needed is innate creativity, design training and broadband connectivity!