Pakistan’s Readymade Garments Sector: Challenges and Opportunities

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July 5, 2023

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Introduction:

The readymade garments sector in Pakistan is an essential contributor to the country’s economy, making significant contributions to GDP, employment, and exports. However, it must overcome several obstacles to realize its full growth potential. This article on a blog discusses the challenges faced by the industry and the opportunities that should be pursued for professional growth.

Importance of the Readymade Garments Sector in Pakistan

The readymade garments industry is essential to Pakistan’s economy and society. It is a crucial driver for many key factors, such as:

Contribution to GDP: The sector significantly impacts Pakistan’s GDP, contributing over 8.5% in 2021. This demonstrates its significant contribution to economic growth and development as a whole.
Employment Generation: In Pakistan, the readymade garments industry is a significant source of employment, employing roughly 40 percent of the industrial labor force. It provides opportunities for skilled and unskilled employees, sustaining livelihoods and decreasing unemployment rates.
Export Revenue Earner: Among textile products, garments have the highest value addition and are Pakistan’s primary export earner. In 2021-2022, Pakistan exported nearly $19.329 billion worth of apparel, demonstrating its significance in international trade and foreign exchange earnings.
Industrial Value Addition: The readymade garments sector contributes considerably to industrial value addition in Pakistan, accounting for 25 percent of the textile industry’s total value added. This demonstrates its function in enhancing the manufacturing sector’s competitiveness and productivity.
Sectoral Growth and Development, The growth and development of the manufactured garments sector has a ripple effect on related industries and sectors. It drives demand for basic materials, machinery, and services, generating business opportunities and fostering economic growth.
Social Impact: The sector’s development has social benefits, such as a reduction in poverty, an improvement in living standards, and an expansion of gender equality. It creates employment opportunities for women, empowering them economically and socially.

By recognizing the significance of the readymade garments industry, Pakistan can strategically concentrate on addressing its current challenges.

Challenges Hindering Growth

Limited Export Market: t: Pakistan’s readymade clothing industry has significant challenges due to its limited export market, mostly comprised of uncomplicated and low-value-added products. This restricts the sector from competing with other nations and winning a sizable global market.
Lack of Diversification: Pakistan’s garment exports primarily go to the US and the EU, with negligible destination diversification. As a result, the sector is susceptible to shifts in demand and market circumstances in these areas.
High Production Costs: Pakistan’s production costs are higher than its rivals because of import taxes on man-made and cotton fibers, high energy tariffs, and minimum wage laws. These elements limit the sector’s capacity to draw larger export orders and impede cost competitiveness.
Limited Adoption of Technology: Pakistan’s readymade clothing industry lags in technology adoption. The sector’s overall competitiveness is hampered by low technology use and insufficient innovation, which impede productivity and efficiency gains.

Opportunities for Growth

Increase Access to Inputs: The industry can significantly benefit from increased access and lower input costs. This can be done by reducing additional utility tariffs, simplifying import regulations for man-made fibers, and setting up central bonded warehouses for easier access to raw materials.
Promote Technology Use: The expansion of the readymade clothing industry depends on encouraging technology use. Technological improvements within the industry can be facilitated by lowering tariff rates on imported machinery and raw materials, awarding subsidies for sustainability projects, and providing tax breaks on innovation and R&D costs.
Targeted Industrial Policies: It’s crucial to have effective industrial policies that aid small and medium-sized businesses (SMEs). The sector’s growth can be accelerated by promoting investments in information and communication technology (ICT), guaranteeing a steady supply of inputs, and facilitating competitive finance.
Leveraging CPEC: The China-Pakistan Economic Corridor (CPEC) offers a chance to advance the technological prowess of the ready-to-wear industry. Joint ventures with Chinese firms can take advantage of Chinese industry experience and Pakistan’s advantage of cheap labor, facilitating technology transfer and moving up the value chain.
Strengthening Trade Agreements: Renegotiating advantageous provisions in the Pakistan-China Free Trade Agreement (FTA) may make it easier for Pakistani apparel to reach Chinese markets. Complementary goods such as knitted/crocheted t-shirts, shirts, and vests could be included in the FTA to increase export potential and trade between the two nations.
Enhance Credit Access: Improving credit access is essential for expanding the ready-to-wear industry. Corporate loan guarantees, export credit insurance, and back-to-back Letters of Credit (L/Cs) are a few strategies that can help firms secure the funding they need for growth and development.
Emphasize value addition: Promoting value addition through branding, marketing campaigns, and quality certifications is crucial. Offering incentives, like challenge funds or matching grants, can encourage the improvement of inputs and improve Pakistani clothing’s competitiveness in the international market.
Eliminating Administrative Bottlenecks: It’s critical to find solutions to administrative problems like the issue with unprocessed reimbursements under drawback schemes. Business financial obligations can be reduced, and an environment more conducive to investment can be created through timely refund payments and the provision of exemptions rather than refunds.
Strengthen Industry Associations: Industry associations may be significant in setting sustainable goals and developing regulations. It can help the sector grow and prosper if these groups play a more significant role in reviewing government regulations and promoting the industry’s interests.

Conclusion:

The readymade garments sector in Pakistan has enormous potential for economic development, job creation, and export earnings. By addressing the challenges and seizing the opportunities enumerated in this blog post, the sector will be able to overcome obstacles and emerge as a competitive global market player. With targeted policies, improved technological capabilities, and an emphasis on value addition, Pakistan can realize the maximum potential of its readymade garments sector, thereby contributing to a more diversified and resilient economy.