Pearl Securities Limited – Textile policy 2104-19
Karachi, February 17, 2015 (PPI-OT): Synopsis
The much anticipated Textile Policy has recently been announced by the Ministry of Textile, after pending approval from the ECC. The policy has highlighted ambitious plans to double annual exports from current ~US$13bn to ~US$26bn over the course of five years. To accomplish targets, manufacturers will benefit from budgetary support, low mark-up finance schemes and tariff rationalization, however, no definitive measures have been introduced to address severe energy shortfall faced by the industry.
The total proposed outlay for the sector stands at Rs64.15bn, where Rs40.6bn will be provided by the Finance Division while the remaining Rs23.5bn is to be financed through the Planning Commission and Textile Development Fund.
The Ministry of Textiles has set ambitious targets for the course of the policy, aiming to 1.) enhance value addition to double its value from current US$1bn to US$2bn, 2.) overall exports are to be doubled to US$26bn from current US$13bn, 3.) facilitation of additional investments in technology and machinery to the tune of US$5bn, 4.) improving product mix, particularly in the garment sector, 5.) improving fiber mix in favour of ‘other than cotton’ from current 14% to 30% and 6.) promoting SME for growth in value added segments.
With supporting elements
Some notable measures such as tariff rationalization and low mark-up finance schemes approved in the Finance Bill FY15 are proposed to be maintained for the next five years. However, it is important to note these measures are already in application and no real changes are introduced in the Textile Policy CY14-19 expect maintaining agenda for next five years.
These measures include, 1.) mark-up on Long-Term Finance Facility (LTFF) lowered to 9% from previous 11.4% for loans raging between 3-10 years. 2.) LTFF refinancing mark-up rate reduced from 7.5% to 6% under the Export Refinance Scheme, 3.)
LTFF for technology enhancements reduced set at 7.5%, 4.) in the case, exports by individual companies increase by 10% YoY, local tax and levy for Garments, Made-ups and Processed Fabrics will be drawn back by 4%, 2% and 1% for respective products and 5.) extension of duty free import on machinery. Additionally, the feared increase in duty of imported yarn from 5% to 15% did not materialize and will benefit growth in value added segments.
Energy issue not addressed
Despite these supporting measures applied to grow the textile industry, the main obstacle remains the acute energy crisis faced by manufacturers. The textile policy has not introduced any definitive measures to address this issue which will continue to be a strain on industry operations. However, news has surfaced that another committee which comprise some officers of the textile ministry is planned to be made to address the energy issue.
Besides ambitious goals the policy has not really made any formidable impact besides proposition of extending benefits set in the Finance Bill FY15 for the next five years. However, these benefits have allowed for some recovery in exports against 1H CY14 and will continue to benefit the sector. Additionally, lower cotton prices and reduced power tariffs are also to sector benefit. Drawback to optimism is the gas tariffs increase which could dampen positives to some degree.