A history of textile in the words of Mian Latif, CEO Chenab Group

Today’s Brief Recording section is a brief history of the textile industry from a seasoned professional and one of its pioneers, Mian Muhammad Latif.

Upon graduating in 1974, Latif took Rs1 million from his father – a cotton ginner and industrialist – to set up a processing unit called Chenab Limited. Over the years, Chenab has become one of the largest vertically integrated textile groups in Pakistan. Latif also pioneered the concept of retail stores by launching ChenOne – the first direct retail outlet concept for a large manufacturer in Pakistan. He has been awarded the Tamgha-e-Imtiaz, as well as the FPCCI’s Businessman of the Year Gold Medal for four years straight, from 1998 to 2002.

Latif spoke to BR Research to give a unique account of Pakistan’s textile industry: what are some of the problems it ran into, and why it has become so spinning-centric. Below are edited excerpts of the interaction.

“The value-addition should have been here in the 1970s. At that time, we were selling cotton. During Bhutto’s time, Pakistan’s total exports were around $2.0-2.5 billion, and a big part of that was yarn.

The power loom sector was developed in the 1970s thanks to nationalization. Nationalized banks gave the little guy an opportunity. People installed looms after taking loans. When the looms came, the cloth became cheaper. Its export was also great; the price of cloth in Pakistan was equal to the yarn prices abroad. That’s why its export began. However, spinning mills would soon take over.

From around 1968-69 until the 80s, non-cotton fibre/polyester was the worldwide trend. Cotton demand had died down at that time. We had our own crises; wars, separation of East Pakistan, so our governments never acted to address this issue and bring about this revolution. To this day, we don’t have a lot of man-made fibre; right now, the world market is around 60 percent man-made and 40 percent cotton.

China, Korea, Thailand, Japan, and Taiwan, all were in man-made fibre. Then, around 1982-83, people started getting skin diseases from polyester. It started getting banned. That was a good time for Pakistan and cotton. Japan decided to give us machines and started a ‘pay-as-you-earn’ scheme. They said take this machinery, make yarn, and give it to us. That was quite successful. Many big companies like Ibrahim Fibres, and even Mian Mansha picked up spinning.

The machines were free and the spinners kept some margins to survive. Within a year, their payment was completed, and they’d set up another mill, and then another. In this way, spinning mills proliferated. Then, Korea, Taiwan, and Hong Kong were asking for the yarn as well, but the machines were Japanese. So they went from pay-as-you-earn to supplier credit, with the SBP providing a bank guarantee.

The machinery we were getting was for spinning. Spinning mills kept springing up, and yarn was being exported. But these should have been vertical units.

The bad luck started in 1990. The USSR and east Europe used to buy consumer products from Japan, Hong Kong, Korea, and Taiwan – the countries that bought yarn from us. In 1990, the USSR and east Europe broke. The demand for yarn went down. At the time, we were dealing in supplier credit, not pay-as-you-earn. So 1991-92 was a huge crisis; surplus yarn was available and no one was buying, whereas we didn’t have local consumption; only 24-25 percent of yarn was consumed locally in Pakistan. The knitwear industry wasn’t established, nor was any other. That’s when the industry started shifting towards composite.

In 1992, the Nawaz government made major reforms. There was 60 percent customs duty on machinery imports at the time. There were various licenses, permission to import, etc. so it was not easy. He finished all of that; he zero-rated us. Whatever machinery – whether for weaving, processing, knitting – would be used in producing for export became duty free.

Value-added era

The trade policy of 1992 is a milestone of Pakistan’s industry. Our value-added industry started going strong. Previously, only Karachi was in knitting, but then it came to Lahore, Sialkot, Multan, and Faisalabad. The value-added era had begun.

Benazir continued the policies. She was a big fan of the power loom sector, because it was labour-intensive. She would listen to us. But in 1996, the sales tax was introduced, and it continued until Shaukat Aziz removed it.

When Nawaz Sharif left in 1999, Pakistan’s total exports were $6.5 billion, out of which $3.5 billion was textile. From that, $2.0-2.5 billion was yarn, while some was cotton.

In 2002, the EU had zero-rated us for three years. Moreover, the WTO multi-fibre agreement, signed in 1996, expired in 2004. Pakistan had a lot of quota protection. China didn’t have much quota, and neither did India, whose trade was mostly with Russia. At that time, we were leading in bed wear and made-ups.

In 2004, the WTO agreement finished and in 2005, the EU quota finished. At that time, there was a huge rise of business in America. Their best shirt was never as high count as the bed sheets. Business was great – both from the big stores such as JC Penney, Macy’s and the lower end such as Walmart, K mart, etc. There was so much demand that could not be met. Then the quota finished, and China happened; China was subsidising up to 25 percent cotton. They said please come, invest here. The whole world’s textile was there; it is unbelievable that more than 50 percent of the world’s production was in China at that time.

We had to face that. But the government gave us 5 and 6 percent relief on garments and made-ups, respectively. Competition to some extent was balanced. Then in 2007, the energy crisis happened.

The Qadirpur gas field closed on 15 October 2007. At that time, I had more than Rs1 billion per month in exports. In those days, the dollar was for around Rs63-64. I had a lot new machinery but only some of it could be used. My exports were supposed to go to Rs1.5 billion. We were expanding capacity to 0.25 million metres per day production. Then the gas closed for 15 days, and that hit alone was pretty damaging – October, November are our most sensitive months.

We are 100 percent direct-to-store. We were in the upper market – big brands in Europe, US, America, Australia. At the time, Soomro was the caretaker PM.

After 15 days of no gas, they opened the gas for three days a week. How can we do seven days’ work in three days? We did what we could, made whatever shipments we could. Then BB was assassinated. That was a bigger disaster because for 18-20 days no container could come. The scheduled planes couldn’t go. And the worldwide reaction was great too.

Then came 2008 elections. By that time, we had already incurred such huge losses. In May, we started getting gas for five days a week until September, but then again it became three days. And that continued for every year. In 2010, for the first time, gas was totally stopped for three months. Then there was no solution. Small factories used wood. But the big factories couldn’t cope. In looms and spinning, you only need electricity. But for processing, gas is essential since our machines are gas-based.

Around April-May 2008, the recession started in America. The upper-end stores got damaged the most. That year, China started buying yarn. Our value-added export started declining but yarn demand was booming. In 2012-13, China kept buying, and only spinning got the benefit.

When Shaukat Aziz left, our total textile export was $8.5-9.0 billion; when Zardari left, it was around $14 billion; now it’s not even $12 billion. Where will we go from here; the future is uncertain.”