Sustainable Production Of Textiles With Value Addition
Sustainable Production Of Textiles With Value Addition
Business Model Description
Investment in business to business (B2B) or business to customer (B2C) models to scale up or to establish manufacturing units of denim products. The range of products may include all denim products that are popular in the export market.
Nishat Mills Ltd. is Pakistan’s most modern and largest vertically integrated textile company, established in 1951, under the umbrella of the Nishat Group. The company has modern textile dyeing, and processing units, along with stitching units for home textiles and garments. The company’s diverse operations include spinning facilities, weaving and processing.
Nishat's other products include home textiles such as quilt covers, table linen, curtains, and cushions, among others. This category also includes Nishat Linen, the well-known fashion retail chain. Under the garment category, their products include denim, servicing clients such as GAP, Zara, Next, and New Look. The company’s total exports for FY19 were USD 353 million. (6)
Gul Ahmed Textiles is a composite unit, with an installed capacity of more than 51,840 spindles, 300 state-of-the-art weaving machines and the most modern units. In 2020, it acquired a 50 per cent stake in World Wide Developers (Pvt.) Ltd. for a transaction value of USD 8 million. (7)
International Finance Cooperation IFC will invest USD 25 million for a minority stake in Khaadi Corporation, which has 57 retail outlets spread across Pakistan, with a presence in UK and GCC countries. The funding will accelerate Khaadi's growth by expanding its retail footprint and online global sales. It will indirectly support the retailer's supplier (2022). (8)
Khaadi is the largest fashion apparel brand in Pakistan, operating in 4 countries and servicing customers globally through its eCommerce platform. Khaadi was founded in 1998 in Karachi, Pakistan and currently employs a diverse workforce of over 1000 people from over 14 countries. (9)
Expected Impact
Investments in this IOA will build domestic capacities for integrated value-added products and services in apparel sector.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Pakistan: Sindh
- Pakistan: Punjab
Sector Classification
Consumer Goods
Development Needs
Pakistan's USD 152 billion retail market is the fastest growing in the world, according to Euromonitor. With an expanding middle class, particularly millennials, with rising disposable income, has resulted in a competitive demand for branded and packaged consumer goods ranging from personal and baby care items to food and beverage products. (1)
Pakistan Textile and Apparel Policy for 2020-25, with four-tier strategy and 21 recommendations, aims to increase country’s textile exports target by 2025 to USD 25.3 billion and USD 50 billion by 2030. (2) Pakistan's current account deficit is USD17.6 billion due to severe trade imbalances. Textile industry, as highest contributor to exports, needs value addition to get better export value. (3)
Gender inequalities and marginalization issues
Most employers are biased against women employees, who are rarely offered permanent contracts. Women are deprived of paid-maternity leave and functional day-care centers that can provide them with flexibility and shoulder their care responsibilities. The poor working conditions for women are exacerbated by low wages in labor-intensive units (4)
Investment opportunity's introduction
Textile and Apparel is the largest industry in Pakistan as the country is the 8th largest exporter of textile products in Asia. It is the 4th largest producer and 3rd largest consumer of cotton. This industry comprises 46 percent of the total manufacturing sector and provides employment to 40 percent of the total labor force. (5)
Key bottleneck's introduction
Primary challenges are energy crises, fluctuating yarn prices, shortage of gas supply and load shedding, law and order situation, devaluation of Pakistani currency, lack of research and development (R&D) institutions, lack of modern equipment and machinery, and high production cost. (5)
Apparel and Textiles
Development need
Large investment in machinery, availability of quality raw material, enhanced skill set, and product development are essential to realize the textile sector’s export potential. The sector needs consistent and predictable policies, and continuous power supply and other infrastructure support for optimizing opportunities. This is particularly true due to the fierce competition in textile products in the South Asia region. (2)
Policy priority
Pakistan Textile Policy (2020-2025): aims to leverage advantage of complete textile and apparel supply chain by encouraging value-addition at each stage of processes, especially for the finished products. This also includes restoring profitability of cotton farmers by increasing yield, improving quality and decreasing cost of production and more. (2)
Gender inequalities and marginalization issues
Textile and garment industry employs around 40 percent of the total workforce. According to the Pakistan Institute of Labour Education and Research, 30 percent of the workers in this industry are women. Poor working conditions for women are exacerbated by low wages in labor intensive units, with fewer incentives and growth opportunities. (4)
Investment opportunity's introduction
There are 423 textile industries working in the country. Pakistan has a supply base for almost all man-made and natural yarns and fabrics, including cotton, rayon and others. This abundance of raw material is an advantage for Pakistan due to its beneficial impact on cost and operational lead time. Value added textiles and apparels are key areas. (5)
Key bottleneck's introduction
Challenges lie in the restoration of profitability of Cotton farmers by increasing per acre yield while introducing latest seed technology; lack of product diversification via improvement in fiber-mix and tariff escalation in value-chain has led the sector to become uncompetitive. (2)
Apparel, Accessories and Footwear
Pipeline Opportunity
Sustainable Production Of Textiles With Value Addition
Investment in business to business (B2B) or business to customer (B2C) models to scale up or to establish manufacturing units of denim products. The range of products may include all denim products that are popular in the export market.
Nishat Mills Ltd. is Pakistan’s most modern and largest vertically integrated textile company, established in 1951, under the umbrella of the Nishat Group. The company has modern textile dyeing, and processing units, along with stitching units for home textiles and garments. The company’s diverse operations include spinning facilities, weaving and processing.
Nishat's other products include home textiles such as quilt covers, table linen, curtains, and cushions, among others. This category also includes Nishat Linen, the well-known fashion retail chain. Under the garment category, their products include denim, servicing clients such as GAP, Zara, Next, and New Look. The company’s total exports for FY19 were USD 353 million. (6)
Gul Ahmed Textiles is a composite unit, with an installed capacity of more than 51,840 spindles, 300 state-of-the-art weaving machines and the most modern units. In 2020, it acquired a 50 per cent stake in World Wide Developers (Pvt.) Ltd. for a transaction value of USD 8 million. (7)
International Finance Cooperation IFC will invest USD 25 million for a minority stake in Khaadi Corporation, which has 57 retail outlets spread across Pakistan, with a presence in UK and GCC countries. The funding will accelerate Khaadi's growth by expanding its retail footprint and online global sales. It will indirectly support the retailer's supplier (2022). (8)
Khaadi is the largest fashion apparel brand in Pakistan, operating in 4 countries and servicing customers globally through its eCommerce platform. Khaadi was founded in 1998 in Karachi, Pakistan and currently employs a diverse workforce of over 1000 people from over 14 countries. (9)
Business Case
Market Size and Environment
> USD 1 billion
5% - 10%
There are 423 textile sub-industries working in the country as of 2020.
In 2017, global denim fabric exports were USD 2.76 billion and Pakistan is ranked 2nd exports. (10) Sales of large integrated denim players in Pakistan have grown at a CAGR of 7 percent (despite declining prices) over the last three years, with margins hovering at 3-year average of around 20 percent, which are higher in comparison to integrated non-denim textile units (2018). (11)
In 2017, global denim fabric exports were recorded at USD 2.76 billion. China retained its position as the leading fabric supplier with a market share of 18.72 percent and Pakistan ranked 2nd with a share of 17.46 percent. However, the global denim jeans market had much higher value than the fabric market, standing at a value of USD 95.4 billion in 2017 as per Euromonitor estimates. (12)
Indicative Return
> 25%
15% - 20%
GMP is 16-18 percent for 2017-2021 in industry and is dependent on input and raw material cost. (13) From Small and Medium Enterprises Development Authority pre pre feasibility IRR is 32 percent (14) Based on the discussions with Pakistan Textile Council, the IOA shows promising returns with increased demand for denim and products from the US, with Pakistan being the leading exporter of denim to US, as compared to Bangladesh and India in 2020 and 2021. (15)
Despite declining prices, the sales of large integrated denim players in Pakistan have grown at a CAGR of 7 percent over the last three years with margins hovering at 3-year average of around 20 percent which are higher in comparison to integrated non-denim textile units as of 2018. (11)
Investment Timeframe
Short Term (0–5 years)
It takes 4.4 years for the whole unit to start generating revenues. The time estimate is based on Small and Medium Enterprise Development Authority's Pre-feasibility study on the opportunity and consultation with Pakistan Textile Council. (14)
Ticket Size
USD 500,000 - USD 1 million
Market Risks & Scale Obstacles
Market - High Level of Competition
Business - Supply Chain Constraints
Market - Volatile
Impact Case
Sustainable Development Need
The main sustainability issue is caused due to environmental problems created by the textile industry including water pollution, air pollution and solid waste pollution. Apparel industry accounts for 10 percent of global carbon emissions and is the second largest industrial polluter. (16)
According to some studies 20 percent of all freshwater pollution is created by textile treatment and dyeing. The high volumes of water and discarded chemicals in the textile production process are responsible for aquatic life toxicity. There is a need of proper water and waste treatment. (16)
Substances and heavy metals are disposed into water bodies, and they are consumed in daily activities. The textile industry also produces solid waste. Globally, each year, about 90 million items of clothing end up in landfills. There is a need for clean and green manufacturing units with waste management measures as part of the value chain.
Gender & Marginalisation
The female labor force participation in the industry is only 30 percent, with textile being the largest industry employing the highest number of women in the industry. (4) Currently, women are only employed for very few trades in the textile sector (such as stitching & quality assurance).
Women are also deprived of paid maternity leave, functional day care centers among other facilities. It was also observed that career progression chances for women were higher in large textile units as compared to small and medium units. Training opportunities for women were very limited. (16)
Employers are biased against women employees who are rarely offered permanent contracts. There is a need to broaden the types of jobs available and to introduce fair wage systems with adequate financial safeguards for women. (16)
Expected Development Outcome
As per Pakistan Textile Council, 18 textile and apparel companies are leading Pakistan’s first ever net-zero coalition to reach zero net carbon emissions by 2050. Following the sustainability guidelines, the textile sector's water waste, gas emissions and solid waste would be treated such that the industry can grow sustainably.
Gender & Marginalisation
Increase in participation of women in the industry's labor force in diverse roles in addition to the traditional roles that are typically as cheap labor with limited benefits. Additionally expected to increase in income, better career progression, better contracts and better working and supportive environment for women.
Primary SDGs addressed
12.4.2 (a) Hazardous waste generated per capita; and (b) proportion of hazardous waste treated, by type of treatment
In 2015, Pakistan was party to four international agreements on hazardous waste. From 2015 to 2020 on two agreements country's performance was 100 percent while the performance decreased to 25 percent from 50 percent for Stockholm convention and improved for Rotterdam convention to 70 percent from 64 percent. (17)
The target levels of compliance to four conventions on hazardous waste was set at 100 percent compliance. (Rotterdam, Stockholm, Montral Protocol and Basel Convention) (17)
9.3.1 Proportion of small-scale industries in total industry value added
9.2.1 Manufacturing value added as a proportion of GDP and per capita
9.b.1 Proportion of medium and high-tech industry value added in total value added
On. 9.3.1, the proportion of small-scale industries in total industry value added increased from 8.4 percent in 2015 to 10.5 percent in 2019. (17)
On SDGs indicator 9.2.1, manufacturing value added (MVA) as a proportion of GDP slightly reduced to 12.23 percent from 13.56 percent between 2015- 20 at the national level. (17)
On 9.b.1. From 2015-2017, the proportion of medium and high-tech industry in total value added was stagnant at 24.6 percent. (17)
The national vision 2025 and textile policy consider increase in small scale industry proportion as an important metric of development but do not provide a specific quantifiable target.
The textile policy has a target set to have exports of value-added textiles and apparels up to USD 40,000 Million by 2024-2025 (2)
The textile policy has a target set to have exports of value-added textiles and apparels up to USD 40,000 Million by 2024-2025 (2)
5.5.2 Proportion of women in managerial positions
The percentage of women in managerial positions has increased from 2.70 percent in 2014 to 4.53 percent in 2019. (17)
The National Vision 2025 by Government sets the target of increasing women labor force participation from 24 percent to 45 percent by 2025 but does not give a specific target of increasing their presence in managerial positions. (14)
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Corporates
Public sector
Outcome Risks
With increase in demand, there is a risk of putting pressure on the cultivation of cotton, unsustainable production, use of harmful substances, strain on water resources, solid treatment to save costs. Furthermore, the required quality of fabric needed for exports may not be achieved at an economically viable price unless economies of scale is achieved with significant production capacity.
Persistence of same malpractices in terms of women participation will exclude women from training, employment opportunities and improving their living standards.
Impact Risks
Lack of employment opportunities, decent work for skilled and unskilled workers, employees, cotton pickers in organized facilities may maintain the current status quo despite increased investments.
Impact Classification
What
Improved and sustainable manufacturing methods for denim products in order to benefit from improved export value of high quality textile products.
Who
Providing employment opportunities to skilled workers in the industry who lost jobs due to energy crises that resulted in pushing the private sector out of business. (2013) (19)
Risk
Lack of adoption of international standards and price control may make the products unaffordable and unsuitable for the export market.
Contribution
Increased contribution to employment, contribution to GDP and green and clean environment. As of 2020, 40 percent of labor is employed and contributes 8.5 percent of GDP.
How Much
Over 21 textile and leather industries in 2022, in Pakistan have saved USD 780,000 by implementing sustainable environmental management practices
Impact Thesis
Investments in this IOA will build domestic capacities for integrated value-added products and services in apparel sector.
Enabling Environment
Policy Environment
Textile Policy 2020-2025: Pakistan Textile Policy with its four-tier strategy and 21 recommendations aims to increase the country’s textile exports target by 2025 to USD 25.3 billion and to USD 50 billion by 2030. (2)
The Textile policy encourages investments for technology upgradation, infrastructure development and integration with global value chain. Special focus is given to marketing, regulatory and international standards compliance for SMEs. (2)
Strategic Trade Policy Framework 2020-2025: It sets exports as a driver for growth. Focus in on "Make in Pakistan" theme to spur manufacturing for exports. Framework enhances cohesion and collaboration between all departments for enhancing exports. It proposes incentives and interventions for priority sectors like textiles and apparels, leathers, sports goods, carpets, cutlery and rice. (20)
Financial Environment
Financial incentives: Export Finance (EFS) available at concessional rate of 3.0 percent. Long Term Financing Facility (LTFF) at Concessional Rates. (23)
Fiscal incentives: Duty Free Import of machinery and equipment. Exemption of Sales tax on Import of machinery & equipment. Fully automated system for Repayment of customs–duties to exporters. Low tariff/exemptions on exports to countries of EU due to GSP+ status. Export facilitation Scheme 2021. (24)
In case of special economic zone: Exemption from income tax for ten years for Zone Developers, Co-developers and Zone Enterprises and One time exemption from all custom-duties and taxes on import of capital goods to Zone Developers, Co-developers and Zone Enterprises (25)
Regulatory Environment
National Environment Quality Standards related to municipal and industrial effluents treatment SRO no 742 (1)/93 & S.R.O. 1023 (I)/95 and all provincial environment protection Acts. (21) "Companies Ordinance 1984, Punjab Essential Articles (Control) Act, 1973 Punjab Industrial Development Board Act, 1973 Punjab Small Industries Corporation Act, 1973, Punjab Industries Ordinance 1963 (22) "
Marketplace Participants
Private Sector
Textile manufacturers, companies and integrated units and big labels like Khaadi, Gul Ahmed, Nishat, US Denim, Pak Denim, Akhtar Textiles, Artistic Denim Mill Limited.
Government
Ministry of Commerce, Trade Development Authority of Pakistan, Ministry of Industries and Production, Provincial, Commerce and Industries Departments.
Multilaterals
International Finance Cooperation and World Bank Group
Non-Profit
Pakistan Textile Council, (All Pakistan Textile Manufacturer Association), Overseas Investor Chamber, Federal, Lahore, Karachi, and regional and local chambers of commerce and industries.
Target Locations
Pakistan: Sindh
Pakistan: Punjab
References
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