The Chinese investment company RUYI’s plan to establish textile parks in Pakistan presents a significant opportunity for both countries, but it arrives at a time when Pakistan’s textile industry is facing substantial challenges. The company intends to invite around 100 Chinese firms to invest in the parks, aiming to create between 300,000 and 500,000 jobs and generate billions in exports over two phases. However, the severe issues plaguing Pakistan’s existing textile sector raise critical questions about whether this ambitious plan can succeed.
Currently, Pakistan’s textile industry is in a state of decline, largely due to rising electricity tariffs and an energy crisis fueled by mismanagement and external market shifts. The government’s decision to cut down on its liquefied natural gas (LNG) imports from Qatar, while driven by a dip in demand from the power sector, has further destabilized industrial operations across the country. Pakistan’s textile industry, which constitutes over 60% of the country’s total exports and employs more than 15 million people, has seen rapid closures of manufacturing units due to the unaffordable cost of doing business.
Pakistan’s energy landscape is fraught with challenges, and the textile industry, being heavily energy-dependent, has borne the brunt of this crisis. The country’s reliance on LNG imports has backfired due to fluctuating global prices and inefficient internal distribution. In 2023, Pakistan imported about 10 LNG cargoes per month, mainly from Qatar, but much of this supply was left unused as the power sector refused to purchase its full allocation of gas. In response, the government has requested a reduction in these imports to ease pressure on gas utilities.
Electricity prices in Pakistan have skyrocketed in recent years, with industrial users facing unsustainable costs. According to the Pakistan Bureau of Statistics, industrial electricity tariffs have increased by over 30% in the last two years alone. This steep rise has pushed many textile units, especially small and medium-sized enterprises (SMEs), to the brink of closure. These SMEs form the backbone of Pakistan’s textile industry, yet their survival is now in jeopardy.
The power sector’s refusal to lift its allocated LNG volumes is a direct result of decreasing electricity demand, driven in part by high tariffs and an increasing shift toward solar energy. The World Bank estimates that Pakistan could reduce its electricity costs by 25-30% by transitioning more aggressively to renewable energy sources, but this transition will take time. In the interim, textile manufacturers are left grappling with exorbitant energy bills, leading to factory shutdowns and layoffs across the sector.
In addition to the energy crisis, Pakistan’s textile sector faces significant regulatory and policy challenges. Inconsistent government policies have made it difficult for manufacturers to plan for the long term. Frequent changes in tax regimes, the imposition of duties on raw materials, and bureaucratic red tape have all contributed to the industry’s struggles. For instance, the government has repeatedly imposed and lifted import duties on cotton, a key raw material for the textile sector. This lack of consistency has hurt production timelines and increased costs for manufacturers.
RUYI’s proposed textile parks, which promise to bring billions of dollars in export revenue, will have to contend with these same regulatory challenges. While the government may offer incentives for foreign investors, local manufacturers have consistently been stifled by a lack of clear policy direction. According to a report by the Pakistan Business Council, the country’s textile sector operates at a significant disadvantage compared to regional competitors like Bangladesh and Vietnam, where government policies are more stable and industry-friendly.
Pakistan’s textile industry, once a global leader, is now struggling to maintain its share in the international market. In 2022, the country’s textile exports totaled $19.3 billion, a slight increase from previous years, but this growth is far outpaced by competitors. Bangladesh, for example, exported over $45 billion worth of textiles in the same year, thanks to lower energy costs, favorable trade agreements, and government support.
RUYI’s textile parks are projected to export $2 billion worth of products in the first phase and an additional $5 billion in the second phase. While these figures are impressive, they must be weighed against the broader context of Pakistan’s declining export competitiveness. The country’s share of the global textile market has steadily shrunk, from 2.2% in 2010 to just 1.6% in 2021, according to the World Trade Organization. Without significant reforms to address energy costs, regulatory barriers, and labor productivity, it is unclear how RUYI’s parks will fare in this highly competitive environment.
While RUYI’s investment could inject much-needed capital into Pakistan’s textile sector, the success of the project hinges on several factors. First and foremost, the energy crisis must be addressed. RUYI may need to explore alternative energy solutions, such as solar power, to ensure a stable and affordable supply for its textile parks. This approach would also align with Pakistan’s broader energy transition goals, as the country aims to increase its renewable energy capacity to 30% by 2030.
Additionally, the government will need to create a more conducive environment for industrial growth. This includes implementing consistent policies, reducing bureaucratic delays, and providing targeted incentives for both local and foreign investors. If these reforms are not enacted, RUYI’s investment risks becoming another high-profile project that fails to deliver on its promises, much like several other foreign investment initiatives in Pakistan.
RUYI’s plan to establish textile parks in Pakistan offers a glimmer of hope for the country’s struggling textile sector, but the road to success is fraught with challenges. The energy crisis, driven by rising electricity tariffs and a shortage of LNG, has crippled many existing textile units, while unfriendly government policies have further hampered industrial growth.
If RUYI is to succeed, it will need to navigate this difficult landscape by securing reliable energy sources and working with the government to create a more supportive regulatory environment. The stakes are high: Pakistan’s textile industry is a critical part of its economy, and its revival is essential for the country’s long-term economic stability. However, without addressing the fundamental issues that have caused the sector’s decline, RUYI’s investment may struggle to achieve the ambitious goals it has set.
The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance
