The following research report contains market research, analysis, statistics and business intelligence relating to research on Textile Machinery And Equipment In Pakistan.

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ABSTRACT
Cotton being the leading crop of Pakistan makes the textile industry the most significant industry of the country. The textile industry contributes more than 60% of the export earnings of the country. It constitutes 46% of the total manufacturing and provides 38% of the manufacturing labor force. Pakistan's textile industry, based on locally-grown cotton, produces cotton yarn, cotton cloth, and made-up textiles and apparel.

Market for imported textile machinery and equipment in Pakistan is directly proportional to the overall strength of the local textile industry. In order to revitalize this sector, the Government of Pakistan (GOP) has formulated "Textile Vision2007". According to this new "vision", GOP plans to spend Pakistan Rupees 331 billion (USD 1.00 equals Rs. 62 at the current exchange rate) in the textile industry in order to be the 5th leading Asian textile exporter and to increase the exports to USD 13.815 billion by2007. To achieve this goal it is expected that new investment of more than Pak. Rupees 333 billion will be required in different sub-sectors of textile industry.
Pakistan is the eight largest textile exporter from Asia. This is in spite of serious problems facing the local textile industry. For instance, the negligible local production of textile machinery mainly comprises of spindles and ring cups for the spinning industry, power looms for the weaving industry, simple dying and finishing equipment, knitting and sewing machines and accessories such as rubber cots plastic bobbins and wire for carding machines. In other words, the local industry desperately requires more modern machinery to compete in an increasingly competitive industry. Therefore, the demand for more advanced (including used) equipment is expected to grow significantly.
MARKET CHARACTERISTICS

STATISTICAL DATA: MARKET SIZE TABLE (USD MILLION)

1998-9 1999-0 2000-01 Expected Annual Growth Rate For Following Two Years

Import Market 117.70 129.73
144.71 20-25% Local Production -- --
-- -- Exports -- --
-- -- Total Market 117.70 129.73
144.71 20-25%
Imports from U.S. 1.41 1.32
1.24 3 - 5%
Exchange Rates: USD 1= 46.8 51.8 58.0
Estimated Future Inflation: 10 to 15 percent
Pakistan Fiscal Year: July 1 to June 30

Percentage Import Market Share during PFY 2000-01: U.S. 2%; Japan 23%; Germany 20%; U.K. 15%; Switzerland 13%; Far East 9%; China 6%; Italy 4%; Others 8%

Expected Investment in Different Sectors by2007

Capacity Required For2007 Existing Capacity Ob. Rate Capacity available till2007 New Capacity Requirement. Invest in Rs. (billion) Value of Invest in USD (billion)
Stitching Machines (No) 642992 346791 5% 254923 388068 39 0.75
Processing in Weaving (M sq. m) 5807 3460 2% 3065 2742 62 1.2
Processing in Knitting (M Kg) 458 105 2% 93 365 7 0.14
Knitting Machines (No.) 11472 7800 10% 4145 7327 29 0.56
Shuttle-less Machines 13961 18992 5% 13961 0 0 0
Air Jet Looms 10401 3000 2% 2658 7744 40 0.77
Power & Auto Looms - Cotton (No.) 106394 200200 10% 106394 0 0 0
Power & Auto Looms - Synthetic (No.) 37201 70000 10% 37201 0 0 0
Weaving Water Jet (No.) 10844 400 2% 354 10489 40 0.77
Spinning ( Spindles ) 10690776 7184000 2% 6363892 4326884 87 1.68
Polyester Fiber (Tons) 655000 441501 0% 441501 213499 29 0.56
Total 333 6.42

Sub-sectors Analysis:
Pakistan's spinning sector offers limited sales opportunities for machinery and equipment as higher input costs, lower demand and heavy borrowings from financial institutions have caused several units to either close or curtail their operations. Currently, 443 units are working with an installed capacity of 8,447,000 spindles and 147,175 rotors. However, the working capacity of spinning sector is 6,900,000 spindles and 79,000 rotors. It is expected that the installed capacity will be enhanced to 10,178,000 spindles in the next two years. GOP plans to make investment and expansion in the spinning sector and the expected amount of this investment is estimated to be around US$ 1.68 billion by2007. In addition to the new investments in Pakistan's spinning industry, sale of spinning machinery required for the Balancing, Modernization and Replacement (BMR) of existing units is also expected.
The weaving sector comprises of 174 units with an installed capacity of 225,253 power looms, 18,992 air jet looms in shuttle-less sector and 9,898 looms in integrated sector. Pakistan's weaving sector has been adversely affected by the increase in yarn prices, higher power tariffs, the devaluation of East Asian currencies, the lack of professional management and the lack of institutional financing. In addition, many of the country's weaving mills at present work only under contract for lack of working capital. Despite these factors, the weaving sector shows scope for both expansion and improvement. Decreasing demand for yarn from overseas buyers and the likelihood of higher earnings from the export of finished products are making more and more businesses turn to the export of cloth and value-added items, thus creating a market for shuttle-less weaving machines as well as for knitting and sewing machinery. According to the "Textile Vision2007"there will be an investment of US$ 2.74 billion in the weaving sector by year2007 in order to pull in out of the slump.

Knitting is the key process in garment manufacturing. About 600 separate or vertically integrated units with approximately 12,000 machines are working, which are mostly imported. During mid 1980s this sector experienced the highest growth rate in the industry and attracted huge investment. The current growth rate of this sector is between 15% to 17% per annum. For the past few years the growth rate in this sub-sector has changed, because the demand of the Pakistani cotton yarn has declined and excess yarn has begun to be absorbed by knitwear industry. Despite current economic conditions, the industry is expected to show increased growth rate in future through the expansion of existing units. The knitting industry will continue to offer excellent potential for sale of machinery and equipment in future. Most of the country's entire production of knitwear, valued at nearly US$ 3.7 billion, is exported which accounts for 66% of the total exports of the textile industry. The largest market for Pakistani garments is in the U.S., followed by Europe and the Far East. In order to maintain and expand market share, manufacturers will have no choice but to use state-of-the-art machinery and equipment.
Country's woolen industry is comprised of 118 units with 157,317 spindles and 764 looms. Only 94 mills, however, are operational with 99,413 spindles and 544 looms. The spinning sector uses imported synthetic fibers and some wool to manufacture yarn. The spinning sector is considered to be saturated and has shown little or no investment in the last five years. The woolen weaving sector produces fabric, shawls, woolen blankets and carpets. It is comprised largely of mills in the unorganized sector, which use locally manufactured machinery. In addition, there are five composite woolen mills in the country, using imported machinery from Japan, Switzerland, Belgium, Indonesia, Korea and India. This sector is not expected to grow over the next 2-3 years owing to the seasonal nature of demand and the availability of higher quality imported fabric at attractive prices. The woolen industry's knitting sector, which is comprised mainly of units in the unorganized sector, has however, shown some growth, importing used machines for Korea and Italy, and flatbed knitting machines from Japan and China. Financing for this sector is unavailable. Opportunities for machinery sales will be limited to used machinery.
B. BEST SALES PROSPECTS

The following Textile machinery offer the best prospects for sales in Pakistani market:

8445 Laboratory Equipment for textile spinning & weaving
8445 Quality Control System for textile 8445.20.60.00.2 Jet Spinning Equipment
8443.50.10.00.5 Textile Printing Machines
8446 Automatic Knitting Machines
8452.21 Automatic Sewing Machines
8446.30.00.90.9 Projectile Looms
8447.11.10.00.9 Machines for Knitting Hosiery 8447.20 Flat Knitting Machines
8447.90.50.00.4 Embroidery Machines
8446.10.00.10.1 Power Looms
8451.29.0 Drying Machines
8451.40.00.00.9 Textile Dyeing Machines
8451.90.00.90.9 Textile Finishing Machines
8451.50.00.00.6 Textile Cutting Machines
8471.99 CAD / CAM System
C. MARKET ACCESS

Pakistan does not restrict the import of textile machinery and equipment. Maximum customs tariff rates, applicable on an ad valorem basis, have been reduced in a phased manner from 92% in 1994 to 35% in 2001. Customs duties for textile machinery now vary from 10% to 35%. Imports are further subject to a 15% sales tax payable on the duty-paid value of the imports. Other taxes include a 5% income tax adjustable against corporate tax, a 1.8% service clearing charge and nominal wharfage charges.

The Import Policy Order for 1999 allows the import of machinery against cash resources for new units and for expansion of the existing units, including for balancing, modernization and replacement. It also allows the import of used and reconditioned machinery. Commercial importers are to be subject to percipient inspection to ensure that the machinery has reasonable useable life. The import of the following used or reconditioned textile machinery is not allowed: HS 84483300: spindles, spindle flyers, spindle rings and ring travelers; and HS 84510000: dry-cleaning machines.

Another GOP incentive, the Open Bond Scheme, allows the import of machinery for the establishment of new units or for the BMR of existing units free from customs duties and sales tax, if the unit is established in bond. The scheme does not, however, apply to the cotton yarn industry. D. END USER ANALYSIS
The textile industry is today based almost entirely in the private sector. Financing, price, quality and after-sales service will continue to determine purchase. Given economic stability as well as the importance of the industry to Pakistan's economy, the spinning sector is expected to grow by 8-10 percent over the next three years.

According to a report by Japan International Corporation Agency (JICA), it is estimated that there are 230,000 stitching machines in Pakistan. Out of these, 80,000 machines are in the organized sector and 150,000 are in household sectors. Growth in this sector is expected to increase in the coming years. These machines are not produced domestically and currently Japan enjoys approximately 90% of the import market. Other suppliers are European. Parts for sewing machines are imported mainly from Japan, and, more recently, from Korea and Taiwan.
Most of the country's dyeing and finishing units are small and use domestically manufactured machinery based on obsolete technology. Pakistan's finishing industry is comprised of approximately 731 units and the majority of the dyeing and finishing units are independent units and complimentary to the weaving industry. Their installed capacity is considerably old and needs replacement. The integrated units are reported to have a capacity utilization of only 35% of installed capacity as most of their machinery is also old and uses outdated technology. The smaller units use mostly locally manufactured machinery. Approximately 80% of the country's total annual production of cotton and synthetic fabric, estimated at 4,781 million sq. meters, are processed. About 50% of the processing industry's capacity are over 15 years old and require replacement. Declining demand for low count yarn and increasing export market demand for finished fabrics will force Pakistan's textile industry to diversify its textile base. The country will have to make considerable investments in bleaching, dyeing, printing and finishing machines. Quality and price are considered to be key factors in this sector.
The value-added sector, therefore, offers the largest potential for the export of dyeing, finishing, printing machines, knitting machinery for the expansion of existing knitting units and for sewing machines. As the entire industry moves towards value-added exports, the printing and dyeing units will require state of the art dying, printing and finishing machinery to enable them to compete in the world textile and garment markets. Such type of machinery is not being manufactured domestically and thus will have to be imported. This will make this sector an eye-catching sector for the foreign machinery and equipment exporters. It is estimated that eight large dyeing houses are in planning stages for which state of the art machinery and equipment will be required.

Pakistan's ready-made garments sector is comprised of 4,000 small, medium and large-scale units, which together have 160,000 industrial and 450,000 domestic sewing machines. The sector is considered the highest value-added sector of the textile industry. Most sizable buyers purchase machinery through suppliers who offer complete packages, or on the advice of consultants who may show a bias in favor of machinery originating in their native land. Sewing machinery is often purchased from Paff Singer in the United Kingdom who offers complete purchase packages for garment manufacture; and from Juki and Union Special from Japan, who offer lower prices for machinery and parts. U.S. machinery is largely unknown in this sub-sector, except Eastman Export Corporation for cutting machines; and Braun for washing machines. This sub-sector is considered to be the highest value-added sector in the textile industry, and has exported over USD 617 million worth of garments from July 1997 to April 1998, a 3 % increase in value over the corresponding period the previous year. Its growth rate, however, is lower than that of the knitwear sector. Lack of skilled labor, quality control and insufficient skilled managerial staff are the main problems facing this sub-sector.
Distribution Channels:
The usual and most effective channel for sale of machinery, equipment and spares is through a reliable agent. Foreign firms appoint local agents for the Pakistan market to provide them with market intelligence and to follow-up on sales. The most popular and possibly the most effective distributorship arrangement in Pakistan is the exclusive agency agreement. The exclusive agent receives commission on all sales of the product within the country, regardless of the channels through which they were ordered. The agent often imports and stocks spares, which are regularly required by end-users. He may also provide after-sales service.

Technical Standards and Marking & Labeling:

Documents required for textile machinery imports are: Certificate of the country of origin; Bills of landing; Invoices; Packing lists; Copies of letters of credit; Insurance certificates. Imports against cash are permissible. Financing: Financing is the key to selling in this market. Pakistani end users buy machinery on credit only and most of the transactions are done through bank's Letter of Credit. Local financing is usually available for balancing, modernization and replacement of existing units, and at concessionaire mark-up rates on loans to finance the export of blended polyester and cotton yarn. It is also available on a selective basis to weaving units at mark-up rates varying from 18 to 24% for a period not exceeding five years. The preferred means for payment of imports into Pakistan is against a confirmed and irrevocable letter of credit. Industry sources suggest a deferred letter of credit basis on a deferred basis for 180 to 720 days. It is recommended that U.S. firms use an irrevocable/confirmed Letter of Credit.

APPENDIX A

H.S. Codes Products Duty Rates
(In percent on Ad. Valorem basis)

84.44 Machines of extruding, drawing, texturing or cutting
man-made textile materials Extruding machines 10
84.45 Machines for preparing textile fiber; spinning, doubling
or twisting machines and other machinery for producing
textile yarns; textile reeling or winding (including weft-winding)
machines and machines for preparing textile yarns for use on
the machines of HS codes 84.46 or 84.47 10
8446.1000 Weaving machines (looms) for weaving fabrics of a width not 10
exceeding 30 cm
------------- Looms for weaving fabrics of a width exceeding 30 cm, shuttle type
------------- Power looms
8446,2110 Old, used or re-conditioned looms 10
8446.2120 Looms of a kind not manufactured locally 10
8446.2190 Other looms of a kind manufactured locally 35
8446.2910 Other, old, used or re-conditioned looms 10
8446.3000 Looms for weaving fabrics of a width exceeding 30 cm, 10
Shuttle-less type
84.47 Knitting machines, stitch-bonding machines and machines for 10
making gimped yarn, tulle, lace, embroidery, trimmings, braid or
net machines for tufting
8448.1110 Old, used or re-conditioned dobbies and jacquards; card reducing,
copying, punching or assembling machines for use therewith 10
8448.1190 Other 10
8448.2000 Parts and accessories of machines of heading 84,44 or of their 10
auxiliary machinery
8448.3110 Tops and flats 35
8448.3190 Other 15
8448.3200 Of machines for preparing textile fiber other than card clothing 10
8448.33---- Spindles, spindle flyers, spinning rings, ring travelers 25
8448.3910 Bolster and parts of spindles 25
8448.3990 Other 10
8448.4100 Shuttles 10
8448.4200 Reeds for looms, healds and heald-frames 25
8448.4900 Other 10
8448.5100 Sinkers, needles and other articles used in forming stitches 10
8448.5900 Other 10
8449.0 Machinery for the manufacture or finishing of felt or non-woven 10
in the piece or in shapes, including machinery for making felt hats;
blocks for making hats
84.51 Machinery for washing, cleaning, wringing, drying, ironing, 10
pressing including fusing presses, bleaching, dyeing, dressing,
finishing, coating or impregnating textile yarns, fabrics or made up
textile articles and machines for applying the paste to the base fabric
or other support used in the manufacture of floor coverings such as
linoleum; machines for reeling, unreeling, folding, cutting or pinking
textile fabrics, each of a dry linen capacity not exceeding 10 Kg.,
flocking machines, new or used
84.52 Industrial Sewing machines other than book-sewing machines, 10
furniture, bases and covers specially designed for sewing
machines; Sewing machine needles, automatic sewing machines,
automatic units, parts of industrial sewing machines, used and
sewing machines in CKD/SKD condition
8452.1090 Other 25
APPENDIX B

ILLUSTRATIVE STUDY OF IMPORT COSTS

The example below shows the import costs for semi-goods imported into Pakistan:

Base Price (Pak Rupees) 100.00
Freight 10 percent (avg.) 10.00

C&F Value 110.00

Insurance 1% of C&F Value 1.10 111.10
Dutiable Base = CIF Value 111.10
Landing Charges (1% of CIF) 1.11 112.21
Custom Duty (25% of CIF) 28.05 140.26
Custom Duty - Paid value 140.26
Sales Tax (15 percent of Custom Duty - Paid value) 21.039 161.299
Sales Tax - paid value 161.299
Advance Income Tax ( 5% of Sales Tax - paid value) 8.06495 169.36
Other Charges (clearing, Forwarding & Bank charges) 8% of C&F Value 8.80 178.16
GRAND TOTAL (Pak Rupees) 178.16

DISCLAIMER
Information in this report relies on sources including Government Publications, Opinions of industry experts and other public sources. Infomat can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. All prices subject to change without notice.

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For the 2008 Edition

Published: 2006 August
Market: Mens Womens Childrens
Region: Pakistan
Industry: Textiles
Pages: 45
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