PEST Analysis

A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T.
is an abbreviation for the Political, Economic, Social, and Technological factors of the external
macro-environment. Such external factors usually are beyond the firm's control and sometimes present themselves
as threats. For this reason, some say that "PEST" is an appropriate term for these factors. Many macroenvironmental factors are country-specific and a PEST analysis will need to be performed for all countries of
interest.
Political Implications
When a new government comes it make its own policies related to export and import of textile
goods. Overnight changes in government effect investors a lot and they dont want to invest in
Pakistan. Only speculators invest if they think that they can be benefited. Long time investors are
not willing to invest in Pakistan. Pakistani Textile Industry is confronted with problems
of different nature. The political situation of Pakistan is not satisfactory. Due to the rapid change
in the Government. Every government sets its own new trade policies.Govt. Should apply
sustainable policies for the beneficial of the exporters as well as the investors.
Tax policy:
Sale tax: In Pakistan, the sales tax rate is a tax charged to consumers based on the purchase price
of certain goods and services. The benchmark we use for the sales tax rate refers to the highest
rate.
Actual

Previous

Highest

Lowest

Dates

Unit

Frequency

17.00

17.00

17.00

15.00

2006 - 2015

percent

Yearly

Income Tax: A compulsory contribution to state revenue levied by the government on worker's
income and business profits or added to the costs of some goods, services and transactions. Law
with reference to taxation of income in Pakistan is confirmed in the income tax ordinance, 2015
and the regulations farmed there under Viz, income tax rules 2015. One of the most important
uses of tax is to finance public goods and services, such as street light and street cleaning. Due to
day by day increase in tax rates Pakistan textile industry is badly affected by it. Increasing Tax
rate on imports and exports of textile goods Pakistan is confronted with many different problems.
Country

Corporate

Individual (min)

Individual (max)

VAT/GST/Sales

Pakistan

35%

7.5%

35%

17 (GST)

Greater Employment

This sector employs about 15 million or 38 percent of total workforce of the country. If the
employment rate is added with the upstream and downstream employment, like in agriculture or
export related work opportunities due to this sector then the economic effect of this sector
increased manifold.
Environmental issues
While confronting with cutting down environmental burdens, the textile sector of Pakistan will
have to face one of the biggest challenges facing of complying with international environmental
protocols. Almost every major textile group has its own power plant being run by using fossil
fuel, emitting toxic effluent into the air as well as generating major environmental concerns for
ground water. Textile processing employs a variety of chemicals, depending on the nature of the
raw material and products, with different enzymes, detergents, dyes, acids, sodas and salts.
Political Stability
Political instability is one of the major problems of Pakistan. The internal political and security
position of Pakistan is unlikely to be improved in the near future causing the country to
substantially loss foreign investment and flight of capital. The incumbent government instead
creating attractive policies for domestic and foreign investors focused its attention towards
protecting its political interests resultantly major traditional investing countries chose not to
make or reduced the level of their investment in Pakistan. The data issued by the central bank
shows that major foreign investing and trade partners United States, United Arab Emirates and
United Kingdom have reduced their investment in Pakistan. The combined investment of three
countries is just $731 million so far against the substantial investment made just couple of year
back, $2.2 billion.
Trade and tariff restrictions
Trade policy is a collection of rules and regulations which pertain to trade. In order to address
the challenges confronting Pakistan on the economic fronts, Ministry of Commerce has launched
a comprehensive three years Strategic Trade Policy Framework (2012-15) document. The main
reasons for tarrifs are to protect newly established domestic industries from foreign competition,
to protect aging and inefficient domestic industries from foreign competition, to protect domestic
producers from "dumping" by foreign companies or governments and to raise revenue.
Following are the tariffs in Pakistan:
1 Import duty
2 Export duties
3 Regulatory duties
4 Additional customs duty

Economic Contributions
Any development in the country does not restrict its effects to one or two sectors rather, the
implications of any such development can be felt across multi-sector pathways. Same has been
the case with Textile sector. Here, the discussion is limited to the contributions and effects of
development in Textile industry to the Economic and Social spheres of the country.
Increase in National Income
Any development in the industrial sectors greatly contributes to the Gross Domestic Product of
country. Currently, Textile sector alone contributes 9.5% to the GDP. Development of industrial
sector means more investment, employment and production and hence, higher contribution
towards GDP.
Economic Stability
Growth in Textile sector has immensely contributed towards economic stability of the country.
This sector alone employs 15 million work force of the country. Moreover, when the finished
goods are domestically available, it helps keep prices down and fluctuations due to international
market influences are less likely to strike populace.
Improvement in Balance of Payments
Textile industry has brought structural changes in the pattern of foreign trade of the country.
Today, the Textile sector account for about US$ 10.2 billion export of the country. On one hand,
this sector helps reduce import bills of textile products and on the other hand, it contributes in
earning foreign exchange thereby helping towards keeping balance of payment in control.
Agricultural Development
Development in Textile sector greatly affected the agricultural development in turn. It is evident
from the fact that if number of textile mills increased from 3 to 600 and spindles from about
177,000 to 805 million respectively in 1947 to 2010 then cotton bales increased from 1.1
million bales in 1947 to 10 million bales by 2010. Increased demand of cotton contributed
towards better life of farmer by offering greater market for the raw material.
Diversification of Economy
Development in textile sector has helped in diversifying economy by reducing dependence on
mere production and export of raw material. It also instilled diversification by stimulating
collateral industrial development.
Social contributions
a. Better Living Standards

Textile sector development helped in increasing the value of output per worker. The income of
the labor, due to higher productivity increased resulting in better living standards of growing
middle class.
b. Social Welfare
Growth in textile sector enhanced social welfare in a multitude of ways. Better and greater
employment opportunities, meeting domestic needs, generating revenue and thereby positively
affecting public social spending etc all lead to social welfare.
c. Population GrowthPopulation is growing rapidly in Pakistan. There is a gap between the demand and supply of
labor, which can be exploited to take advantage of low labor costs. The labor is usually unskilled
and amateurish hence a significant amount of money and time has to be spent on their training.
Technological Factors

Rapid changes and developments in technology have increased the competition.

The machinery used by the industries in Pakistan is obsolete and outdated.

Government fails to provide the funds and loans to the owner of garment industries hence
they cannot install new machinery, which can perform tasks in an easier and faster
manner.

Power failure is another big issue which garment industry is facing these days.

Instable prices of electricity , per unit price of electricity rises after every few month,
shortage of gas supplies in winter, increased rated of petroleum products, lack of CNG,

As well as water shortages are some of the prominent causes of garment industry
downfall in the last two or three years.

In addition, lack of research-oriented attitude leads to lack of improvement in the

industry.

New and Innovative products are introduced by the garment industries of other countries
but Pakistan is lacking behind in this context.

References
http://www.slideshare.net/uuroosa/textile-industry-of-pakistan

http://www.studysols.com/tax-rates-in-pakistan-income-tax-sales-tax/
http://www.tradingeconomics.com/pakistan/sales-tax-rate
http://www.labourunity.org/labourlaws.htm
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