Why Did Pakistan's Textile Industry Collapse While Bangladesh's Grew?
The same cotton, the same workers, the same skill. The difference was the price of electricity.
By Asad Baig · Lahore · April 2026 · Approx. 5-min read
The numbers that should haunt every Pakistani
In the year 2000, Pakistan and Bangladesh had roughly equivalent textile exports. Both were around $5 billion. Bangladesh, in some respects, was behind Pakistan. Pakistan had more population, more industrial infrastructure, deeper textile expertise. Most analysts at that time would have predicted that Pakistan would maintain its lead.
Twenty-four years later, the picture is unrecognisable.
In 2024:
- Bangladesh: $47 billion in textile exports
- Pakistan: $16.5 billion in textile exports
Bangladesh exported nearly three times what Pakistan exported. Pakistan's share of the global textile market dropped from approximately 3.5 percent to approximately 1.7 percent. Halved. Bangladesh's share grew to over 6 percent.
This article explains why. It is not a story of Bangladeshi superiority or Pakistani incompetence in textiles. It is a story about electricity tariffs and the IPP system that produced them.
What is actually different
Bangladesh and Pakistan have similar cotton, similar workers, similar machinery, similar export markets, similar climate, similar shipping access, and similar cultural traditions of textile manufacturing. The two industries should have grown at similar rates.
What is different is the cost of electricity to run the factories.
In 2026:
- Pakistani textile factories pay approximately Rs. 38-47 per unit of electricity
- Bangladeshi textile factories pay approximately Rs. 18 per unit
- The cost difference is roughly two to one
A textile factory uses substantial electricity for spinning, weaving, dyeing, processing, and finishing. The electricity cost is one of the largest input costs after raw cotton and labour. When Pakistani electricity costs twice as much as Bangladeshi electricity, Pakistani products cost more to produce. International buyers, who are price-sensitive, choose Bangladesh over Pakistan for orders that could go to either country.
The result is what we see in the export numbers. Bangladesh wins the orders. Pakistan loses them. Bangladesh expands. Pakistan contracts.
Why Pakistani electricity costs more
The Pakistani electricity tariff includes approximately 40 percent capacity payments to Independent Power Producers under take-or-pay contracts signed in 1994 and subsequent power policies. These contracts guarantee dollar-indexed returns of 15 to 34 percent regardless of whether plants produce electricity.
Bangladesh did not adopt the same take-or-pay capacity payment structure. Bangladeshi power generation grew during the same period, but on contract structures that did not commit Bangladeshi consumers to the kind of ongoing capacity payment obligations Pakistani consumers face.
The result is a structural cost difference loaded onto Pakistani tariffs that does not exist in Bangladeshi tariffs. The difference is not about Pakistani inefficiency or Bangladeshi efficiency. It is about contract terms agreed thirty years ago.
I have written about the broader explanation at Pakistan vs Bangladesh Electricity Tariff: A 2026 Side-by-Side and at Why Are Electricity Bills So High in Pakistan in 2026?.
What the textile collapse looks like
The aggregate export numbers hide the human reality. Behind the export gap are specific factories, specific families, specific communities.
In Punjab as a whole, at least 187 textile mills have closed in recent years. Approximately 100 spinning mills have shut down nationally. Approximately 400 ginning factories have closed. Roughly 700,000 jobs have been lost in the textile sector. Cotton production has fallen from 15 million bales to 5.5 million bales (a 63 percent collapse).
In Faisalabad, which once called itself the Manchester of Pakistan, more than 1,000 small and medium textile units have shut down in just the past two years. The buildings of these closed factories still stand. The machines sit silent inside them. The owners cannot afford to operate them. The workers have moved to Lahore looking for construction jobs, or to the Gulf as migrant labour, or back to villages where their families try to find a way to feed them.
I have written about this at The Manchester That Closed Down: Faisalabad's Textile Collapse.
When industry leaders are asked what caused this collapse, they give a unanimous answer. Naveed Ahmed, Chairman of the All Pakistan Textile Mills Association Southern Zone, in February 2025:
"Pakistan's electricity tariffs for industrial use are nearly double those in countries like Bangladesh, Vietnam, and India. Industries can be run at twenty-six rupees per unit. We are being charged thirty-eight to forty rupees per unit. Why do industrial units have to foot the bill for line losses, capacity charges, and theft?"
That is the question. The answer is the IPP capacity payment system.
What this means for Pakistan
The textile collapse is not just a sectoral problem. Textiles account for nearly 60 percent of Pakistan's total exports and employ approximately 40 percent of the manufacturing workforce. The decline of textiles is the decline of Pakistani industrial export competitiveness.
The exports that Pakistan did not earn in textiles flowed to Bangladesh, India, Vietnam, and other competitors. The dollars that should have come into Pakistani reserves came into Bangladeshi reserves instead. The current account difference, sustained over two decades, is in the tens of billions of dollars.
This is not collateral damage of the IPP system. This is a direct, documented, mathematical consequence. Higher electricity costs equal lower industrial competitiveness equal lower exports equal weaker external position. Each link in the chain is mechanical.
Pakistan made specific choices in 1994 about IPP terms. Those choices have produced specific consequences in 2024 about textile competitiveness. The connection is not a theory. It is a chain of cause and effect that anyone willing to look at the numbers can trace.
WHAT THIS ACTUALLY MEANS
Bangladesh did not have the 1994 Power Policy. Bangladesh did not sign CPEC contracts at twenty-seven to thirty-four percent dollar returns. Bangladesh provided its industry with cheap, reliable electricity. Pakistan provided its IPP owners with guaranteed dollar-indexed returns. The result is the difference between $47 billion in exports and $16.5 billion. The difference is what we gave up so that forty families could earn returns the rest of the world considered extraordinary.
What you should take away
Three things.
Pakistani textile exports tripled, Bangladeshi textile exports grew nine-fold. The gap is electricity-driven.
The electricity cost difference is approximately two to one between Pakistani and Bangladeshi industrial tariffs.
The Pakistani electricity cost is approximately 40 percent capacity payments to IPPs under contracts that Bangladesh did not sign.
This is the single clearest example of how the IPP system has cost Pakistani prosperity. Not in abstract macroeconomic terms but in specific industries, specific factories, specific jobs, specific families.
For the broader story, see my pillar on the electricity crisis and my position on the IPP system.
Now you know why textile collapsed. Pass it on.
Thank you for reading.
, Asad Baig, Lahore, April 2026
Frequently asked questions
Why is Bangladesh exporting more textile than Pakistan? The single largest factor is electricity cost. Bangladeshi textile factories pay approximately Rs. 18 per unit of electricity. Pakistani textile factories pay approximately Rs. 38-47. The cost difference makes Pakistani products non-competitive in price-sensitive international markets.
How many textile mills have closed in Pakistan? Over 187 in Punjab alone. Approximately 100 spinning mills nationally. Approximately 400 ginning factories. Approximately 700,000 textile jobs lost. Cotton production has fallen from 15 million bales to 5.5 million bales (a 63 percent collapse).
Can the Pakistani textile industry recover? Only with electricity tariff reduction. Without bringing Pakistani industrial tariffs to Bangladeshi/Vietnamese levels (Rs. 18-22 per unit), Pakistani textile factories will continue to be uncompetitive in international markets. The required tariff reduction requires structural IPP capacity payment reform, which has not happened.
Sources and notes
- Pakistan Bureau of Statistics, textile export data 2000-2024
- APTMA (All Pakistan Textile Mills Association) public statements 2023-2025
- Pakistan Cotton Ginners Forum reports 2024-2025
- The Express Tribune, 187 mills shut down in Punjab (14 February 2025)
- Bangladesh Garment Manufacturers and Exporters Association (BGMEA) export data
Related reading from Asad Baig
The pillar this answers under
Sibling long-tail explainers
- Pakistan vs Bangladesh Electricity Tariff: A 2026 Side-by-Side
- The Manchester That Closed Down: Faisalabad's Textile Collapse
- Why Are Electricity Bills So High in Pakistan in 2026?
Asad Baig