Textile manufacturers seem to have gotten their way securing gas supply for captive power generation. The note of thanks that followed had one name missing, that of the Minister that was not entirely sold on the idea. Regardless of the merits of the decision, this should soothe some nerves for Pakistan’s largest dollar earners.
The arguments goes that “textile units in Pakistan are incurring power and energy costs 2.4 percentage points more than India and 7.8 percentage points higher than Bangladesh…ideal regionally competitive electricity tariff would be around 7.4 cents/kWh”. There is no denying that textile is an intensely competitive market when it comes to export, and regionally competitive electricity tariff is only a fair demand.
Only that a look at electricity tariffs for industries in the region tells the textile players in Pakistan are not worse off. If anything, they get better power tariffs than both India and Bangladesh, where only Vietnam offers electricity at cheaper rates – even at 9 cents per unit. The research being quoted by the textile lobbyists may well be outdated, as the very sources mentioned in the research indicate that electricity tariff for industries in Bangladesh are close to 11 cents, whereas those in India are north of 10 cents per unit.
In terms of natural gas, there is a clear advantage that competitors have over Pakistani textile players, based on PIDE’s research titled “Regionally Competitive Energy Tariffs and Textile Sector’s Competitiveness” from 2020. BR Research has not been able to independently verify the same. That said the overall picture in terms of regionally competitive tariffs is not as bleak as some representative bodies of the textile sector would paint. Surely, the power tariffs are nowhere close to 7.4 cents, which is being termed as “ideal”.
The second most significant element in conversion cost is labor, which accounts for roughly 29 percent as compared to 35 percent of power and fuel, as per PIDE’s aforementioned research. Pakistan’s labor rates are 80 percent lower than that of India and only 12 percent cheaper than that of Bangladesh. Given the massive currency depreciation in the past two years, the labor wages in dollar terms have only tilted more in favor of Pakistan - as no other currency in the region has seen such a hammering.
As per data provided by the Punjab Bureau of Statistics, wages in textile sector have grown at an average of 2 percent every quarter in rupee terms, since 1QFY19. The data presented in the “Monthly Survey of Industrial Production & Employment in the Punjab” puts the average monthly wage at Rs18,608 per worker in the industry.
The disregard to minimum wage law is best left for another day, but even if one assumes wage rate to have outgrown historic average of 8 quarters, growing by 4 percent quarter-on-quarter instead, the wage rate in dollar terms comes at $115. This is still lower than what it was 12 quarters ago, having seen the lows of $102 during the journey. Granted that the LSM approach will have shortcomings in terms of inclusion, but it is difficult to see the ground reality deviating any significantly from the trend.
One can safely say that Pakistan’s textile is getting electricity at better rates than India and Bangladesh, even though gas is still pricier – which may or may not put Pakistan at par in terms of regionally competitive energy tariffs. One can say with a greater degree of certainty that the rupee hammering has given a head start to Pakistan in terms of labor costs. Let’s not even go into the concessional financing schemes out there. But surely, based on these numbers, this is as competitive as it gets for Pakistan. It is now up to the industry to prove the mettle and show the growth.