The textile exporters of Pakistan are fond of championing that textile is the backbone of the economy and that it is their inalienable right to claim and receive subsidies, preferential energy rates, concessional interest rates on loans, minimal role of FBR, and fast track access in the corridors of power. Over the past many decades, this has been the norm.
However, if for whatever reason, any of the above is denied or rejected, especially through a policy change, the textile high and mighty release quarter page advertisements in color on the front or back page of newspapers, headlining these with the word ‘APPEAL’ in bold letters and large font espousing their concern.
The rationale would be enumerated and the policymakers would be intensively lobbied to revisit their decision and restoring it as per the stipulations of the textile exporters. The next step would be to make a journey to Islamabad to ensure that the decision makers are convinced that the real fault lay in Islamabad.
Once everything is back to normal, another advertisement is promptly issued, but this time, the headline is ‘THANK YOU’, and in the subject matter, the exporters would pledge to enhance exports by so many billion dollars.
This charade continues because neither the exporters are able to increase exports nor the government tries to enforce its writ. The subsidies, facilities, and benefits pile up and the textile exporters enjoy fiscal space to divert the windfall profits into other sectors.
Reality dawns on exporters when their orders turn from deluge to a trickle. They have remained smug all the past years. They have lost the momentum to discover new markets and new customers.
Ergo, exports continue to take a dive or remain stagnant. Global demand is low, mainly due to the customers being more concerned with food inflation in their countries. Their disposable income, shrinking due to high grocery bills and sustenance, and not fabric or apparel, is distressing for them.
A weakened Rupee should have been a boon for exporters and would have enabled them to reclaim lost or encroached share in the global marketplace. Alas, exporters have not taken advantage of this everyday devaluation, probably as a result of their complacent style of working.
The textile sector, despite heavy capital investments (thanks to initiatives such as TERF), despite strong leadership, despite a formidable share in the nation’s export regime, and despite the obvious ostentatious environment textile exporters have created for themselves, the net-net outcome is perpetual pronouncement by them or their trade bodies of their distressed situation.
The main beef against government policies has always been the energy deficiency that has seriously impeded their motivation to expand their enterprises all through the past many decades.
Notwithstanding the above points, there are undeniable reasons for the higher cost of doing business and that is why the textile sector is more or less strapped.
These pertinent reasons are broadly discussed below. The foremost is utilities, which is the Achilles’ heel for the textile sector as this is due to the unpredictable and frequent increases in the rates of power and gas, the low availability of water, and the disruptions, power outages, and breakdowns in the systems.
Finance is another reason but due to TERF, etc., the textile sector made heavy investments in capital equipment and in infrastructure.
The low interest rates enabled them to undertake these investments. However, the situation has now changed for the worst when interest rates escalated, putting massive pressure on the borrowers who require bank loans for working capital, hence making their feasibilities go haywire. The outcome of various taxation, duties, and levies has been negative cash flows as well as affecting the cost of production.
These are custom duties, sales tax, withholding tax, super tax, Export Development Fund surcharge, labour welfare levies, local and provincial levies and taxes, and other miscellaneous impositions of such nature.
What further compounds their frustration is that, most of the time, the government prolongs taking decisions and by the time pragmatic decisions are taken, these are too late and the birds have flown away to perch on lucrative trees.
The textile exporters are facing severe competition from the regional producers because of a non-level playing field. Their governments, being more proactive, have been providing manifold incentives and benefits to them. The competition has an edge in the form of hidden subsidies, duty free import facilities, duty drawback schemes, lower wages and lower worker benefits, cheaper utilities, and subsidized interest rates. The government keeps on maintaining that subsidies are not on the economic agenda.
However, the regional competitors and their governments are in harmony when there is a need to subsidize the textile industry.
Moreover, the disadvantage which existing producers would have to face on account of subsidies to a competitor can be justified only if the target is national economic development. In other words, every economic subsidy to be fair and equitable will have to be fully focused towards the paramount objective of enhancing national economic development.
Image and perception of the country is a very debilitating factor for Pakistan’s exporters. The negative perceptions of extremism, terrorism, money laundering, political instability, and even the perceived fear that the nuclear strategic assets may fall into wrong hands, etc., have had a detrimental effect on the nation’s exports.
It is incumbent upon the private sector, especially the textile industry, to play its role in combating these external negative perceptions and prejudiced mindset. The government can assist in this respect by earmarking resources to project the country at all important international forums and in the global media.
The Made in Pakistan logo must be developed and placed on all products manufactured in Pakistan. All Chambers and Trade Associations must promote this on their websites, correspondence, and among their foreign contacts.
One burning question that is surprising is that foreign direct investment generally comes in energy, automotive, mining, or in service sectors, but very rarely is there inflow of FDI in the textile sector.
Is it because of the factors enumerated above or is it because FDI does not enter a highly competitive field? Or, is it because the textile industrialists themselves are not keen to attract FDI? To sum it up, considering the good, bad and ugly environment in textile sector, are the textile barons “rent seekers” or are they taking the accusations for being pro-active and fighting for their rights and, often, attaining their desired objectives? The response to this question will always be shrouded in ambiguity.
The textile sector can ward off such accusations by becoming united, by enhancing exports, by offering more employment, and by improving productivity, efficiency, and workers welfare. As American mobster, Anthony “Fat Tony” Salerno once said, “Rent seeking is like being forced to pay protection money to the Mafia without getting the economic benefits of protection”.
Copyright Business Recorder, 2023
The writer is anindustrialist. His address on ‘X’ is @MajydAziz
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