'Need to become modernised to reduce labour intensiveness' - Director Fazal Industries (private) limited

Mian Waqas Masud is the Director of Fazal Industries (pvt) LTD, involved in the business of knitwear and cotton yarn. He is currently on the Board of NAVTTC and Chairman of TEVT Reform Committee of FPCCI.BR Research had an insightful discussion with the third-generation Fazal businessman on how the textile industry is crumbling and what brought it here. Below are edited transcripts of the interview.
BR Research: How modernised is the textile industry and what are some of the problems being faced in the industrial process?
Mian Waqas Masud: There's a shortage of skilled labour in Pakistan and we need to become modernised to reduce labour intensiveness, but for that we need to start right from the beginning, ie cotton picking. We're still doing century old handpicking. There are just two to three countries in the world that still do handpicking and we're one of them.
When cotton is picked, a general practice is that it is not offloaded immediately. Firstly, it is sprayed with water to increase the weight. Secondly, trash is added - rubber, plastic bottles, cigarette packs - it's all added with the cotton. This is the first step where the problem originates, and we cannot go to automation because the back-end process is so flawed.
BRR: Are cropping patterns an issue?
MWM: We've been doing our growing on the same belts. Over the years, this has reduced our yield. All over the world, alternate cropping patterns are adopted so the same crop doesn't grow on the same land again and again. Here, other than south Punjab and Sindh, we don't try anywhere else. Recently, efforts have been started in Baluchistan but that still hasn't started producing any significant results.
BRR: The government offered uninterrupted electricity to mills at 9 cents, but APTMA rejected. Why?
MWM: As of now, we're paying 12 cents. Yes, the government is offering us electricity at 9 cents, but then they'll close the gas in December.
All textile mills have in-house power generation. As of right now, no textile mill - existing or new - can run if it doesn't have in-house power generation. It's only recently that some areas are getting uninterrupted electricity - "uninterrupted" means 16 hours a day. And that too, is being given in such a way that during the time electricity is being given, the gas supply stops.
There's 12 to 16 hours load shedding and we have to generate electricity ourselves. We can't afford to close down, even for a day. Textile mills don't close on Eid even! There are three types of generation plants in textile mills - gas, coal, and diesel. This increases our cost further by around three times more.
Our job is to produce textile but at the same time the majority of our fund goes into stocking diesel and coal, as opposed to stocking cotton. Nowadays cotton is pretty low, so we should take advantage of this opportunity and stock up. But our liquid cash goes into diesel and coal procurement.
BRR: How much value addition is being done right now?
MWM: Almost 95 percent of the industry is non-value added. We always stuck to the basics and here I would blame the business community as well. We didn't live up to the true potential of value addition. We didn't set up dying plants or finishing plants.
Grey cloth - the raw form of fabric before dying - is being exported and the buyers are finishing it and branding it and selling it all over the world at much higher prices. Only a handful like NL, Gul Ahmed, and the Levi's-Crescent joint venture are exceptions.
Grey cloth - the least form of value addition, that's what we're doing. Denim is a decent prospect and its up and coming. But there, too, we're only exporting denim fabric. Denim jeans aren't being exported to their true potential.
BRR: Was it always like this?
MWM: There was a time when Pakistan was the largest exporter of knitwear - from 1985 to 2001/2. Unfortunately, there were multiple reasons behind the closure of that sector; it got entirely wiped out.
Firstly, 9/11 was a big factor. America was the largest buyer and it started losing interest, but the government didn't play any role.
Then came the lifting of the quota regime: Before 2000, the WTO allocated each country a quota for exporting a certain amount. Pakistan was number one. But the moment that quota was lifted, instead of doubling that quantity; we actually ended up falling below one third.
The GoP, being short on money as it always is, started auctioning off its quota for the sake of easy money. Commercial investors started getting involved and increased the price manifold. So the genuine exporters had to buy the quota at an exorbitantly high price to export their product. It was a prerequisite; along with your export documents, your quota was sort of a visa for your product.
I had to buy that quota and thus cash liquidity kept going into quota investment. When the quota was lifted, its value had evaporated. The banks then came knocking, asking for their money back. Because of that, the entire knitwear sector was wiped out from Pakistan.
If an entire sector closes down, there has to be something wrong with the policies of the government.
BRR: Why is there no focus on exploring non-traditional markets?
MWM: It's not that we can't capture non-traditional markets. Firstly, those markets are small. Secondly, you have to know someone in that market. I would need someone in the foreign mission to guide me.
The big importers have sourcing agents. If I don't know who the sourcing agents are for different products in different countries, how can I do it? It's the government's job, the commercial counsellors that are sitting there.
BRR: Granted, but then don't the chambers organise exhibitions and such?
MWM: Have you asked them what the output is? The stalls are tiny boutiques and handicraft stores where they sell their products and they've made a business out of it. That is what they're achieving. The motives have been to obtain foreign visas to Europe, America, England, and then sell the handicrafts, compensate for the ticket, and that's it.
Now, the TDAP's focus recently has been that no business that is not an exporter will be entertained on such exhibitions.
BRR: APTMA asked for long-term financing for spinning and ginning sector. Why?
MWM: Long-term financing is project financing. It's a massive investment; not less than Rs 1-2 billion. Its payback is 7 to 8 years. For the last couple of years, banks' non-performing loans have been increasing. Apart from a very few groups, banks are not extending their facilities.
As I mentioned earlier, textile machinery is running 24/7, 365 days a year. Its replacement is essential. It wears out and needs upgrading. This is a really big yearly investment in almost every spinning and ginning mill. It needs funding and for that banks have become very apprehensive, so we've asked for long-term financing for these two sectors. Interest rates are generally low these days, and it should be lower for export-related sector.