EXPORT INDUSTRY RUNNING OUT OF ORDERS
Jan 26 - Feb 01, 2009
Political turmoil, extremism, conflicts with neighbouring country, ever increasing level of corruption, deteriorating law and order situation, acute shortage of electricity have been the endemic challenges in Pakistan but things have particularly deteriorated since last year.
The morbid effects of these factors are not limited only to the lower stratum of society but well-off business class has also profoundly been affected. Inflation level is touching new heights and increasing number of people are getting unemployed.
When every single person seems to be affected by the grim national condition, export industry is also bearing the brunt of upheavals. The deteriorating image of Pakistan in the world incited already apprehensive importers of Pakistani products to switch their sourcing to neighbouring China, India and Bangladesh. For international buyers operating in developed parts of the world, supply chain management is of enormous importance that generates a cutting edge over the competing businesses. As businesses are getting highly competitive in the global landscape, they need to have very accurate sales forecasts in place and accordingly they need timely deliveries from the importing country.
As the cost of warehousing in developed countries, especially in USA and Europe, is considerably high importers don't afford to maintain massive inventories. The only option they are left with is to outsource from reliable suppliers operating in politically stable places which can ensure in-time deliveries at any cost. So many large importers have shifted at least part of their sourcing, if not full, to other countries.
Bomb blasts and other terrorist activities are reinforcing the buyers' pessimism about doing business in Pakistan. Even disturbances in a neighbouring country or rest of the world have fallout for Pakistan due to the trail effects of militancy, thus causing harm to local exports. Some months ago, many Pakistani exporters were trying to convince their customers that disorder is going on in North West Frontier Province only as it has a border with Afghanistan. However, after the suicide attack on Marriott Hotel in the heart of Pakistan's capital Islamabad, this argument lost its meaning. Another consequence of the Marriot blast was that business visitors refused to visit Pakistan on the ground that even five star hotels are not safe in Pakistan so they could not risk their lives.
It is important to mention that many import or sourcing managers pay a number of visits to the manufacturing facilities in exporting countries to ensure, at early stage, that the manufacturing complies with the buyer's standards. No body is ready to visit Pakistan now; rather many business visitors cancelled their already confirmed appointments in Pakistan after the Marriott blast. Unfortunately, the impossibility of their visits has added its part to make things worst for the export industry.
Scheduled and unscheduled electricity load shedding has made it impossible for the manufacturers of export-oriented products to meet orders in time. Some of the manufacturers have tried to cope with the situation by having petrol-based electricity generators. However, besides high capital costs associated with the installation of electricity generators, the fuel and operating costs are also very high that push cost of production up. Other small and medium sized exporters may not afford such costly alternatives and resultantly they are losing business by not meeting the time commitments with their customers. It is pertinent to mention that majority of companies in export related industries like textile, leather garments, rice processing, sports goods and surgical, etc. fall under the small and medium enterprises (SMEs) category. According to the Asian Development Bank there are approximately 2.3 million SMEs operating in Pakistan. These small companies may not have enough resources to develop backups for electricity load-shedding.
And that is not all. There are still more challenges to deal with. One of the emerging problems exporters are facing is slow down of the global economy that is spawning multiplier effects. Many people argue that global credit crunch would not have much impact on Pakistani economy as there might not be a big change on supply and demand of the credit in Pakistan. They argue that in Pakistan most of the people are living in their self-owned or rented houses. There are very few people who are living in mortgaged houses. Even government established an exclusive institution--House Building Finance Corporation--several years back to promote loans for houses, however so far it has not become a widespread mode of getting a house. Not only in USA where this global credit crunch originated from inability of mortgagees to pay their mortgages but also in other countries financial crisis is largely related with mortgaged housing sector.
Secondly, although many banks and credit card companies have grown phenomenally in recent years, still large majority of people don't opt for credit cards or consumer financing considering it to be forbidden by the religion. So because of these factors, the effects of the imbalance in credit availability might not be same in Pakistan as in other parts of the world. However, looking at the other side of the picture, we would notice that many of our industries are tied up with international businesses. Many large multinational chains stores and banks are anticipating losses in the coming year because of slow economic activity. That means they would be able to sell diminished number of products in this recessionary period and obviously their purchases from manufacturing countries like Pakistan would decrease. That might lead to a severe consequences for export depended sectors. The policy makers in Pakistan must take drastic measures immediately instead of letting the problems to pester anymore.
(The author is a Ph.D Scholar in Management in University of Sheffield, UK)