TEXTILE INDUSTRY IN REAL CRISES
SHAMIM AHMED RIZVI
Feb 02 - 08, 2009
The Textile Industry the leading export oriented industry of the country seems to be on the verge of collapse. How serious is the situation can be judged from a statement of the Federal Textile Minister that around 340 textile mills have already been closed down during the last two years owing to various reasons ranging from high mark up, energy crises and incentives got by the regional competitors in Bangladesh, India and China. "I am taking the woes to Prime Minister with a request of an urgent and meaningful bailout package. If things did not work I would prefer to quit the Ministry," said the textile minister Rana Farooq Khan in a press conference.
The Chairman Pakistan Textile Exporters Association, Muhammad Yousaf, while addressing a press conference after participation in Heim Textile Exhibition in Frankfurt, Germany, lamented that textile export order worth $5billion were lost at the fair because of our uncompetitive prices. This has put in danger 60,000 jobs in Faisalabad alone. He observed that with ever increasing prices of raw materials, inputs and overhead expenses, high cost of production in the country is rendering our textile exports uncompetitive in the international market. Resultantly, our textile items were considered to be very costly by the foreign buyers at Heimtextil Fair. "Buyers visited our stalls at the exhibition, but refused to place orders in view of the exorbitant export prices," stated Yousaf. The buyers were also reluctant to place orders as they feared that drastic electricity and gas shortage would hamper production and Pakistani exporters would not be able to honor their export commitments on time, he said.
The PTEA chairman demanded that export oriented units be exempted from electricity and gas load shedding and the government should refund the duties and levies paid by exporters on raw material and inputs, in order to reduce the cost of doing business in the country. The government should also provide a level playing field to our exporters enabling them to compete successfully with their regional rivals in the international market, he added. The Federal Minister for Industries and Production, Mian Manzoor Ahmed Wattoo, while talking to a delegation of Lahore Chamber of Commerce and Industry admitted that higher interest rates and prolonged load shedding was badly affecting the industrial production.
He said that the government has the understanding that three big issues including electricity load shedding, gas shortage and high interest rates are hampering industrial growth. The government is working on these issues with a commitment and political will and hopefully by December 2009, the menace of electricity would be controlled, he added. He said that both the Prime Minister House and the President House were also monitoring the energy situation on daily basis. He said that both long-term and short-term policies were being evolved to ensure relief to the industry.
He said the interest rates, all over the world, are showing a declining trend. In USA the federal interest rate is at its ever-lowest benchmark of 1%. In the United Kingdom the interest rate is recently reduced by 0.5% and it is now at 1.5%. On the contrary, in Pakistan, the State Bank has increased the rate of mark-up up-to 15% and banks are charging a little less than 20% that is perhaps the highest mark-up rate in the world. He urged the Federal Minister to take solid measures to resolve these frightening issues instead of extending consolations and promises. He said that the government was making utmost efforts to handle the grave economic situation but what was required for fruitful and successful outcome was the immediate execution of whatever the government was planning. The package announced by the State Bank of Pakistan to bail out the industrial sector has been termed as a cruel joke by the industrialists. Exporters have termed the State Bank's directive for a moratorium on repayment of principle amount of long-term project loans a 'joke' as actual problems faced by them are high interest rates, inflation and energy and power shortages. According to reports almost one-third of the textile industry and a large number of engineering units have already defaulted on loan repayments due to the high cost caused by very high interest rates and inflation and low productivity due to shortage of electricity and natural gas. These units would not qualify for deferment of the principle amount.
For other mills, several banks had already offered this facility. In fact, industry circles point out that several banks had offered a two-year deferment of principle amount to them if they remained update on interest payment. The export sector, particularly textile units, was expecting a meaningful relief from the government to reduce their cost of doing business. They were in fact promised immediate relief by the federal government based on the presentation they made to the adviser to prime minister on finance. The finance adviser had acknowledged the difficulties faced by the textile sector and assured immediate relief. Former chairman All Pakistan Textile Mills Association Abid Farooq said that it seems that the rulers have lost touch with reality. He said the textile industry or for that matter the entire manufacturing sector of the country is in deep trouble not because of any inefficiency on their part but due to flawed government policy compounded by the current global recession. He said the manufacturing sector needs a comprehensive relief package that assures them finances at reasonable rates as available to the exporters in competing economies.
He said they need 24-hour uninterrupted power and energy supply at reasonable rates. The industries need market access to large importing economies that has been denied due to terror threat and poor law and order in the country. Most importantly the textile sector he added needs cotton its basic raw material at competitive rates. Chairman APTMA Tariq Mehmood said the financial woes of the industry would not be resolved by the deferment of principle amount for one year. He said government needs to address all other issues relating to high interest rates, shortage and high cost of energy and power in one go to provide meaningful relief to the textile sector. He said despite enormous increase in other costs like financial, energy and power costs cotton accounts for over 75 per cent of the total cost of the spinning sector. He said in mid 90's the cost of cotton in yarn production was only 55 per cent. He said 15 years back Pakistan was self sufficient in cotton, today he added the spinners spent $1.3 billion on cotton imports as the local production is less than its demand. He said spinners unnecessarily pay Rs250 per mound logistic cost for import of cotton. The ginners continued to increase the rate of locally ginned cotton to import parity level, he added.
According to the sources textile ministry is working on national textile policy and recommendations on the draft policy have been invited from all stakeholders to give this very important document final shape at the earliest. The Federal Minister assured the business community that he had already taken up the issues of textile industry to the concerned authorities and was initiating various revolutionary steps in ministry of textile to ensure its very dynamic role in economic prosperity of the country. He said he was pursuing Federal Ministry of Finance and State Bank of Pakistan to pay Research and Development claims of textile exporters amounting around Rupees 10 billion as soon as possible. "We want to make textile Ministry a strong force to bring revolution in textile sector which is the main contributor to foreign exchange earnings of the country," he asserted adding that the last Government did nothing on the ground but creating textile ministry on papers.
He said President Asif Ali Zardari and Prime Minister Yousuf Raza Gilani also are very much alive to and concerned over the problems/irritants facing the vital industry of textile i.e. high electricity and gas tariffs and their short supplies, high bank mark ups and wanted their earliest solution for its bailout. He said that he would be striving with all sincerity and seriousness for boosting textile industry, the very potential economic sector of the country.