Why not green shadow for our textile sector

Why not green shadow for our textile sector



Sunday, April 19, 2009
By Aamir Butt

The textile sector provides 58 per cent of our total exports and about 40 per cent of industrial employment. Pakistan is also known to be the fourth largest cotton grower in the world. People abroad and at home have repeatedly reiterated that Pakistan has great potential for rapid growth in textiles, but there are major obstructions that hamper our exports.

There are several ways to remove these obstructions, starting off by working towards changing our pessimistic opinion. The government should invite presidents, senior management or/and decision-makers from big stores and multinational companies such as Kohls, Wal-Mart, JC Penney, Target and K-Mart as state guests of Pakistan. This will not only allow our visitors to experience our beautiful culture, our breath-taking sites, our memorable and remarkable Islamic hospitality but also our enlightened society. We should also start producing documentaries about our heritage, culture and potential market for investment.

The Trade Development Authority of Pakistan (TDAP) also has recently taken a positive step by inviting a Russian delegation to Pakistan to look into business prospects and has also lined up investors, large companies, small and medium enterprises and traders from Pakistan to visit Russia at government expenditure, to study their market and develop business relationship with their business communities and industries.

A stable law and order in the country would automatically benefit the economy through repatriates investing in industries and expatriates travelling with a peace of mind while visiting Pakistan. The TDAP, the Pakistan Tourism Development Corporation and the Board of Investment can suggest ways of improving our visa policies, immigration procedures, entertainment or social clubs, excursion trips, hotels, events, etc for visitors whether they are visiting Pakistan for the purpose of investing, setting up factories, placing orders or as tourists.

The world market is growing fast and the regional market as well, while the government’s policies are not yet in line with the trend of these markets, which is likely to push the country’s exports further down. Making our export and industrial policies more consistent and realistic will allow us to be more relaxed and focused towards our endeavours and also attract foreign investors. The industry suggests that an effective committee be formed of like-minded and well-versed entrepreneurs from the industries concerned, and their consent be taken into consideration while approving a law or a policy.

The Export-Oriented Unit was introduced by the customs for the exporters to enjoy duty drawbacks, but that policy never moved on to the execution stage. Duty & Taxes Remission for Export (DTRE) by the sales tax department is being exercised through fast track system again for exporters to enjoy the duty and taxes drawback on imports, but the system is so cumbersome that by the time all the formalities are met, the re-export date is already in jeopardy, resulting in cancellation of orders or heavy penalties in the form of pre-paid air shipments and discounts by the customers.

Now our exposure is limited in terms of certain countries, that is, the USA, the UK, Germany, Canada, the UAE, etc that we export to. The ministry of textiles and the TDAP should make inroads into the untapped markets and countries which have a great potential to expand into.

This can easily be done by taking up the task of promoting and encouraging entrepreneurs and industrialists to exhibit their products in different parts of the world by subsidising the booths and overall package.

Seminars need to be conducted by the TDAP, the ministry of textiles and the Small Medium Enterprise Development Authority (SMEDA) to tutor our entrepreneurs’ mindset to present themselves, their companies and, most importantly, their products in a professional and creative manner to adapt to the interest of the buyers on an international platform and worldwide bazaar.

A training ground for administration and human resource managers can be set up with the help of our associations who are managing institutes, eg, the Pakistan Hosiery Manufacturing Association (PHMA) supervises and administers the Institute of Knitwear Technology Karachi (IKTK), to create a knowledge base study on social and environmental compliances and certificates like Documentation (ISO-9000), Social Compliances (SA-8000), Environment (ISO-14000), Worldwide Responsible Apparel Product (WRAP) and Customs Trade Partnership Against Terrorism (CTPAT).

The Achilles’ heel for the textile sector has forever been the irregular and recurrent increases in the rates of power and gas, low availability of water, power shortage, breakdowns in the systems, the dreadful conditions of industrial estates, broken roads and overflowing sewerage lines.

Plots in industrial estates, industrial zones and industrial corridors have been manipulated, speculated and sold at exorbitant prices increasing the duration of Return on Investment. These plots should ethically be sold to legitimate industrialists and businessmen on rational prices and rights to be on non-transferable basis to do away with real estate vultures, speculators and investors.

Nooriabad was another promised land, where many industries were evolved, foreign investors were introduced, and external economies of scales were in process, but to investors’ disdain, became a nightmare. The owners literally handed over the land, building and premises to land grabbers, kidnappers, blackmailers and mafia and re-routed themselves to more expensive properties or transferred their business and funds abroad.

A country like China gained a market share in all major developed import markets despite restrictions introduced in 2005 along with India, Sri Lanka and Bangladesh.

Some smaller suppliers such as Egypt, Morocco and Cambodia that have also expanded their textiles and clothing exports even faster than China and the share of least-developed countries in imports of the US and the EU. China has once again given some more subsidies to the textile sector to boost exports, eg, 13 per cent VAT refund to garment exporters. Bangladesh has the Market Access - EU/Canada GSP, they have backward integration, the labour cost is very low and there is financial support, eg, in local yarns is very aggressive. India has a five per cent interest rebate (TUF), capital subsidy, export duty drawback, 10 years’ tax holiday in SEZ/EOU, 4.5 per cent interest subsidy on pre/post shipment credit and government cluster promotion - SEZ/textile parks.

Textile City, Garment City and what not was announced few years back, but unfortunately, no deadlines were set for the project completion and operational date. Regrettably, even to this date no one is sure whether it will commence or not. In our line of trade, time is of the essence or else you miss the boat.

The five industrial estates of Karachi require effluent treatment plants so that environmental standards are complied with and also treated water is available for industrial consumption. The government must take the initiative and set up water desalination plants on a right of way basis, as the upcoming supply of water to Karachi would continue to have depressing consequences.

We have to realise that the time has come that we the textile manufacturers need to be on a par with our competitors by getting all the taxes, surcharges and levies abolished of the federal, provisional and local governments, cheap and easy bank loans, less expensive, subsidised and an even supply of utilities to permit us to be more cost effective and economical. We also need to forget about Employees Old Age Benefit, Sindh Employees Social Security Institution, Education Cess and Workers’ Welfare Fund.

We unfortunately have not been able to take the depreciation of our currency to our advantage due to the high cost of production and high duties paid by our customers. Zero-Rated Duty Status is the need of the hour, which will help us to compete with countries like Bangladesh and India.

The government must realise that if big buyers like Wal-Mart, J C Penney, K-Mart, Kohls and Target choose not to buy from Pakistan, then there is something wrong in our policies that are turning them away.

The Government of Pakistan has taken a bold step in inviting international consultants like BFZ to train our textile associations to work towards a focused direction and set goals and benchmarks to increase members and provide efficient and effective services.

The Government of Pakistan has continuously announced schemes whereby local brands can establish outlets outside Pakistan for which 50 per cent investment will be borne by the government.

The State Bank of Pakistan (SBP) can streamline the flow in a more professional environment by having long-term and realistic policies for manufacturers and exporters. The country needs to be on a par with our competitor countries therefore subsidies/incentives should be similar.

With the efforts and recommendations of all the associations and the ministry of textile, the ministry of finance has finally allocated Rs4 billion and has advised the SBP to disburse 40 per cent of R&D claims of exporters of shipments up to June 30, 2008. The SBP vide Circular No FEOD/6866/R&DS-103-09 dtd 26 Feb has asked all banks to submit all claims by 26th March 2009. They should also disburse the 90 days’ time bar cases which have also been pending for years.

Refinance taken from SBP is for the purpose of doubling exports in the coming year with a subsidised rate of 6-7.5 per cent on the basis of performance. As we all know that with the uncertainty in international marketing, industrialist unfortunately have not been able to achieve their yearly targets of export, resulting in bearing penalties and subsidised rates being converted to commercial lending rates, burdening the industry further more towards closure. The government can compensate exporters by giving them extensions.

There is a major recession the world over and especially in the USA, companies are going towards bankruptcies (chapter 11 & chapter 7) and default in payments, our government needs to support our exporters in recovering the payment from the international markets whether it be through credit analysis, credit rating, factoring or by the help of international courts. The Pakistan Export Finance Guarantee (PEFG) was giving an umbrella to exporters in pre-shipment or post- shipment basis, but due to lack of funds is not operational in lending. The government can revive this department so that the exporters can be secured.

The writer is a manufacturer & exporter of knitted fabrics and garments.