Pakistan's textile industry goes on war path, as exports shrink
Pakistan's exports of textiles have declined form $13.5 billion in FY-14 to $10.5 billion in FY-17.
Pakistan's biggest industry, labour employer and dollar earner, has gone on warpath as production and exports shrink.
On a call of the industry leader, All Pakistan Textile Mills Association (Aptma) all textile mills observed "Black Day, on June 20. The mill owners, managements and worker protested in front of their mills and, put on anti-government slogans at their premises. It was carried out peacefully in all major industry centre across Pakistan, including Karachi, Lahore, Multan, Faisalabad and Peshawar. They displayed banners, and slogans, against the "anti-industry, anti-investment, and anti-export policies of the government." They resolved "to continue their agitation for restoration of the viability of the textile industry."
The annual exports of textiles have declined form $13.5 billion in FY-14 to $10.5 billion in FY-17. It, and may go down further on the back of the growing foreign competition from China and India, as well as from such new comers as Vietnam, and non-cotton-growing Bangladesh.
The domestic reasons which led to "virtual disintegration of the textile industry," over the years, as experts and industry analysts say included: High cost of doing business, growing tax burden, expensive bank credit, high cost of electricity and natural gas, use of old machinery, lack of installing modern machinery and use of new technology.
Textiles, and four other top exports - carpets, leather products, surgical apparatus and sports goods - industries which are the biggest producers, exporters ad dollar-earners, were granted a huge Rs180 billion subsidy and bailout package by Prime Minister Nawaz Sharif in November last to raise production and exports.
But, beset by an ever-growing budgetary deficit, declining tax collections, growing government's increasing borrowing from banks at home and abroad, large repayments of foreign credits and no-cash-in-hand, Finance Minister Ishaq Dar is virtually holding up the disbursement of the Rs180 billion bailout package. It was to be dispersed to the industry over 18 months, at the rate of Rs10bn a month.
The textile exports, coupled with nearly $19 billion annual remittances sent home by overseas Pakistani workers plus $20 billion annual exports in FY-17 are the only two dollar earners. Pakistan direly needs to enlarge these inflows, to pay for $50 imports, as in FY-17. Pakistan's current account deficit is widening. It hit the all-time high of $32 billion in FY-17. The government's lack of response to the industry's demands circles around the cash-starved government's budgetary decisions to raise taxes and its refusal to repay the promised tax refunds.
The industry on paper has given the industry a number of tax concessions but the government has created a time-wasting system under which the producers and the exporters of textiles first pay all their sales and other taxes when they purchase, from the market, various inputs for any product. The producers and exporters then get the official certification of the State Bank of Pakistan (SBP), central bank, confirmation that the relevant goods have actually been exported, and payment for these exports has been received from abroad in foreign exchange. These repayable amounts to the exporters are called Tax Refunds. Aptma says the ministry of finance is illegally holding up repayment of tax refunds totalling Rs200 billion to the industry for no reason. But, Dar says the reason is "the government has no cash to repay Rs200 billion."
Aptma's former chairman Yasin Siddik, says: "Out of the Rs180 billion bailout plan, only Rs400 million have been returned to the industry. For disbursement over the next 18 months, only Rs4 billion has been provided in the budget for FY-18."
It means the finance ministry itself has killed the bailout package.
Syed Ali Ahsan, Aptma president for Punjab announced at a news conference: "We will hold a convention of all associations of the textile industry in Islamabad on July 7 to "discuss the problems include the falling exports, closure of textile mills and job retrenchment. We will also stage a protest in font of the Parliament of Pakistan to press for meeting our demands."
He also said: "The government is not serious in solving our problems. One hundred (rpt 100) mills have already been closed down so for. If the government fails to redress our problems, the remaining mills will also be shut down."
Aptma group leader Gohar Ejaz demanded "an immediate reduction in electricity and natural gas tariff. The energy tariff is 10 per cent higher in Pakistan than in the countries competing against us. They include China, India, Bangladesh and Vietnam.
Ahmed Kamal, chief of Pakistan Textile Exporters Association (PTEA), is of the view, due to "the ongoing crisis 30pc processing industry have already closed down, and more than 10,000 workers have lost their jobs. This has resulted from the ongoing liquidity crunch, caused by to non-disbursement of our Rs200bn Withholding Tax. Textile exporters have been deprived of liquidity as 30pc to 40pc of their working capital has been blocked in the tax refund cycle."
While the government stays mum, this being the current state of Pakistan's biggest industry - textiles - what does the future holds for it?
The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.