KHAWAJA Imtiaz Hussain didn’t have much of a choice when the government stopped the supply of gas to the entire industry in Punjab — excluding textile factories — for three months from the middle of November.

“I had the option to either shut down my factory or switch over to five-times more expensive fuel — liquefied natural gas (LPG) — and suffer losses. I decided to shut down the plant until the gas supply is resumed,” the owner of a small ceramics sanitary-ware manufacturing unit in Gujranwala told Dawn last week.

“I could not run the plant for more than five days a month even if I had switched to LPG because of cash-flow problems.”

Most of around 100 small ceramics units in Gujranwala have been closed, claimed Khawaja Zarar Kalim, a former president of the Gujranwala Chamber of Commerce and Industry. “The majority of the foundries and aluminium kitchenware manufacturing plants in the city have been shut down, and others are using much more expensive fuels to operate their machines.”

It is difficult to estimate the exact number of jobs lost owing to the unavailability of gas to small- and medium-sized manufacturers, because a majority of the small and medium enterprises (SMEs) operate on the fringes of the formal, documented economy to avoid stringent government regulations and unaffordable taxes.

“Over the last few years, I have been observing a growing trend of people entering trade, instead of investing in the production process because of erratic energy supplies and the rising cost of doing business,” said a senior Smeda official

“The number of workers who will be out of a job for the next three months must be significantly high. When a factory-owner temporarily shuts down his plant, he retains the services of a few employees, halves the salaries of the others, and retrenches daily wagers and contract workers,” said Khawaja Zarar.

The persisting energy shortage and rising cost of doing business on the back of spiralling electricity and gas prices have hit the manufacturing SMEs in Punjab hard, leading to substantial cut in production, closure and loss in exports over the last one year or so.

“The survival for SMEs already struggling in an unfriendly regulatory and business environment has become even more difficult because of the sharp increase in their cost of production,” Khawaja Zarar argued.

Small and Medium Enterprises Development Authority (Smeda) Chairman Mohammad Alamgir Chaudhry said the increasing cost of doing business, gas supply cut-off and uncertain electricity supply have impacted manufacturing SMEs differently.

“SMEs that are heavily dependent on machines or use gas as a raw material have suffered the most. Foundries, for example, have closed down due to unavailability of gas,” he said. But he did not agree that the higher production cost and erratic energy supplies had put many SMEs out of business.

The government agencies estimate that SMEs constitute around 90pc of the 3.2m private enterprises in the industrial, services and trade sectors, and employ around 70pc of the non-agriculture labour force. These enterprises also contribute over 30pc to GDP and 25pc to the country’s total export earnings. Their share in the value-added manufacturing is estimated at 35pc.

“Over the last few years, I have been observing a growing trend of people entering trade, instead of investing in the production process because of erratic energy supplies and the

rising cost of doing business,” said a senior Smeda official who asked not to be named.

He believed that the government must help manufacturing SMEs keep their costs down and provide electricity and gas to them on a ‘preferential’ basis because of their ability to create jobs and reduce poverty.

Khawaja Imtiaz Hussain says the cost of doing business for manufacturing SMEs has gone up by almost 20pc over the last one year. “Higher electricity and gas prices and erratic power supplies force us to run generators on expensive fuels.”

He said the increase in the cost of production meant a reduction in margins, because it was not easy for small manufacturers to immediately pass on the impact of their rising cost of production to buyers or consumers.

Fazal Jilani, a manufacturer of surgical instruments and president of the Sialkot Chamber of Commerce and Industry, pointed out that the high cost of energy and uncertain electricity supply had not only impacted the cost-competitiveness of SMEs in the export business, but also pushed them closer to the brink. “We may still be in business, but our survival is at stake because of the government’s energy policies, or, perhaps, the lack of them,” he said.

Published in Dawn, Economic & Business, December 1st , 2014