23 July, 2014 / Ramazan 24, 1435

From Pakistan to Bangladesh

Published Aug 30, 2011 09:06am

Over the past three years, manufacturers have faced numerous obstacles to smooth operations and profitability due to power shortages, security issues, and widespread corruption. - File photo

FAISALABAD: Tauseef Salamat, the owner of a Pakistani textile mill, grinned ruefully as he read a text message that reminded him to turn off the plant's natural gas supply for three days under a government programme to ration scarce energy resources or face a penalty.

These are tough times for Pakistan's once-thriving textiles industry. The long-running energy crisis along with security concerns in a country plagued by militancy and political violence have taken a heavy toll. Now it faces a new threat: competition from Bangladesh.

"Bangladesh also has energy problems but, unlike us, they are managing it and managing it well," said Salamat, whose company, Tauseef Enterprises, has 3,000 employees in Pakistan. "The energy crisis has increased the cost of doing business in Pakistan."

Indeed, Salamat has already voted with his feet. His enterprise now has more than 800 workers some 2,000 km (1,250 miles) away in what used to be the eastern wing of Pakistan.

Bangladesh is making a strong play to lure Pakistani textile businesses to relocate or expand to Dhaka, which split from West Pakistan and gained independence in 1971 after a bloody civil war and Indian intervention.

Its advantages are clear: not only does it share a common culture and history with Pakistan, it has more investor-friendly policies, cheaper skilled labour and, crucially, tax-free access to 37 countries, including the European Union, Canada and Australia.

The movement of textile business from Pakistan to Bangladesh is also evidence of an emerging trend in labour and capital movement in a globalising world: first there was a shift from the West to rapidly developing economies, now transfers are happening between frontier markets.

"There is a third wave of globalisation into frontier markets," said Frederic Neumann, chief Asia economist at HSBC in Hong Kong. "As some emerging markets climb up the value-added ladder, frontier markets are increasingly finding a competitive niche."

WORRYING TREND

Pakistan's textile industry accounts for 38 percent of workers in the manufacturing sector and over half of its exports, which stood at nearly $25 billion (15.3 billion pounds) in fiscal 2010/11.

Textile exports rose 35 percent to $13.80 billion in 2010/11, but that was mainly because of high cotton prices which are expected to come off. Indeed, exports fell by about 15 percent in July, the first month of the 2011/12 fiscal year.

The country is also beset with a Taliban insurgency, gang violence and ethnic tensions, which are a drag on the economy and a deterrent for investors.

About 300 people were killed in political and ethnic violence in July alone in Karachi, the country's commercial hub and a major base for the textile industry.

"They are trying to come to our country because investment in Pakistan is too risky," said a Bangladesh commerce ministry official, speaking on condition of anonymity because he was not authorised to speak to journalists.

"Foreign buyers are reluctant to place orders in Pakistan due to security concerns."

The energy crisis in Pakistan is also a major hindrance.

"Work in factories is closed for three days a week due to gas load-shedding, because of which the industry is working at 30-40 percent of its capacity," said Wasim Latif, chairman of the Pakistan Textile Exporters Association.

Bangladesh has its own power problems, facing up to 2,000 MW of shortages because of a gas supply crisis that forced a cut in power plants' output and growing domestic demand stemming from economic growth that has averaged 6 percent in recent years.

But it is taking steps to address the energy shortage. The government is aiming to triple power generation to 15,000 MW over the next five years, with plans for as many as 89 power plants to be built on a fast-track basis.

Meanwhile, Pakistan - beset by crises on multiple fronts - is struggling to tackle its energy troubles.

The country is facing a gas shortfall of nearly 2.0 billion cubic feet per day. Total electricity demand in summer months outstrips supply by 22 percent -- or about 6,000 MW -- during peak hours.

According to the Asian Development Bank 2011 report released in April, energy deficits are lowering Pakistan's real growth by at least 2 percentage points annually.

"Although power sector deficiencies (in Bangladesh) are still prominent, it is likely to ease in the coming months. On the whole, textile manufacturers of Pakistan are looking for new homes because of the domestic problems affecting their business, and Bangladesh could provide them with a better home," said Mustafa K. Mujeri, director general of the Bangladesh Institute of Development Studies.

Bangladesh is also offering tax holidays of up to 10 years to foreign investors, as well as duty-free import of raw materials and repatriation of capital and profits.

Classified as a least-developed country, it enjoys duty-free export facility to 27 European Union countries, and 10 other developed countries, including Japan, Canada and Australia, under bilateral agreements.

Pakistan, on the other hand, faces higher tariffs in the EU and U.S. markets, putting its exports at a disadvantage. Pakistan has for years asked for access to the U.S. market, under the slogan "Trade, not Aid."

LOW LABOUR COST

It also has higher wages.

Bangladesh last year nearly doubled the minimum monthly wage for millions of workers in the garment industry to 3,000 taka (25 pounds), but pay is still low compared with those of competitors in China, India, Vietnam, Thailand and Cambodia.

Pakistan's minimum wage is much higher, at a government-set 7,000 rupees (49 pounds), and some factories pay even more, says Latif from the Pakistan Textile Exporters Association.

Low labour costs have helped Bangladesh join the global supply chain for low-end textiles and clothing, manufacturing garments for international brands such as JC Penney, Wal-Mart, H&M, Kohl's, Marks & Spencer and Carrefour.

"Obviously, the investment climate in Bangladesh is better as a result of attractive incentive packages earmarked for foreign investors, a better political climate, relative social stability, and a promise to ensure required infrastructures including electricity, said Mujeri, who is also the former chief economist of Bangladesh's central bank.

There is no official data illustrating the business migration, but interviews with a string of Pakistani executives revealed that at least five companies already have or will soon be setting up operations in Bangladesh.

Salamat's company opened two units in Dhaka about three years ago, and it is now in the process of setting up a third.

"Good business in Bangladesh has encouraged us to further expand our operations there. We are overbooked," said Salamat, whose firm produces products for brands such as Adidas and Nike.

Masood Textile Mills, a large knitwear exporting company, is setting up a sewing plant in Bangladesh.

"There is no sign of any large-scale movement, but people are being pushed," said Latif. "It is not a comfortable choice."

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Comments (2) (Closed)


ravi
Aug 31, 2011 10:02pm
Pakistanis need to band together and synergize all their resources and intellect in being 'pro-Pakistan', and you will see Pakistan become a great country. Else, everyone will leave Pakistan and Pakistan will continue to circle the drain.
Ekram Ul Haque
Sep 10, 2011 08:47pm
I do agree with Mr Ravi. Govt in pakistan must do something to build confidence among investors and enterprenuers. If a country has not got export how it will it survive. Then people of pakistan will be debt