LIKE scores of major business groups that didn’t exist on the economic landscape of Pakistan or were insignificantly small players, Mian Mohammad Latif owes his success to the nationalisation of commercial banks in 1974.
“The Bhutto government’s takeover of banks freed credit from the clutches of a few, put it in the hands of a much wider number [of smaller businessmen] and created a new class of industrialists in the country,” the chief executive officer of Chenab Limited argued in an interview with Dawn at his factory in Faisalabad.
“What we — the bureaucrats, politicians and businessmen — did to the nationalised banks later on is another story for another time,” he said as he named a few big names who might not be significant players today if Bhutto had not wrested control of banks from private owners.
In the late 1960s, Dr Mahbub ul Haq had identified 22 families which dominated the financial and economic life of the country through their control of 66pc of industrial assets and 87pc of banking.
Various studies on the impact of nationalisation, and later privatisation, of commercial banks insist that the banks ‘generally ignored their role to promote social justice and had failed to ensure a wider and more equitable distribution of credit’.
The mismanagement and misuse of nationalised banks in the following years created strong demand for giving them back into private hands. The process set off by the first government of Prime Minister Nawaz Sharif in the early 1990s is expected to be completed in his present tenure.
Banks that had helped Mian Latif, son of a grain merchant in Toba Tek Singh, grow to become one of the top exporters of high-end home textiles and garments to major American and European stores are now stalling revival of his factories.
His family had ventured into the industry in the 1960s when his father first rented and then purchased a ginning factory in Toba Tek Singh. Bhutto nationalised the ginning business, but spared the oil factory. There was no use keeping the oil factory with ginning gone.
With the oil mill sold, he set up the first processing unit in the mid 1970s and continued to work for exporters and for domestic market for another 10 years. The business continued to expand and he continued to invest in expansion and new machinery, in spite of the tough business conditions created by Bhutto’s hanging and the Iranian revolution.
In the mid 1980s, he sent his first export shipment to Europe because ‘recovering money’ from local buyers had become a major problem for him.
In the years that followed, he expanded into garments and retail. By 1998, he had become a major home textile exporter — without any bank liability outstanding against his companies.
In the early 2000s, when credit rates were low, the removal of textile quotas was to open up new opportunities for textile exporters from 2005, and the West was inclined to provide preferential treatment to Pakistani exports because of Islamabad’s role in the war on terror. So, he decided to invest further in new machinery to cater to the requirements of American stores, as a major chunk of his business shifted from Europe to beyond the Atlantic.
In 2006-07, Mian Latif’s exports surged to $160m — 70pc of it going to US stores and 20pc to European brands. And with the kind of investments in state-of-the-art machinery he had made or planned to make, he expected his sales to shoot up to $300m by 2010.
But long before he could get there, several domestic conditions — popular anti-Musharraf protests, Benazir Bhutto’s assassination and rioting in Sindh, terrorism, gas and electricity shortages for industry etc — together impacted his journey. Shipments were delayed. Initially, he tried to airlift shipments to save his contracts, even if it meant paying a lot more on freight. But this could not be sustained for long.
Besides, the recession in the US, where he had leveraged his three quarters of sales, hit sales of high-end textile products. On top of that, his creditor banks began squeezing his financing limits.
“Finally, I gave in and stopped exporting in 2010,” he said. Half of his over 15,000 employees lost their jobs, and his multi-billion investment in factories is rusting. “Only our garment business is operating at the moment.”
Recently, a part of his weaving and processing capacity was rented out to another major group, Sapphire. “This arrangement is letting me keep my machines operative, turn by turn, and pay off my outstanding bills and bank loans,” Mian Latif added. Two banks have rescheduled his loans and the remaining four are expected to follow.
“I hope that I will be able to get the loans rescheduled and come back into business. But that is no solution. We require a law that should help other closed industries get their loans rescheduled as well, to revive their production and exports. If it is done, we can increase textile exports by $1b right away,” he concluded.
But with banks now being run by private owners, the possibility of the government interceding on behalf of borrowers is near zero, even it means protecting thousands of jobs, reviving large idle production capacities and saving investments and exports to the tune of billions of rupees.
(This is the second in a series of articles on Faisalabad’s economy)