Severe energy shortages and high cost of doing business, which have stalled fresh investment in manufacturing for some years, have now brought the country’s textile industry, particularly in Punjab, to a point where large-scale bankruptcies cannot be ruled out.

While the growing energy shortage has led to the closure of almost one-third of the country’s textile and clothing (T&C) manufacturing capacity and adversely affected its reputation as a credible supply source, its exports are becoming dearer than those from its regional rivals —China, Bangladesh and India — owing to rising energy, credit and labour costs.

The cut in output has also added to the cost of doing business. Although the recent decline in global oil prices has helped bring down domestic transportation prices, its impact on the industry’s overall cost of sales is minimal, claim exporters.

Excluding Pakistan, electricity prices in the region range between Rs7.3 and Rs9.2 a unit; interest rates are between 5pc and 8pc, and wages between $68 and $98 per month (except in China, where labour costs have gone up to $300).

The lack of fresh investment in new technology and capacity expansion since 2006-07 is fast eating into the country’s share in the global T&C trade. The World Trade Organisation’s regional T&C trade growth numbers for 2006-13 show that Pakistan may already have missed the opportunity offered to major textile producing nations from the elimination of the quota system.

The country’s share in the global T&C trade of $718bn has dropped from 2.2pc to 1.8pc, with exports from its regional rivals growing at a much rapid pace. Bangladesh has pushed its exports by 160pc to raise its share in the world market from 1.9pc to 3.3pc; China’s exports are up 97pc and its share went from 27pc to 40pc; and India’s foreign sales rose 94pc to take its share from 3.4 to 4.7pc.

Pakistan’s overseas T&C shipments during this period have surged by just 22pc against the overall growth of 45pc in the international T&C trade because its reputation as a credible supply source has suffered enormously on account of the energy crunch and security issues.

If the situation is not rectified and Punjab’s closed processing capacity not revived, the possibility of hundreds of thousands of jobs shifting from the province to Karachi cannot be ruled out — PRGMEA Chairman Ijaz Khokhar

“The Indian government is extending full financial support through substantial capital and interest rate subsidies and export rebates to its textile industry to woo $56bn in new investments in the T&C sector over the next five years to 2019. And we are struggling to revive our $3-4bn impaired capacity,” noted All Pakistan Textile Mills Association (Aptma) leader Gohar Ejaz.

“How can we be expected to compete with, for example, Bangladesh, whose textile exporters are getting electricity at less than half the price of Rs15 per unit that we are forced to pay to make up for the huge losses (2pc of GDP) caused by mismanagement of the power sector; where the policy rate is 5pc compared with our 9.5pc; where wages are almost half of what our workers are getting; and where their government is helping its exporters through subsidies?” he asked.

Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) Chairman Ijaz Khokhar argued that the energy crunch and the rising cost of doing business have hit small- and medium-sized apparel producers harder than the large exporters.

“We are losing export orders because of erratic energy supplies as our shipments are getting delayed. Many small and medium exporters are suffering huge losses because of loss of production and are on the brink of closures.”

According to him, the suspension of gas supplies to textile manufacturers, including the processing industry, in Punjab has also put them at a disadvantage vis-à-vis their counterparts in Karachi. “The textile business is shifting to Karachi from Punjab. If the situation is not rectified and Punjab’s closed processing capacity not revived, the possibility of hundreds of thousands of jobs shifting from here to Karachi cannot be ruled out. Nor will we be able to stop bankruptcies across the province,” he warned.

Aptma chairman S.M. Tanveer agrees. “The total energy cost differential for the textile industry in Punjab has increased to Rs150bn a year because of gas shortages for captive power in the province, which houses 70pc of the total T&C manufacturing capacity.”

He said while the Punjab-based industry is paying an average energy cost of Rs13 per unit, the manufacturers in Sindh and Khyber Pakhtunkhwa are producing gas-based captive power at Rs7 a unit. Punjab’s textile mills without gas connections are paying 130pc higher energy prices than their counterparts in other provinces.

As if the energy cost differential was not enough, he noted that massive production losses caused by erratic electricity supplies in Punjab are resulting in production losses and adding to their cost of doing business.

“We can revive our closed capacity of $3-4bn, attract investment of over $5bn in capacity expansion and value-addition, and double our T&C exports to $26bn in five years if the government ensures uninterrupted electricity supply to factories in Punjab at regionally affordable prices. On the other hand, if the industry is not brought out of the present crisis, the possibility of bankruptcies seen in the 1990s and even during the crisis of 2007-09 cannot be ruled out.”

Published in Dawn, Economic & Business, January 19th , 2015

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