A majority of home textiles producers from Faisalabad are in trouble. A combination of global and domestic developments has compelled some to shut their shop and others to significantly cut their production, as overseas shipments of most home textiles has continued to slump over the last one year.
Globally, depreciation of the euro and the crisis in the eurozone, as well as the fall in international cotton prices have adversely affected Pakistan’s export of home textiles and finished fabrics.
Domestically, the exporters have run up large losses owing to the rupee’s revaluation and the higher-than-regional energy prices and their shortage.
“The trouble began a year ago when the government forced the rupee to appreciate and cotton prices fell, causing massive inventory losses for the manufacturers,” noted Sheikh Ilyas Mahmood, the chief executive officer of Dawood Exports, during a visit to his factory in Faisalabad last week.
“The crisis in the Baltic region on the back of the Russia-Ukraine face-off and the decline in the value of major currencies, particularly the euro, has further compounded the industry’s woes.”
‘You cannot change the global market fundamentals, but you can remove the domestic impediments to production’
A manufacturer and exporter of textile fabrics and made-ups, Mahmood expects exports of home textiles to further decline this year in terms of both their dollar value and quantity.
This is the second time in seven years that home textiles manufacturers from Faisalabad are in the midst of a crisis.
In 2008, several large, debt-laden producers went bankrupt and thousands of jobs were lost because of weakened demand, especially of high-end products, following the global financial crisis.
“At least half of the home textile production capacity in Faisalabad has closed down and the other half is in soup,” says Mahmood.
‘The government owes the textile industry Rs67bn: almost Rs45bn in tax refunds and Rs22bn on account of unpaid cash subsidies announced in the previous textile policy. This amount is almost one-quarter of our working capital’
“If the crisis in Europe lingers and we don’t get enough business in the next couple of months for their winter requirements, many more factories could face bankruptcies,” the former chairman of the Pakistan Textile Exporters Association (PTEA) warned.
Most manufacturers say the industry cannot pull itself out of the current situation without cooperation from the government.
“There are many ways that the government can help the industry. You cannot change the international market fundamentals, but you can remove the domestic impediments to production and force down production costs,” Mahmood emphasised.
“[The government] should cut power prices to the regional average of Rs8 per unit from the present Rs12 and provide cash subsidy to exporters to keep their cost of production down and help them stay competitive in the international markets,” he said.
“Ever since Pakistan received GSP Plus-related trade concessions from the European Union, India has announced several incentives and cash subsidies for its textile manufacturers to undercut Pakistan’s exports to the EU market.”
Mahmood said the textile industry could not survive anywhere without help from the government.
“Almost every textile producing country is incentivising its industry because of the sector’s potential to create jobs and earn foreign exchange. No government uses this industry to collect taxes or generate revenues,” he concluded.
PTEA chairman Sohail Pasha concurred with his predecessor’s view and pointed out that instead of helping the industry survive through the current difficult times, the government is creating difficulties for the exporters by withholding their tax and other refunds.
“The government owes the textile industry Rs67bn: almost Rs45bn in tax refunds and Rs22bn on account of unpaid cash subsidies announced in the previous textile policy. This amount is almost one-quarter of our working capital. How can we survive and compete with our rivals in the global markets,” he asked.
Pasha, whose own overseas shipments have fallen to one-third of their peak, warned of further decline in textile exports if the government did not take action to help it reduce its cost of doing business by reducing energy prices, providing cash export rebates and paying their refund claims.
He claimed that the businessmen had continued investing in their operations — although at a much slower pace than before the global financial crisis and domestic energy shortages — and even under the previous Pakistan Peoples Party government.
“The previous government didn’t stop the payment of cash subsidies that it had promised in the textile policy and gave preference to the industry when it came to rationing gas and electricity,” Pasha recalled.
However, like many other businessmen, he felt that the “fundamentals totally changed since the Pakistan Muslim League-Nawaz returned to power”.
The manufacturers are reluctant to invest their money given the uncertain energy outlook for the industry and the government’s reluctance to pay their tax and other refund arrears.
“We cannot make commitments with foreign customers even if they return to Pakistan with their orders.
“An uncertain energy outlook and the liquidity crunch caused by the delay in the release of our refunds do not let us make any commitment with our customers,” the chief executive of Riaz Enterprise said.
Published in Dawn, Economic & Business, March 30th , 2015