LAHORE, Nov 17: The textile industry — from spinning and weaving to value-added garments and made-ups and home textile units — has begun downsizing workforce to save the costs as textile and garments exports fell by 10.42pc in 1QFY07 to $2.459bn from $2.746bn in 1QFY06.
“The industry is laying off part of its workforce from skilled and semi-skilled labour to junior and mid-career marketing and sales executives to cut the costs and reduce their losses in order to stay afloat till the business conditions improve and they begin receiving fresh orders,” says a knitwear exporter who recently shut down his operations to avoid further losses.
“Most knitwear units have slashed production and workforce to save costs in a bid to survive through the current patch. Others have been forced to close down, failing to sustain the huge losses,” says leading knitwear exporter Babar Agha. The knitwear exports fell 10 per cent in 1QFY07.
Though no major readymade garments manufacturer is reported to have gone out of business, Prgmea former chairman Pervaiz Hanif feels that the woven garments exporters, who saw their exports dip by 7.84pc in 1QFY07, will not be able to hold for long against the current tide if the “succour doesn’t arrive well in time”. He, however, says some smaller units have already closed down as they are not getting fresh orders.
Spinners too are cutting their production as their yarn inventories pile up as a consequence of reduced take-up by the value added processing industry. “We guess that the spinners shall close down close to one million spindles in the next two years or less if the existing conditions in the domestic market persist for long. In fact many spinners have already trimmed down their production. Nobody can sustain losses for an indefinite period,” says Aptma spokesman Akber Sheikh.
“Same is the case with weavers who are downsizing their marketing, sales and other staff to save expense on them in the times when their sales are going down,” says Omar Saeed, a former marketing executive of a major weaving mill who was shown door a couple of months back along with several others from the sales and marketing section because the employer wanted to reduce his losses.
Although there is no means to know the exact number of job cuts in the textile industry, a report last week said that the textile industry, including manufacturers of value added textiles, has already thrown some 20,000 people out of job in Faisalabad alone because of unfavourable business conditions in the country and falling exports. “Just a few months back, this situation (closures and layoffs) were peculiar to the knitwear sector; now it is a norm in the entire textile industry,” says another top knitwear exporter M.I. Khurram.
The textile industry, which invested around $5.5 billion (half of this amount was invested in the spinning sector and the remainder in the value added sector) between 2001-05 to modernise and expand its capacity in the hope of substantially increasing its share in the world markets after removal of quota restrictions from January 2005, found itself in deep trouble when the central bank started to tighten monetary expansion by hiking the interest rates from early 2005.
The central bank tightened its monetary policy in a bid to curb inflation triggered by overheating of the economy as a consequence of all-time low interest rates as well as higher wheat and petroleum prices. In less than one year the price of export refinance shot up to around nine per cent from a mere three per cent in March 2005. The cost of long-term commercial and industrial credit went up from an average 4-5 per cent to upwards of 12 per cent, depending upon the bank and the borrower seeking financing.
“The central bank’s new stance did not help bring down inflation, but it certainly drove up our production cost and led scores of medium-sized export-oriented units to close down by making it quite difficult for them to compete in the international markets vis-à-vis India, China and Bangladesh. The situation has worsened to the extent that even the large-scale industries finding it difficult to survive in an extremely competitive international environment,” says another knitwear exporter.
“The textile exporters from Pakistan are facing a double edged sword, on the one hand our cost of production has increased exorbitantly due to high price bank finance and utilities and wages and on the other hand our competitors in China, India and Bangladesh are getting substantial subsidy from the government,” the exporters say.
This has made our textile exports very expensive. Compared to Bangladesh alone, our exports are 10-15 per cent more expensive. Why would a foreign buyer come to Pakistan if he can get the same product at a cheaper rate from other sources? We are not getting fresh orders. That is why our exports are falling, they added.
“If things don’t get worsen, the textile exports will be down 20 per cent or more by the close of this financial year,” says Khurram. He says the exporters do not see much hope for themselves in future, at least not in the near future. Though the government has taken a few measures like giving rebate to the value added sector in the form of R&D support (six per cent for the garments sector and five per cent for the home textile sector), reducing cost of refinance to 7.5 per cent (plus 1.5pc bank service charges) and allowing the manufacturers to swap their expensive loans obtained after 2003 in order to help them stay competitive in the international markets, these steps have so far not paid off.
“Only a few have been able to benefit from these incentives, if you call them so. Others, especially the medium and small sized units, just cannot avail of these measures,” says Hanif.
The government has already set up a committee to devise a strategy to steer the textile industry out of the prevailing crisis and recommend ways to make the exports competitive and sustainable. The committee is tasked to give its recommendations by the end of the year.
“Time factor is very important in the international trade. If you lose your contacts in the international markets once, you will have to work extremely hard to win them back. I don’t think that the government would implement the recommendations of the committee even if it completes its exercise within the stipulated time period,” exporters say.
The government, they added, will continue to drag its feet at least till the announcement of the budget for the next year. And we don’t yet know if it would agree to actually implement the committee’s recommendations at all. Even if it does, it will be too late for us. If the government wants to do anything for us, it has to be done right now.