The blame game about cost of production

By Parvaiz Ishfaq Rana

http://epaper.dawn.com/ArticleText.aspx?article=09_07_2007_606_005

THE issue of cost of production in the textile industry has sparked a blamegame between policy makers and the industry leaders.
While the industry is lamenting high cost of inputs impacting adversely on cost of production, the government is accusing the manufacturers of inefficiency.
That explains why policy makers are giving a deaf ear to distress calls by textile industry at large. Perhaps, no one but the industry itself is to be blamed. “The industry has been shouting `wolf, wolf’ for the last five decades”, says an analyst adding, “for doing so, now no one is ready to believe them, although the problems are there”.
Over the years, successive governments have come out with incentive packages for the textile industry. When there were a sort of captive foreign markets owing to quota regime favouring the sellers, the industry kept demanding fiscal and monetary support and was obliged many times.
The textile tycoons were also blamed for having diverted incentives like cheaper bank loans to speculative trading for making quick money.The relief funds dished out from taxpayers' money were freely used for purchasing luxury cars and palatial bungalows.
Even this year’s budgeted relief failed to satisfy the textile industry. It did not come up to the expectation of value-added apparel and home textile sectors. The two vital sectors are labour-intensive and earn highest foreign exchange by value addition and need support to be competitive in the global market, it was maintained.
A large number of spinners also held a demonstration on June 22 2007, in front of the parliament to press for a relief package for the spinning industry. In the past, only growers and ginners adopted such tactics.
A visit by this writer to some textile units located at SITE and Landhi gave an impression that the old 'Seth' management system has changed into modern corporate culture. Yet the going is becoming tougher in a fiercely competitive world market. The quota –free trade has been followed by other restrictive trade practices by importing countries..
After lifting of quota in 2005, no exporter can sell anything if he is not able to meet buyers' compliances related to environment, social, security/safety and labour laws (including the child labour). Foreign buyers prescribe standardised chemicals that are environmental and user friendly. And the processing and value addition apparel and home textile units are induced to import certified European chemicals and dyes-- normally costlier.
The industry suffers because it is so much subservient to foreign buyers while the government is not very helpful , particularly with regards to its obligations towards providing some of the basic infrastructural needs like sustained supply of utilities such as gas, power and water.
The home textile and the apparel industry says that it not only carries out research work to stay abreast with latest developments taking place around the world -- from textile technology to designing, modern skills and marketing, but also has to make arrangements for such basic utilities such as water, power, security, and treatment plant which raises their cost of production. .
On a visit to a home textiles unit with exports of around Rs4.5 billion per annum, employing a labour force of around 4000, it was revealed that the unit has to generate its own power and treatment plant and manage its own security. The approach road to this unit was found to be in shambles.
Its management explained that a primarily processing unit starts its value-addition from grey cloth and needs a lot of water at each stage of production line. When there is no water supply from the KWSB (a government agency) it has to arrange water from its own source. In this case, the unit has dug tube wells some distance away from its production base and laid down a pipeline to carry water to the water processing plant. It arranges water supply through tankers to meet its needs. Before using this water for processing the fabric it is treated through an imported reverse osmosice (RO)) plant. The unit has its own power generation plant also.
The treatment plant is necessary to meet foreign buyers' condition of environmental compliance, ensuring that industrial waste is treated before throwing it into city sewerage system and does not harm the sea life. The textile units have to maintain its own security staff and follow labour laws as well as safety measures in the process of production as laid down by foreign buyers. Above all, industry has quality check at each stage of production line and the unit visited has a lab of world standard to test quality, strength and other parameters of cloth and dyes and chemicals. The industry has to incur huge cost towards bringing out the end product because it has to carry out many of the government’s obligations on its own. Thus, it also becomes uncompetitive in the world market.
A huge inventory, for at least six months, has to be maintained to meet the seasonal demand of foreign buyers. In the past, buyers used to maintain their own inventory but after the quota regime came to an end, they asked their suppliers to maintain stocks on their behalf thus saving huge investment on warehousing and the inventory. The textile trade in the world market has now turned from sellers into a buyers market.
Responding to a relief package approved by the Economic Coordination Committee (ECC) meeting on June 28, Readymade Garments Manufacturers and Exporters Association (PRGMEA) chairman Ijaz A Kokhar said it has extended the six per cent Research and Development (R&D) on apparel exports which was to come to an end on June 30, 2007.
Besides, the Finance Act 2007 has allowed 3.5 per cent R&D on local sale of polyester staple fibre, while five per cent R&D on home textile, three per cent on fabric would also continue.
Chairman, Pakistan Hosiery Manufacturers Association (PHMA) Naqi Bari said the government is not realising the gravity of the situation. Instead of giving R&D, it should look around what other countries of the region are doing to keep their textile industry internationally competitive.
He said that India has placed fixed investment of export- oriented industries in separate bracket with a separate mark-up rate. Bangladesh which enjoys the status of less developed country provides gas to export oriented industry- comparatively in Pakistan, gas is 30 per cent costlier. It is time for the government to create an enabling environment for the industry to compete in the world market, he added.