Garment makers bank on govt as exports continue to fall

By Kazim Alam, The Express Tribune

KARACHI: Garment manufacturers and exporters are clearly angry with the government. The odds they face are not insurmountable, they say, if the government takes aggressive steps to contain their dwindling export volumes.

Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) Central Chairman Shehzad Salim says the government has gradually been withdrawing subsidies to their labour-intensive operations, the central bank is being unhelpful in financing their exports at a reasonable interest rate, the European Union is delaying the duty concessions it had earlier promised and India is set to reap all benefits in the post-most favoured nation (MFN) scenario if the Pakistan government fails to ensure immediate removal of India’s non-tariff barriers (NTBs) – restrictions that hamper imports but are not in the usual form of a tariff.

“I have no doubt that giving India the MFN status is a wise move. But the government must ensure that a level playing field exists for every stakeholder,” Salim said while talking to The Express Tribune.

“MFN would be of no use if, for example, our entire fabric output went to Indian garment manufacturers, who exported it to western markets after adding value.”

The post-MFN trade with India can result in a major boost to production of manmade fibre products, Salim says. “Unlike India, Pakistan has no petro-chemical base. Importing materials from India will take five days as opposed to three weeks for imports from China.”

Pakistan’s exports of textile products are heavily cotton-based. About 89% of the country’s total textile exports to the United States, the largest market for textile products from Pakistan, in 2011 were cotton-based.

Despite a 40% rise in the value of manmade fibre products exported to the US in the same period, the segment accounted for just $261.91 million out of $2.48 billion of total textile exports to the US, which is a little over 2.4% of total US textile imports.

Export Finance Scheme

In order to increase exports in value-added segments, the central bank tries to ensure that garment manufacturers get loans at a rate lower than the prevailing benchmark rate. Known as the Export Finance Scheme (EFS) rate, it would traditionally be 3.5% to 5% lower than the benchmark rate.

However, the current EFS rate is 10% with a maximum 1% spread for commercial banks. Given the fact that the key interest rate is 12%, the EFS rate has become less attractive to garment manufacturers than it used to be.

“They first linked the EFS rate with weighted average yields of last three auctions of six-month treasury bills. The EFS rate increased as the yields went up. It wasn’t reduced, however, when the yields came down, apparently because of the IMF condition to withdraw subsidies.”

But why should the government subsidise garment manufacturers and exporters to begin with? “Because we’re a labour-intensive industry that brings in huge foreign exchange every year,” Salim says.

Garments form almost one-third of the total textile exports of Pakistan every year. Out of total exports of approximately $13.5 billion in 2010-11, the export of garments was worth over $4 billion.

According to PRGMEA, its more than 1,000 members across the country contribute over $10 million in direct and approximately the same amount in indirect taxes every year besides employing 650,000 workers directly.

“The government has done nothing for us compared to other sectors within the textile industry, which have lobbied successfully over the years. We need immediate support.”

Published in The Express Tribune, April 21, 2012.

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