Monday, September 1, 2008

Pakistan's Economic Slump Hurts Workers

Pakistan has a diverse economy that includes textiles, chemicals, leather products, food processing, financial services, telecommunications, retail, automobile manufacturing, light and heavy armaments, agriculture and other industries. It is the 45th largest economy in the world in terms of official exchange rates ($144b) and 25th largest based on purchasing power parity ($410b PPP). Its service sector accounts for more than half of its GDP.

As the economies in the US and Europe slow down, Pakistan's key exports of textiles and leather products are experiencing a slowdown in growth as well. This is particularly painful at a time when the country's import bill has skyrocketed due to rising oil and food prices. Textile exports in Pakistan grew from 8.92 billion USD in 2004-05 to 10.11 billion USD in 2005-06, reflecting a growth rate of 18%. As against this, in the current year, export growth has been only 5%. For all leather goods excluding footwear growth was 24.05%. Of the total leather sector export target of $1.135 billion, the tanned leather, in particular, achieved excess export by $38 million till April 2008. However, the new target of $1.5b by 2010 is proving to be difficult to achieve. Reliable figures are hard to find but the closure of a large number of textile units due to power cuts during the last three months has led to job losses for more than 15 percent of the textile workforce, according to Karachi's Business Recorder newspaper.

Textile industry represents the biggest exporter and the largest industrial employer in Pakistan. According to most recent figures, textile exports fetched $7.805 billion of total export of $13.476 billion during the first nine-month. The sector lost considerable share in overall export of the country as it dropped to below 58 percent in July-March of current fiscal year, which used to be around 65 percent in the past. The textile exports declined by three percent from the export figures of the corresponding period last year and they missed the target for this period with a huge margin of $979 million or 11 percent.

Leather industry is the second largest exporter. The industry employs about 200,000 people directly, producing fine quality finished leather for export as well as for home consumption, according to Pakistan Tanners Association.

In Asia, Pakistan is the 8th largest exporter of textile products. The contribution of this industry to the total GDP is 8.5%. It provides employment to about 15 million people, 30% of the country work force of about 49 million. However, the proportion of skilled labor involved in textiles is relatively small as compared to that of unskilled labor. Agriculture still the largest single employer with 44% of the country's work force but it only contributes 21% of the GDP.

In addition to continuing political instability and power cuts in Pakistan, the worldwide economic slowdown is causing concerns and hurting the textile and leather industries and employees. According to a report by Gregory Warner for American Public Radio's Marketplace program, the leather industry is not growing like it used to and unemployment and crimes are on the rise.

The Marketplace report talks about the young, mostly Pashtun workers, who come from their villages to seek unskilled, low wage jobs in Karachi and other urban centers in Pakistan. It singles out one young worker, 17-year old Momin from Pakistan's north-west frontier province (NWFP), who makes $68-$88 a month transferring skins from a cart to a conveyor belt in a Korangi tannery in Karachi. When asked if he ever visits his village to see his parents, Momin tells the reporter, "How can I go home? If I have to keep paying somebody? I keep paying what my family owes." On top of that, his father wants him to pay for his Hajj, a journey to Mecca that costs at least $3000.00.

A recent BBC report talked about an unemployed textile worker, Gul Rehan, also from an NWFP village, who says he has never depended on charity to cope with hunger and poverty before. But now he sits in a line outside a restaurant in Karachi, waiting for free food. First, his crop on a little piece of land in NWFP failed, and then the towel factory where he took a job, like most knitwear industries, closed down last year.

According to the BBC report, three times a day, hundreds of men, women and children queue up outside dozens of Karachi hotels for meals which are paid for by philanthropists and charity donors.

The rapidly rising unemployment and skyrocketing inflation together have dramatically increased hunger and poverty among the most vulnerable in Pakistan. At 33%, the sum of unemployment rate and inflation, known as the misery index, stands at its highest level in Pakistan's history, and it is likely to increase social strife and hurt the chances of recovery.

These reports highlight the deteriorating economy in Pakistan and its disproportionate impact on the poor migrant workers. Unless the current leadership finds a way to stabilize the economy, the workers suffering is likely to add to greater political instability in Pakistan.

There are many Pakistanis who argue that we must give democracy half a chance to cope with the challenges even if it means going through a slump in exchange for sustainable power of the people to govern themselves. Unfortunately, people like Gul Rehan and Momin, who can least afford it, end up bearing the brunt of such sacrifices. The "civil society" and the "fearless pro-democracy leaders" usually do not forgo their meals to achieve democracy.

I am all for sacrifice, I just wish that the sacrifice be shared more equitably by all of the people. We should all help however we can through various charitable institutions. But I think the "pro-democracy leaders" such as Aitazaz Ahsan, Nawaz Sharif, Asma Jahangir and others who have contributed to the current economic decline have a special responsibility. They can and should use their celebrity status to raise awareness of the issues of poverty and joblessness. They should help organize efforts to build a safety net for the most vulnerable. This would demonstrate their sincerity of concern for the poor and the disenfranchised.

Here's a video clip about skyrocketing inflation in Pakistan and its impact on the poor:


Anonymous said...

The fact that the economies of the U.S.A and Europe are slowing down and affecting Pakistan's exports in a negative way is like a cherry on top of Pakistan's current economic mess.

Anonymous said...

Pakistan power cuts, another ENRON? by Parveez Syed © 2008,

Riaz Haq said...

Here's a report in the News about declining exports of readymade garments:

The value added textile sector fears that export of readymade garments may decline by around $300 million owing to shortage of yarn in the local market.

Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) Chairman Mohsin Ayub Mirza told The News that in the value added textile sector they sell their products 120 days in advance but due to shortage of yarn, no orders were received for February 2010.

He said that owing to shortage of yarn around 20 per cent fall in export of knitwear and 10 per cent in woven garments is feared. If the situation persists there would be a decline of around $100 million in export of woven garments, $140 million in knitwear and $60 million in towels.

Export of cotton and cotton yarn increased by more than 30 and 23 per cent respectively in September and October. Export of cotton cloth, bedwear, towel and tents also recorded a significant growth whereas export of knitwear and readymade clothes slightly decreased in this period.

Raw cotton recorded export of 25.72 million kilograms in October against 17.92 million kilograms in September while cotton yarn export increased to 73.36 million kilograms in October against 56.18 million kilograms in September.

All Pakistan Textile Mills Association Chairman Anwar Ahmed Tata said the spinning industry was facing shortage of raw cotton but they had never demanded a ban on export of cotton and it was expected that about one million bales or 8.5 per cent of total production of cotton would be exported this year.

He said that the government has earmarked more than 90 per cent out of the Rs40 billion incentive package in the textile policy for the value added sector.

The APTMA chairman demanded the government not to intervene and take any short-term measures because the consequences would not only hurt the spinning industry but also the value added sector and the whole economy.

All Pakistan Textile Mills Association (APTMA) Chairman for Sindh-Balochistan Region M Yasin Siddik said it was time that our value added sector realised that Pakistan was not only competing on the basis of prices but also on the basis of quality, especially in products which were made from coarse counts yarn like denim, bed ware, cotton cloth and towels.

Pakistan Apparel Forum Chairman Jawed Bilwani demanding capping of yarn export said: “Our competing countries like India, Bangladesh, and China were also signatories of WTO, yet they were conscious of the importance of their value added textile sector and its exports and had been taking bold steps to protect this sector.”

India, WTO member since 1995, imposed quantitative capping of exports of cotton yarn from 1993 to 2002 besides imposing quotas on cotton yarn exports, Bilwani said.

Bangladesh, WTO member since 1995, slapped a ban on exports of jute on 7th December 2009 to protect the local spinners converting jute by way of value addition.

China, WTO member since 2005, increased export duties of 74 textile categories including Flax Single Yarn in 2005 and in addition to this it is giving subsidy in the form of 16 per cent export rebate for labour intensive textile and garment industries.

Bilwani said even Pakistan from 1988 to 1995 imposed export tax on raw cotton for development of cotton yarn industry. The aim was to reduce price of cotton fibre. The scheme was successful and from 1988 cotton export decreased substantially while production and export of yarn increased.

He said that now it is time to go one step forward to next level in value addition and impose restriction on exports of cotton yarn for development of the value added textile industries.

Production of cotton in the world is less than the last year except India, which has 3 million bales surplus than its requirement. Cotton price in the local market has increased by 31 percent to Rs4,500 per maund from Rs3,400 in two months only.

Anonymous said...

in my opinion govt. should bound the industrialist to run the factories on every cost. pakistan industry is shut down due to low profit margin, that is not satisfactory for an industrialist, because they bostereds expect hell of profit margins.

Riaz Haq said...

Here's a Businessweek report on Faisalabad textile industry troubles:

Chaudhary Maqsood Elahi, a Pakistani exporter of knitted garments, spent two years trying to save his factory in the textile hub of Faisalabad. He sold his house, cut down on staff and switched to air shipments to meet orders on time. It didn’t work.

About six months ago, Elahi, whose Dilkhush Hosiery Mills Ltd. produced t-shirts for European mega-retailers Carrefour SA and Metro AG, shut down his 15-year old factory after booking losses for two straight years. He fired 550 workers, tore down his plant and divided the land into plots that he put up for sale to help repay loans, Bloomberg Businessweek reports in its April 30 issue.

“I kept running the factory despite losses in the hope of finding a way out but the financial burden kept growing,” said Elahi, 56.

Pakistan has one of the largest textile industries in the world, shipping 1.3 trillion rupees ($13.8 billion) worth of textiles in the year ended June 30 mostly to the U.S. and Europe. Textiles account for 63 percent of Pakistan’s exports and mills employ 20 percent of the nation’s workforce. Faisalabad, which generates the most tax revenue after Karachi, accounts for half of all textiles shipped from Pakistan.

The Pakistani textile industry has had a golden opportunity to capture markets lost by Chinese producers because of rising wage pressures in China and the appreciation of the yuan. But according to the Pakistan central bank’s annual economic report for the year ended June 30, 2011, the local industry hasn’t been able to seize the advantage.
Bangladesh, Cambodia

Instead, Bangladesh and Cambodia have increased sales of apparel as Pakistani manufacturers struggle with energy shortages, the report says.

Power blackouts last as long as 20 hours at a stretch in Faisalabad, while shortages of natural gas, which power the looms, can go on for six days at a time. Demand for natural gas exceeds supply by as much as 15 percent in the city.

Half the city’s 250,000 power looms have gone out of business in the past 12 months, 10 percent of the spinning mills and fabric printing units have shut down and half of the remaining plants are struggling to survive, says Muzammil Sultan, president of the Faisalabad Chamber of Commerce and Industry. At least 200,000 workers have lost their jobs since last year. “We’re shipping only half the quantity we used to from this city,” Sultan says.
Cotton Belt

Faisalabad, a city of 5 million people surrounded by Pakistan’s biggest cotton belt, was once known for attracting workers from across the Punjab province to run its weaving mills, spinning units and garment factories.

Now, as the textile business faces its biggest ever crisis, workers have begun leaving the city for the first time. “I’ve already moved my family back to Peshawar and if I can’t make this new tire repair business work, I will also move and try to find some other work,” says Sher Shah Khattak, who came to Faisalabad 35 years ago to work in the textile trade and lost his job as a loom operator last year.

In March, thousands of textile workers came out on the streets of the city, burned tires and shouted slogans against the government. “The change in the city is visible with just 10 percent of factories closed, and we see rioting by workers because of the growing frustration,” says Sheikh Abdul Qayyum, managing partner of Em Que Fabrics in Faisalabad. “We can’t imagine what would happen if half of all mills stop working.”..

Riaz Haq said...

Here's Fiber2Fashion report on value-addition by Pakistani yarn spinners:

everal cotton spinning companies in Pakistan are investing in value-addition as well as in compact yarns to beat the economic downtrend and to survive.

The excessive power and gas shortages is also forcing the high power consuming spinning industry to go for innovative value-added products that consume less energy.

Mr. Abid Farooq, Managing Director of Ali Akbar Spinning Mills and former chairman of APTMA, told fibre2fashion, “A lot spinning units are investing hugely into compact spinning nowadays and every conventional non-compact spinning mill is investing some money in compact yarns.”

Explaining the reason, he says, “Pakistan has a certain share in world yarn market, which is not likely to increase in near future. There is too much competition and the spinners cannot increase their capacity to export as the yarn export market is limited.”

“On the other hand, there is still a lot of room for the value-added yarn products to get higher market share compared to yarn. So, that is one reason for several spinners diversifying into manufacturing of downstream products. They have invested in value-addition to get a greater share in the Chinese and the European markets,” he adds.

Pakistan is facing a huge shortage of power, electricity and gas, which prevents addition of new capacities in spinning industry. Spinning machines require a lot of energy, so spinners are moving into value-added areas that need less energy.

As Mr. Farooq says, “Making new investments for manufacturing of value-added downstream products is another form of survival for the Pakistan spinning industry because spinning in itself is a very competitive industry and it is very technical. So, most of the new investments are going into value-addition.”

Talking about the knitwear sector, he avers, “The knitwear sector is coming back to life from a very bad slump a few years ago. Several knitwear units that had closed down are being revived again. The increase in dyeing and finishing capacities is also helping the sector.”