'We are concentrating in limited markets and with limited products' - Majyd Aziz, former President KCCI

Majyd Aziz is Former President of Karachi Chamber of Commerce and Industry and has twice been Chairman of SITE Association of Industry. He has founded and is involved in five bilateral forums and has represented Pakistani employers at many international fora. He is Member of Board of Directors of Zarai Taraqiati Bank Ltd and was Chairman of Board of Directors of SME Bank Ltd. He has over 43 years of experience in running a value-added fabric factory as well as been an innovative entrepreneur in domestic value-added menswear. His family businesses include operations at the ports, imports and exports of commodities, and other ventures.

<B>BR Research: What are your thoughts on the CPEC investment?</B>

<B>Majyd Aziz:</B> A major part of CPEC is a gift to Pakistan and at the same time, it is in the larger interest of China. In the investment segment, there are two types of companies: one is those companies that see Pakistan as a growing market, so they are genuinely investing. Then the other part is companies that you could call 'hawala' types; ie people who were putting money in Switzerland but now they park it in China. This will convert their money "halal white."

<B>BRR: Can you please dwell more on this 'hawala' types. Do you have any examples in mind?</B>

<B>MA:</B> I am of the opinion that all of a sudden many unknown Chinese companies are making a bee-line to invest in Pakistan. Where were they before CPEC? Market conventional wisdom is that the wealth of Pakistanis is returning through a circuitous route. Fortunately, it is coming back home instead of parking in UAE or Malaysia. Thus, the background of these Chinese companies is immaterial.

<B>BRR: What kind of spillover can we expect from the CPEC, given that there are import duty relaxations given to the Chinese?</B>

<B>MA</B>: I think the Chinese will not buy from Pakistan, as much as possible. They are already bringing their workers from China - the ones who are building Gwadar, the Karachi Deep Sea seaport, and even Thar. I recently visited Thar and at the SECMC, about 400 Chinese are diligently working to make Thar coal and electricity a reality. I do hope that Pakistani workers and technocrats would be given preference but we will have to agree to Chinese working in Pakistan. It is reported that many of the Chinese workers are actually convicts and would get freedom once they complete their assignments here. Maybe this is one reason why they work hard, efficiently and produce results.

Moreover, because of the CPEC there will be warehouses, port activity, industry, hotels, etc. The Balochistan youth must be given employment preference, though it is going to be an evolutionary process. In Balochistan, there is an age-old system of Nawabs and Sardars who have this mindset that if people become educated, their 'nawabiyat' will come to an end. So the government has to create the environment and a new ecosystem for local employment. If the youth do not seriously work or if they don't gain the desired skill, the Chinese investors will just keep on bringing people from China or get workers from other provinces and this may disturb the demographic equation much to the chagrin of Baloch people.

<B>BRR: What are some of the sectors in Pakistan which can attract Chinese investment?</B>

<B>MA:</B> For five years I've been telling the Pakistani government to get the Chinese to invest in weaving; China needs to come here and set up a weaving mills. Why export cotton or yarn? However, Pakistan will have to overcome gas shortage, water shortage, and electricity shortage. I'm also in textile business for many years; however, my requirement of yarn that mostly came from foreign countries is now procured locally too.

Pakistan produces the best cotton yarn and quality fabric. The fabric can be exported to China, and then China can do its own processing, dyeing, and garments. In the longer run, when there are SEZs, it will be in China's interest to set up such units here. If we make a 100-mile radius export-based SEZ in Gwadar, the Chinese will set up all kinds of industries there because China wants to control its own processing and own garments. In Gwadar, if they set up a textile made-ups industry, it will be cheaper proximity-wise.

<B>BRR: But Pakistan doesn't make fine count yarn.</B>

<B>MA:</B> Yes, we aren't good in fine count yarn because these are evolutionary things. If the market is created, everything can be produced. No one used to make readymade men suits in Pakistan. I made it. Now it sells all over. I made readymade sherwani, now it's sold all over. Basically you have to create the market and take risks.

<B>BRR: So you think the Chinese investor can and should set up weaving textile units in Pakistan. But what about the labour? Do you think Pakistan's textile labour is productive and skilled enough to be employed by the Chinese?</B>

<B>MA:</B> Our productivity, our efficiency, and our workers' commitment are so deplorable that a lot of our garment manufacturers went to Sri Lanka to get production managers and quality assurance managers. Now, their productivity has increased by 30 to 40 percent! There is no harm in getting people from abroad, with an aim of skill transfer.

<B>BRR: Aside from textile, what sectors do you think the Chinese will find lucrative for investment in Pakistan?</B>

<B>MA:</B> Trucking seems to be a promising sector. A lot of trucks will be coming in every day. More trucks will be coming from China than going to China. In fact, a mechanism should be created for China to sell the trucks here rather than getting them back. They should also think about setting up truck assembly units for Pakistani market.

In Pakistan, a large number of trucks are dilapidated and obsolete. There are not more than 425,000 trucks in Pakistan. Pakistan has a shortage of 90,000 to 100,000 trucks and this is a promising sector. I can say with all merit at my command that we need no less than additional 100,000 trucks.

The supply of trucks is so short that the trucking industry is almost blackmailing customers. We once got an order where the freight was initially priced at Rs800 per ton, but due to shortage we had to pay around Rs1300-1500 per truck - almost double the amount. So there is a severe shortage of trucks in Pakistan and tomorrow with CPEC in full swing and the economy taking off, it is going to create a severe problem because our transportation cost is atrociously exorbitant. A study on how much we are losing and paying through our nose due to inadequate transport industry is imperative.

I am a strong proponent of the export of minerals. Here, too, mining is not a priority of the government. Pakistan can export over $15 billion of minerals by 2020 if we put our soul and mind to this sector. CPEC and Gwadar have given us an opportunity to develop mines on fast track. China needs huge quantities of minerals and Pakistan is an ideal source.

<B>BRR: Pakistan's textile industry is cotton-based. To what extent are polyester and synthetic fibres taking over, not just the world but in Pakistan as well?</B>

<B>MA:</B> Yes, it is true that cotton is king. However, non-cotton fabrics and dresses are hugely popular. Incidently, polyester was introduced in Pakistan by our textile mills. Our fabrics are benchmark fabrics and we specialise in value-added fabrics. Moreover, there was a time when there would be those design cotton shamianas at weddings and other functions. Today, you rarely see these because event managers are using polyester tents. Polyester-viscose fabrics are widely used in uniforms. So much so, a large quantity of polyester fabrics come from China, India etc through a well-organized process of smuggling, under-invoicing and mis-declaration. That is the prime reason why a large number of small weaving mills have closed down.

<B>BRR: Textile is continuously suffering. On the one hand, we know it's because of high energy costs, taxes, energy shortages, etc. But to what extent is it attributed to the local industry's own inefficiency and lack of productivity?</B>

<B>MA:</B> Textile sector has its up and down cycles. When the going is good, there is immediate expansion and when things get sour, the textile big boys through their Association come up with front-page news appealing to the government to get them out of their misery.

Barring a few big names who have economies of scale and a large export base, most of the garments, knitwear, and made-ups sector are what I consider retail exporters. They have a limited base and poor marketing skills. They generally focus on Europe or US and are hesitant to make their mark in African or South American markets. They seldom create new markets for their product.

Furthermore, usually exporters have a tendency to go on an individual basis rather than having an institutionalized approach. Thus, they face numerous hurdles and difficulties. Moreover, productivity and efficiency are secondary in their scheme of things.

Yes, undoubtedly, industrialists are tied up in a strait jacket of perennial energy shortages, high cost of utilities, and are hostage to the revenue-driven mindset of FBR. Pakistan's policymakers are import-oriented and accord low priority to exports. This is why Pakistan faces the ignominy of a continuous dip in the export figures.

<B>BRR: Do you think the spinning industry deserves protection?</B>

<B>MA:</B> What protection? There is no need to protect an established sector. Protection, if crucial, should be given to major Pakistani products that are succumbing to cheaper imports, especially those imports that come through grey channels. In fact, the substantial cotton imports is testimony to the fact that spinning sector is becoming dependent on imports because the domestic cotton crop has reduced due to many natural as well as man-made factors.

<B>BRR: How important is technology upgradation in the textile industry? How rapidly are the technology and production processes evolving, and how far behind is Pakistan?</B>

<B>MA:</B> Pakistan's spinning sector has made massive investments to upgrade their units. Even the ancillary industries have gone on the avenue of modernization. This has been an evolutionary process because low production machinery and equipment increase the unit-cost price. The government had announced an upgradation fund and one hopes that the new Textile Package would have a more pragmatic allocation under this head. Just like old cars are sold off or junked, so do we need to maintain a steady modernization mechanism in our operations.

<B>BRR: You mentioned that China should invest in the value-added textile industry. How can we facilitate this investment? Will they source yarn locally? How will they cope with gas, electricity, and water shortages? Will the proximity to Gwadar make up for the transportation cost of bringing cheap, Chinese yarn from China via the corridor?</B>

<B>MA:</B> Textile is just one sector where foreign direct investment, not only from China but other countries too, should be welcomed. We are still known as a textile country and textiles have a formidable share in total exports. We have provisions under the Special Economic Zones to attract foreign investment. Well, if the Board of Investment really had the critical mass, they would have endeavored to ensure all required facilities and would have cut through the proverbial red tape as well as ensuring that foreign investors are relatively shielded from bureaucratic corruption. Alas, the track record is dismal, and with the advent of CPEC, all energies have been diverted towards CPEC. I agree somewhat that CPEC would enable investment from other countries and I am optimistic that this would happen, not now but in a few years. I hope that if the Chinese are setting up weaving mills, then they would be sourcing local yarn and not depend on imports from their country. Like cement and other products, the emphasis should be on Pakistani products.

<B>BRR: Pakistan does not specialize in fine-count yarn. You mentioned the reason for this is that nobody has done market development for it in Pakistan. What are some of those products that are manufactured using high-count yarn and also, how much of Pakistan's textile industry is export-oriented and how much of it caters to the domestic needs?</B>

<B>MA:</B> The present cost of producing finer counts is high and the market is considered small for individual mills. However, if the spinning sector changes its direction and progresses in this field, there is no reason why it should not develop heavy demand. The spinners must study what is being imported into the country and, in an institutionalized manner, go head-on to capture substantial share in the market. What is missing is aggressive marketing and coordinating with end users. This will also enable them to foray into the global marketplace with their products.

<B>BRR: Pakistan's textile exports are highly concentrated in a few countries/regions? Do you see any new markets on the horizon where Pakistani textile products could be exports, and what would be Pakistan's unique selling proposition in those markets?</B>

<B>MA:</B> This is the disappointing situation. As stated before, we are concentrating in limited markets and with limited products. We generally cater to the lower end of the market and are not keen to explore new opportunities. Pakistan does make world-class products but there is complacency in spreading out far and wide. When our competitors can develop their share then why can't we? Foreign exhibitions are good channels for introducing our product but still we are facing dips in the export figures.

Unfortunately, we comfort ourselves by saying that international prices have gone down, competitors are also losing market share, buyers have toughened their terms and conditions, etc. These may be true to certain extent, but this is the time to spur up our efforts and hit the road. Also, it is time to look inwards and better our methods of production and doing business. Improve productivity, cut non-essential costs, shed deadwood workers, enhance the skills of employees, inculcate efficient working environment, etc. Quality, price, and delivery are what importers demand, and the exporters must ensure that global importers begin to commend Pakistani exporters for adhering to this mantra. At the same time, the government must make a paradigm shift and make exports a priority otherwise the $35 billion export target under the Strategic Trade Policy Framework 2015-18 will remain elusive and make the whole policy a mockery.