PHMA seeks level playing field

Pakistan Hosiery Manufacturers Association (PHMA) has made an appeal to the government to take necessary steps for providing level playing field to Pakistani hosiery industry against its competitors, like India and Bangladesh, as it would enable the industry to reverse the trend of declining exports.
"Besides earning foreign exchange for the country, the remedial measures, if taken by the government, will save million of direct and indirect jobs," said PHMA chairman Shahzad Azam Khan while addressing a press conference with other industry representatives.
Shahzad Azam claimed that some 92 units of hosiery manufacturers have closed down since 2001, including 30 in Lahore. There were multiple factors behind their closure, including increase in financial cost, high prices of utilities, travel advisory due to which buyers were not visiting Pakistan and others, he added.
"Knitwear industry of Pakistan exported products worth over 1.6 billion dollars in financial year 2004-2005. This is the highest export of any single item in the entire export portfolio of Pakistan. This sector performed very well till 2001 and it can be attributed to supportive government economic policies. However, since 9/11, business conditions started deteriorating due to compelling geo-political conditions leading flight of customers from the country and price war situation with competitors," he added.
HUGE LOSSES: In order to bring back the business, the industry has no option except to drastically reduce prices. This resulted in erosion of profitability for industry leading to huge loses.
"Several other factors compounded the worsening situation in the shape of increase in financial charges by over 300 percent and domestic inflation of over 8 to 10 percent increasing our cost of production together with currency appreciation and reduction in duty drawbacks further worsened the situation."
These problems and issues have been brought to the notice of the government at different levels throughout this period, he added.
The government of Pakistan has been generally sympathetic towards the problems of the industry. "As a result thereof 6 percent Research and Development (R&D) Support was provided in April 2005 against the industry's demand of 10 percent made over two years ago," he said.
"The global business environment has changed altogether since the beginning of this calendar year as a result of quota abolition by the EU and USA," Shahzad Azam said, adding "this has caused intensification of competition for Pakistan, particularly from main suppliers like Bangladesh, India, Sri Lank and China."
He stated that they conducted a study of two competitors ie India and Bangladesh and learned that these countries have adopted policies supportive to their apparel industry in the form of incentives, including cut in interest rate and attractive duty drawback rates being paid as cash incentive.
"India is also providing working capital at LIBOR plus 0.7 percent, which works out to 5.25 percent as against 9 percent in Pakistan for export refinance. In the shape of capital investment, funding is provided at 5 percent in India as against KIBOR plus up to 4 percent that is 13 percent plus in Pakistan," he added.
ADVANTAGES TO INDIA: "India enjoys certain advantages, including better security profile, consolidation of buying houses from Hong Kong and Singapore. Indian industry is cheaper in dyes and chemicals and other garment inputs due to production," he said, adding "in view of this, Pakistan happens to be in a disadvantageous position as compared to India to the extent of at least 10 percent."
"This is resulting in shifting of business from Pakistan to India and Bangladesh," he added.
He claimed that Bangladesh enjoys 12 percent duty advantage over Pakistan for export to the European Union in addition to cheaper labour and various other government supports.
He also claimed that Pakistan knitwear exports had decreased by 11.22 percent in the last four months of the current financial year as against phenomenal growth of exports in case of India, Bangladesh and China ranging from 100 percent to several hundred percent in case of China.
He said that their main plea to the government was to remove disparities and distortions in interest rates and exports incentive.
He said that the Smeda had already conducted an analysis of the apparel sector and submitted a detailed report to the Economic Co-ordination Council (ECC) proposing reduction in export refinance rate to 3 percent, cut in interest rate on all the forms of loans/leases to five percent, complete moratorium for repayment of principal and interest for two years and transfer of the existing long-term and leases to State Bank of Pakistan scheme for long-term financing for Export-Oriented Industries (LTF-EOP).