Turmoil in the textile hub

January 15, 2023

Workers bear the brunt as factories shut down

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conomic stagnation, rising inflation and a plummeting demand for textile products have brought many of Faisalabad’s textile mills to a standstill. At the root of the turmoil is an age-old interplay between policy myopia and structural deficiencies. Some of the most marginalised members of the society have to pay the greatest price.

Over the last few months, hundreds of textile factories and power mills have shut down across Faisalabad. The mill owners cite a variety of reasons for the partial or total shutdown: a spike in fuel prices, power shortage, unavailability of raw material and global economic slowdown.

The outlook is bleak, especially for the workers who were already struggling in the face of sporadic shutdowns and rising unemployment. This week, representatives of the country’s textile associations held a press conference in which they announced that over 7 million people associated with the textile industry, which employs 40 percent of the country’s workforce, have already lost their jobs and that many more are on the cusp of unemployment.

The city, known in its better days as the country’s textile hub, is dotted with hundreds of textile processing units, most of those barred shut. The remaining units are operating at reduced capacity, resulting in new challenges for the workers - mostly migrant workers.

Migrant labour has had a crucial role in the urban economy of Faisalabad. These workers are also the most vulnerable to economic shocks. Many of have left the city and returned to their hometowns and villages.

Manzoor Ahmed, who lives in a village near Jaranwala, tells me that only a few months ago, he used to work as a stitching machine operator in a large factory based in Faisalabad. He had to return when the owners decided to lay off over 150 workers. To fend for his family, he now works a farm hand.

Ahmed says his income has dropped by fifty per cent. “As a daily wager in Faisalabad,” he tells me “if I factor in the overtime, I was making about 30,000 rupees a month. At the farm, I only earn 15,000.”

“At a farm, one works twice as hard for half the income,” Ahmed says. “Now, we can barely make the ends meet,” he adds.

At Station Chowk, on a smoggy morning, I meet Muhammad Zeeshan who drums his fingers against his car’s dashboard. Zeeshan used to work as an assistant export manager in a textile mill.

Zeeshan is looking for a passenger on an online cab service platform, his first ride of the day. He says he had to explore the alternative after he was laid off. “I decided to register my car with an online taxi service provider to meet the household expenses,” he says.

The textile mill where Zeeshan used to work shut down because the export orders continued to drop for months. “Every year, we used to see a rise in demand during the Christmas season. We got orders from the US and Europe. But that did not happen in 2022,” he says.

According to Zeeshan, the demand primarily dropped because international buyers already had leftovers stocks from the Covid-19 break. “Then there is the global recession,” he points out. “Almost five months ago, the senior management warned me that if I could not get more export orders, I would lose my job,” he says.

Dr Khurram Tariq, president of the Faisalabad Chamber of Commerce and Industry, says that his mill’s production has dropped by 30 percent. “50 percent of the city’s textile industry is already closed. The rest of the factories are running at 60 to 70 percent capacity,” he says.

“... at the root of the textile turmoil is an age-old interplay between policy myopia and structural deficiencies

Tariq says that he too has been facing difficulties in booking import and export orders. He blames the ban on the import of raw materials and the disparity in the exchange rate between the government and the open market. “The government is not following a clear and consistent economic policy,” he says.

“Banks are not issuing letters of credit… exporters are facing embarrassed in dealing with buyers in the international market,” he laments. “It is difficult to comply with our current export orders as it is. Driving them up seems impossible right now,” says Tariq.

“The government should allow the exporters to import raw materials worth at least 35 percent of the value of the exports to ensure timely processing of export orders,” he says.

Azizullah Goheer, the secretary general of the Pakistan Textile Exporters Association (PTEA) says that cash flow is the biggest challenge for exporters. He blames the crisis on the 17 percent sales tax imposed on the export industries.

“Textile exporters have to pay 17 percent sales tax at three/ four stages from the purchase of yarn to the production of the finished product. They file for refunds 200 days later,” he says. “Until a few months ago, the sales tax refund was paid within 72 hours after the filing, now it is delayed by 30 to 45 days.”

“The sales tax refund claims pending in the FBR system since December 1, are worth more than Rs 50 billion. Along with this, income tax refunds of Rs 50 billion rupees and provincial sales tax refunds worth Rs 25 billion have been pending,” he says. He says Rs 10 billion duty on local taxes and levies, Rs 1 billion rupees in technology upgrade fund, and Rs 3.36 billion in markup support facility have also been due for a long time.

Goheer estimates that 40 to 50 percent of the 200 small and large factories involved in the textile export value chain in Faisalabad have shut down. 25 to 30 percent of the daily wage workers have become unemployed.

“International buyers are reluctant to hand us export orders due to the ongoing political instability and the negative campaign on social media about the country’s economic situation,” he adds.

Goheer says that the war between Russia and Ukraine and the hike in energy prices have also raised the production costs. The price of gas has increased from $6.5 per MMBTU to $9; the electricity tariff has risen from seven cents per kilowatt hour to nine cents.

“Our export is 60 to 70 percent import bases. Due to the low production of cotton in the country, we are importing yarn. Apart from this, chemicals, machinery and spares have to be imported from abroad. This inevitably impacts the production cost,” he says.

According to the PTEA data, textiles make up 60 percent of the exports. Out of textile exports, almost 50 percent come from Faisalabad. According to the Labour Survey 2020-21, a majority of the two million workers in Faisalabad are employed in the textile industry.

Coordinator to Prime Minister for Commerce and Industry Rana Ihsaan Afzal Khan says that all refund claims filed by textile exporters till December 2022 will be released this week. “The government has already given an additional subsidy of Rs 100 billion for supplying gas and electricity to textile exporters at competitive rates,” he adds.

“I am in touch with textile exporters and other stakeholders. Things are not as bad as some in the industry making them out to be,” he says. “During the first six months of the current fiscal year, textile exports recorded a reduction of about seven percent compared to the previous year. These figures show that claims of more than 50 percent textile industry being closed are exaggerated,” he says.

“The State Bank of Pakistan is taking steps to resolve the complaints of exporters regarding the difficulties in the import of raw materials and issuance of letters of credit. The situation will improve once the agreement with the IMF is restored,” he says.

“In past, the PML-N government had introduced a ‘zero rating’ regime for the export industry but on assuming office, the PTI imposed a 17 percent sales tax,” says Khan. “This is hindering the growth of the industry,” he says.

“Until the conclusion of the agreement the PTI regime reached with the IMF or an improvement in the economic conditions, the government cannot remove the sales tax imposed on the export industry even if it wants to,” he says.

The writer has been associated with journalism for the past decade. He tweets naeemahmad876

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