Aging machinery, low productivity adding to export losses

LAHORE: Exports are declining due to various reasons, including the country’s bad perception, unreliable energy supply, and unfeasible locations of most of the exporting units in Punjab where the energy cost is higher than the other three provinces.

These problems are on top of the aging machinery, low labour productivity, and inefficiencies caused by undue bureaucratic costs and bad corporate governance. These shortcomings are also known to the foreign buyers, making them reluctant to place orders in Pakistan.

This is despite the fact that almost all Pakistani exporters deliver their consignments on time. When they face problems in timely shipment due to power shortages or strikes they airlift the consignments to ensure timely deliveries.

Unfortunately, Pakistan does not produce products that cannot be procured from various other destinations at competitive cost. Volume of each trade item is so small that it can be substituted from other global suppliers.

It is a dilemma for both the government and the private sector to address all these issues. Power shortages may get addressed in the next 18 months, but this will not resolve the other impediments in exports.

The private sector undercuts each other’s prices because they know that Pakistan is the last resort for most of the buyers. If they need a million garment pieces a month, they place most of the orders in competitive economies free from the handicaps faced in Pakistan. The left over orders are placed in Pakistan.

The cost of doing business in here is very high. A leading knitwear exporter said that the foreign buyers pay the same price per piece to the Pakistani exporters that they offer to India and Bangladesh. However, he added the exporters from the neighbouring countries earn hefty profit of 15-20 percent but Pakistani exporters sell it on narrow margin of 2-3 percent. He said in case of any mishap or forced airfreight, the exporter loses money. A spinner informed that he is not losing money, but on an annual turnover of Rs6 billion, his mill earns merely 900,000 which is much less than 0.1 percent. It is worth noting that the small exporters are vanishing from both export and domestic markets because of corrupt bureaucratic practices. The illegal gratification for the grant of DTRE permit is the same for a large exporter or small firm. To add insult to injury, the permit is granted on a quarterly basis and each time the same illegal gratification has to be paid which is equivalent to a yearly permit. This high cost of doing business is the reason that only large exporters are left in knitwear and readymade garment exports. These bureaucratic hurdles can be removed by good governance.

The perception of the country has been damaged due to war on terror, but the private sector has not taken logical steps to improve the situation.

After 9/11, Pakistan stood isolated and export orders from the United States completely dried.  At that time, leading Pakistani entrepreneurs visited the US along with then commerce minister to appoint lobbyists.

The lobbyists paved way for a special export concession package for Pakistan by the United States. These efforts should have been intensified, but instead, now there is no lobby to support Islamabad in the US or the European Union. National Assembly speaker Sardar Ayaz Sadiq even appealed to the corporate sector to set aside a portion of their corporate social responsibility budget for lobbying abroad to improve the country’s perception.

At the same time, entrepreneurs are still of the mindset that adding second hand machinery will increase their production. At a time when technology is changing with every passing day, it is a folly to add old machines