The cost of denial

LAHORE: Government policies are not providing the relief that the state intends to provide to the common man or the businessmen. Minimum wage, free meals, Ehsaas benefits have neither dented poverty nor created jobs.

Free meals have for instance created addicts, who do not want to seek any job. Ehsaas dole outs are not sufficient to feed a single person although the amount is intended for the entire family.

With the increase in minimum wage, the documented entrepreneurs have reduced their workforce and passed on more benefits to efficient retained workers. The non-documented sectors pay their workers almost half the minimum wage or less.

As far as the entrepreneurs are concerned, they have withheld their investment programmes as the state policies are not clear. The gas crisis was in the offing during summer, but the state failed to enter into binding agreements with gas suppliers on the plea that the rates offered for sustained supplies were high.

It resorted to buying LNG from the floating vessels roaming in high seas. This worked for a while as LNG is in excess supply during summer and the floating cargo offered less than the long-term prices quoted by the gas rich countries.

When the crunch came, the government entered short-term contracts with small suppliers at a higher price. But as it happened the gas prices shot up beyond imagination and the suppliers preferred to default on their contracts and pay the penalty for default.

The penalty was bearable as the same supplies were disposed of elsewhere at a very high price that was more profitable after covering the penalty.

The gas crisis has gone out of proportion creating an acute urea crisis at a time when this fertiliser is badly needed to sow wheat. Industries were denied gas, while domestic consumers got the priority.

In the process, the government could please none as the cost of industrial production increased while the domestic consumers complained of low pressures or no gas at all. In Bangladesh, the priority for gas is for industries, and consumers come second. The basic argument in this regard is that if the industries closed, there would be widespread unemployment and unemployed consumers would not be able to pay their utility bills.

Electricity supply is satisfactory, but its tariff has been increased exponentially and there is no end in sight. The inefficiencies in the sector stay stubbornly high.

Corruption in this sector is as rampant as ever. Even the lifeline consumers pay double the tariff than what they used to pay 40 months back.

Middle-class consumers have stopped or reduced using power gadgets to contain their power bills. Still the bills are much higher than last year and almost double when compared with the bills they used to pay three and half years back.

Power supply however remains erratic. Domestic consumers could bear this inconsistency, but the industries cannot as it results in huge production losses (the raw materials are destroyed when power is interrupted in the middle of the process).

The ever-declining rupee value is bringing miseries for the consumers, but the currency’s uncertain value is more worrisome for the entrepreneurs. All their business plans are upset when the rupee declines so rapidly as it did in the past eight months from Rs152 against the greenback to the current value of Rs178.

With the end yet not in sight! Central bank jacked up the policy rate by 2.75 percent in one month, increasing the cost of borrowing and cost of doing business.

Large-scale manufacturing is on decline after posting healthy growth from low base Covid-19 impact. Manufacturers are looking for cover as it is impossible for them to cope with low rupee value and high interest rates.

Higher imports are testing the capability of the central bank to maintain decent foreign exchange reserves. It has up till now been successful in this regard on the strength of massive loans it has accumulated, but new loans are hard to come.

If the imports do not decline appreciably, we might see our foreign exchange reserves declining to the danger zone. Our exports have increased but probably the limit has been reached.

We need new investment to leap exports further up. The so-called new investment in machinery is in the basic textiles sector, while we have posted export growth in the apparel sector where new investment is insignificant.

Apparel exporters are from small and medium enterprise sectors. They have huge orders in hand and are refusing most of these orders due to their inability to invest in new machines.

For the apparel exporters, loans would come in handy, but banks are not as cooperative with them as they are with spinners or weavers. Spinners and weavers are hesitant to enter the apparel field as they lack the expertise to operate apparel units, particularly the quality control required in this sector. They also lack the marketing skills mastered by small and medium apparel exporters.