A humbling challenge

August 27, 2023

For long, Gohar Ejaz has sought facilitation for his industry from the government. Now he’s on the other side of the table

A humbling challenge


he caretaker federal minister for commerce, trade and textile, Gohar Ejaz has been the undisputed leader of the All Pakistan Textile Mills Association for almost 15 years. His has been among the most vocal voices demanding facilitation for the textile sector.

Ejaz has assumed office at a difficult time. There are indications that he will have around six months to improve the conditions for Pakistan’s faltering external trade. He will be particularly judged on his ability to streamline textile exports. Textiles account for more than 60 percent of Pakistan’s exports. These days, the sector is in trouble. For one thing, global textile trade is on a decline because of recession and inflation in both the United States and the European Union. The Russia-Ukraine war has lasted longer than one had hoped for and shows no sign of ending any time soon. The global energy crisis has raised the power and energy prices worldwide. This has hit Pakistan more severely than some other countries because of the steep decline in the rupee’s value.

It seems that the minister has accepted a monumental challenge. He will now have to navigate a path for the government in an area where he has offered many suggestions over the last fifteen years.

As an entrepreneur, Ejaz has proved capable and successful. His spinning mill survived when most of the industry was in trouble. The position he has now assumed, however, might require a balancing act. One hopes that he adopts effective strategies to navigate industry and trade out of the current situation. The main demand of the five exporting sectors, including textiles, has been regionally competitive power and gas prices. Over the past five years, these sectors have been accommodated; the governments have provided a huge subsidy for this purpose. However, under an agreement with the International Monetary Fund, subsidies have to be withdrawn and the gas and power prices increased.

After assuming power, the realisation must have sunk in that the government’s hands are tied. The agreement the previous government signed with the IMF allows no concessions or subsidies to anyone except low-end domestic consumers. The exporters’ contention that the ‘actual’ power cost is much lower than the distribution companies’ prices is unlikely to be accepted by the IMF, which calculates the cost after accounting for all power sector inefficiencies and theft. A viable solution to remove the hurdles that have impeded growth will be a great achievement.

The position he has assumed is extremely challenging. One hopes that he adopts effective strategies to navigate industry and trade out of the current situation.

The exporters’ argument – that the industry cannot compete globally if power and gas rates they have to pay are much higher than what their competitors pay – cannot be easily dismissed. The situation requires a clear-eyed assessment of the challenges and the limitations. If, as a cabinet member, he can take meaningful action against corruption, inefficiency and incompetence in the power sector, it will be a great service to the nation. Only then can the power rates be lowered.

Now that he is in power, he should be honest with his colleagues in the industry about the government’s challenges. He should explain the reasons behind the adjustments in his stance and the steps he would take to address the problems. Transparency can help manage expectations and build trust. He must make his former colleagues understand that not all their demands can be met immediately or precisely in the way they had proposed. There is a need to prioritise the most critical issues while being willing to compromise on less essential matters and to adapt plans based on ground realities.

Rather than trying to implement sweeping changes all at once, an incremental approach could be beneficial. Sometimes, resource constraints can limit immediate implementation of ambitious plans. Some changes might take time to bear fruit, and it’s essential to balance short-term fixes with sustainable, lasting solutions.

Another issue bothering the exporting industries is zero rating. Currently, all exporters pay sales tax on all inputs they buy from sales-tax registered suppliers. The sales tax is then refunded after the export proceeds are received. This blocks a lot of exporters’ capital (the sales tax rate is 17 percent). If the commerce minister can persuade the finance minister, this can be a great relief for the exporting industry he has long represented. However, this, too, might require the IMF’s nod.

Now that he is better aware of the ground realities, the commerce minister should set realistic expectations. As a successful entrepreneur, he knows that governance is complex and that it takes time to meet the aspirations of the business community. He has been sharp and candid and has the ability to adapt to the realities, learn from challenges and maintain a commitment to transparency and integrity. These traits should help him navigate the situation effectively.

The writer is a senior Lahore-based economic reporter at The News International

A humbling challenge