SITE President criticizes devaluation

Karachi, October 11, 2018 (PPI-OT): Mr. Saleem Parekh, President, SITE Association of Industry, Karachi, while commenting on the recent massive rupee devaluation by the Government of Pakistan, has said that in spite of the fact that we are in the free-fall basket of currencies, yet the currency is controlled by government through State Bank or directly through Finance Ministry. If we are to act as per free-fall basket of currency, then we have to see that it has to fluctuate as and when the rupee appreciates or depreciates. In this manner fashion, when we do a massive devaluation of 8-9 rupees, it really disturbs the entire system and the inflation goes just unbounded and no strings can be attached to control the inflation in the local market.

He said that the industries are effected in the most severe manner as the raw materials suddenly becomes very expensive. Industries have contracts of sales locally and international for 6 months and sometimes they are even of more than 6 months. So there is remote possibility that one can get a price hike specially in the international market where you are covered under agreements with the buyers. To have this kind of a blow where the cost increases by 10 to 15 pc, is a nightmare for the manufacturing sector.

Due to high hopes of the industrial sector especially exporters towards the sympathetic approach of the government to boost exports, many exporters have already booked latest textile machinery to take advantage of government’s positive policy towards exports but after massive devaluation, cost of machinery will be unbearable and that will slow down the BMR process.

He further commented that even for the export sector, it would be a big setback. Other than natural cotton based commodities, all other commodities are 70 pc import-based. The imports would become expensive. The input would become expensive and the industry would again suffer and this 30 pc would not serve the purpose. On the other hand, hearing the news of depreciation of rupee and appreciation of dollar, the buyers immediately float the idea of reducing the price which actually hurts the industry most. If we look at the recent past, in the last 10 years, there have been massive devaluation in last 4 years, made overnight. At one point in time, a correction was made. But at the most of the time, corrections were never made (CHART ATTACHED).

He further commented that this is a big blow to the Pakistan’s economy. The debt burden has increased by 900 billion in rupee terms and the ability to pay back debts has also effected. When we are doing everything in rupee, the taxation would not serve the purpose and we would not be able to retire our debts. It is a vicious circle. Then we need more money for which we need more taxes and increase in utility prices. So this will end up in lesser exports. We would be higher in cost as compared to our regional competitors, especially Bangladesh where according to previous dollar parity, we were 40 pc more in gas price and almost similar in electricity, minimum wages and so many other things which actually played pivotal role in terms of cost.

So how to run a factory? How industry can be sustainable? Can we sustain with this kind of instability in foreign exchange? he questioned. Can we sustain this attitude of the government to tackle the issues and put the industries in such terrible position. He said that the government should go for the consultation with the industry and stakeholders. On the one hand the government intends to narrow down the trade deficit and on the other hand, it is creating such kind of situation whereby the massive devaluation has been made.

These are all together two different things and if the government thinks that by devaluation, they will be able to increase exports, it is not like this. Specially, in textile sector, the industries which do little business in local markets and more in exports, their local sales will drop and exports sales will suffer as buyers would think that supplier is getting 10 pc more and would ask for price reduction.

“We have started receiving such requests to reduce price in the current orders and quote new prices. If case of no, they are not ready to buy from Pakistan. Today, the government should realize that commodities having logo ‘Made in Pakistan’ are hard to sell in the world markets. If we increase our cost, we will not be going in the right direction,” he added.

He further said that consultation is the keyword. Even if you build a road, you think about diversions first for smooth flow of traffic. He asked the Finance Minister to let the industry know what are the diversions or ways out for the industry in current situation. He said that going to IMF was the last choice but he suggested that it should be taken as stop-gap arrangement and not as continuous policy. We need to formulate a financial discipline in the country which should also be above the political system of the country. All the political parties should sign a Charter of Economy on a long term basis.

Mr. Parekh suggested that there has to be short term, mid-term and long term programs so that industry can decide about future investments, create efficiencies and utilization of their existing production capacities. These are fundamental questions.

Another question is that cost of doing business and cost of manufacturing the country needs to be looked into. Referring to recent visit of Mr. Abdul Razzak Dawood, he said that we have already suggested him to appoint an international agency to prepare a comparison chart of cost of doing business of common commodities, for instance a polo shirt or a bed sheet. The chart should suggest what would be the conversion cost if the same item is manufactured in Bangladesh and same in Pakistan in cotton because today cotton is available at international price. The different between Pakistan and Bangladesh is about 21 pc and no industry in textile can make 21 pc. Textile is a business of low profits and high volumes. It is a business where you cannot earn more than 2-3 pc.

He further said that we would like to float an idea that short term, mid-term and long term strategies must be formulated in consultation with the industry leaders. On short term, government should go to IMF for stop-gap arrangement. On mid-term strategy, the government should immediately prepare the chart of industrial feasibility and input cost and laws of DTRE and Custom bond arrangement, ad-hoc imports which should immediately be made more comprehensive and business friendly and more flexible in future so that industry can get relief and when this comparison chart is evaluated, corrections should be made according to that so that industry could survive and produce their export goods.

Our recommendation is that we should export more and import less. For this purpose, import substitute industries needs to be designed and defined. For this purpose, sectoral research should be made. Research and Development Branch should be constituted in the Commerce Ministry for the setting up of import-substitute industries where people should come up with ideas and this department should also see the profitability of the industry. Industries not running in profits should be looked into.

More jobs creation is our intention in line with PTI government’s commitment to provide 10 million jobs which the government cannot do but can only be done by private sector people for which, profitability of the industry is the key requirement. Bottlenecks needs to be removed like in cotton, contamination is the bottleneck. Wastages should be brought down and new ginning industries should also be set up to provide contamination-free products. In the end Mr. Parekh stressed the Prime Minister, Finance Minister and Commerce Minister that only much needed actions should be taken with consultation of the industry.

For more information, contact:
Secretary General
S.I.T.E. Association of Industry
H-16, Textile Avenue, SITE, Karachi
Pakistan
Tel: +92-21-32562883, +92-21-32560705
Fax: +92-21-32560704
E-mail: site@site-association.org
Website: www.site-association.org