RECORDER REPORT

KARACHI: President of SITE Association of Industry (SAI) Saleem Parekh has suggested that Research and Development Branch (RDB) should be constituted in the Commerce Ministry for the setting up of import-substitute industries.

He elaborated that RDB should be forum where relevant people should come up with ideas on import substitute industries and it should also see the profitability of the industry.

Parekh recommended that Pakistan should export more and import less. For this purpose, import-substitute industries need to be designed and defined and sectoral research should be made. He emphasized the need that industries not running in profit should be looked into.

"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," he said, adding that 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. He said 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.

The SAI president said that the industries are affected in the most severe manner as the raw materials suddenly becomes very expensive. He said industries have contracts of sales locally and also international for 6 months and sometimes they are even have more than 6 months such contracts.

"So there is remote possibility that one can get an increased price particularly 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," he said, adding that 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 would be unbearable and that would 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 will become expensive," he said, adding that the input would become expensive and the industry would again suffer and this 30 percent would not serve the purpose.

Parekh said that on the other hand, hearing the news of depreciation of rupee and appreciation of dollar, the buyers immediately floated the idea of reducing the price which actually hurt 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. He said at one point in time, a correction was made; but at the most of the time, corrections were never made. He further commented that this is a big blow to the Pakistan's economy.

"The debt burden has increased by rupees 900 billion and the ability to pay back debts has also been affected. When we are doing everything in rupee, the taxation will not serve the purpose and we will 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," he said.

The SAI president said that Pakistan would be higher in cost as compared to the regional competitors, especially Bangladesh; where according to previous dollar parity, we had 40 percent high gas price; and almost similar in the electricity, minimum wages and so many other things that 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 asked, adding that can we sustain this attitude of the government to tackle the issues and put the industries in such terrible position.

Parekh said that the government should consult with the industry and stakeholders. He said on 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. He said these are two different things and if the government thinks that by devaluation, they would be able to increase exports, it was not possible. Specially, in textile sector, the industries which do little business in local markets and more in exports, their local sales would drop and exports sales would suffer as buyers would think that supplier was getting 10 percent more and would ask for price reduction.

"We have started receiving such requests to reduce price in the current orders and quote new prices. In case we decline, they are not ready to buy from Pakistan," he said, adding that the government should realize that commodities having logo 'Made in Pakistan' are hard to sell in the world markets. He made clear if we increase our cost, we would not be going in the right direction. He further said that consultation was the keyword. Even if you build a road, you think about diversions first for smooth flow of traffic, he argued.

The SAI president asked the Finance Minister to let the industry know what are the diversions or way out for the industry in current situation. He said 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," he proposed.

He further suggested there has to be short term, mid term and long term programs so that industry could decide about future investments, create efficiencies and utilization of their existing production capacities. These are fundamental questions, he said.

Parekh said another question is that cost of doing business and cost of manufacturing the country needs to be looked into.

Referring to recent visit of Abdul Razzak Dawood, he said SAI had already suggested to 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. "Difference between Pakistan and Bangladesh is about 21 percent and no industry in textile can compete. Textile is a business of low profits and high volumes. It is a business where you cannot earn more than 2 or 3 percent," he said, stressing the need to devise short term, mid term and long term strategies in consultation with the industry leaders.