A question of exports and infrastructure

consequence, our mills have either shut down or will shut down in the very near future if decisive and urgent action is not taken,” it read.

More than four months after the fact, it seems that the industry is very much in the same place. And with the added political crisis and possibility of LCs being closed much longer and even scarier possibility of default, it seems that this major export oriented sector is scared as well.

Dr. Gohar Ejaz

Patron in Chief of the All Pakistan Textile Mills Association

Textiles are Pakistan’s biggest export. And over the past few years, the industry has seen a major slump at a time when there is a bigger need for exports than ever before. Pakistan is the world’s 8th largest exporter of textiles in the world, and there aren’t many positive lists in the world where Pakistan is in the top 10.

It comprises 46% of the total manufacturing sector and provides employment to 40% of the total labour force. Largely, however, the textile sector is run informally and privately. Only about 5% of textile producers are publicly listed on the Pakistan Stock Exchange (PSX) with 423 textile industries operating in the country.

“We as a nation are all going through the most challenging times in the history of our country,” says Gohar Ejaz, Patron of APTMA. Ejaz is not a figure that easily makes public statements or gives interviews to the media. In his conversation with Profit, he was candid and in his alarm over where things are headed. “Textiles are the only hanging fruit in our economy to take our country forward. The cotton crop failed in 2022-23 due to weather and floods. We had a cotton crop of 5 million bales at a time when the requirement was 15 million bales. That alone set us back in a major way.”

Back in January this year, Ejaz had actually written a letter to the United States Embassy, demanding that the ambassador take their case to the federal government. The letter pointed out how the import of cotton has been severely restricted in the country because of the strict lock on lines of credits needed to import items. “The industry is running out of cotton stocks and as a

“The country’s textiles value adds 300 plus percent meaning over $1.3 billion per million bales. Last year, we exported $19.6 billion with a consumption of $6 billion in imported bales,” he adds. Essentially, the textile industry needs to import cotton to process it into a higher value product and then export it again. The government, however, does not have the money to allow them to do this leading to a standstill. “We have the potential to go to $25 billion but that will require Regional Energy Tariffs and for priority to be given to the textile industry and our cotton farmers if we are to overcome our foreign exchange obligations.”

As of now, however, these hopes seem dashed. “We have been running at 50 percent capacity for the past three months and textile exports have fallen from $19.6 billion last year to $16 billion in the year ending June’23. That means we are forgoing over $3.5 billion in possible foreign exchange.”

Samir Chinoy

Director & Chief Operating Officer at International Steels Limited

On the one hand are industries that are export oriented. Then there are players in industries such as steel. While it is not export oriented, the steel industry is tied intrinsically to the country’s industrial and economic growth. With a combined revenue of close to Rs 200 billion a year, steel is a major economic driver in any large economy such as Pakistan’s. And its players are not happy.

“Unfortunately, it’s a very sad state of affairs. We’re in uncharted territories. I don’t think in my lifetime or my professional career in Pakistan that I have seen where we stand today,” says Samir Chinoy, director and COO at International Steels Limited. “We’re in a high inflationary market, interest rates are being raised to curb that, and demand is being suppressed to curb that. So it’s a challenging time.”

“Normally, you worry about selling and buying. In our case you’re also worried about the support functions of how to get financing, cash margins, and will the banks have the money to pay the documents when the suppliers present them. It’s a very interesting, and challenging time generally for all people and all industries. There is a huge contraction in demand across every sector. If we look at International Steels Limited (ISL), ISL isn’t your typical steel manufacturer. Generally in developing countries when we talk about steel, it’s construction related steel which is reebar and sarya.”

Änd it is one of those industries that is tied to everything. ISL is in the flat steel sector which is predominately used in middle class growing, and white goods industries. Their steel goes into washing machines, dryers, various appliances, two-wheelers, rickshaws, and tractors. There is a component that goes in construction, but to a lesser extent. Then the steel also goes into the rural economy which is baxay, paitiyan, baalti, dhaabray, water coolers etc.

“We’ve got a mixed bag, but I think on the industrial front where our cold rolled product goes it’s going to be tough going. Industry has shut down, or has contracted significantly. On the rural side, hopefully with better crops etc we’ll fare well,” explains Chinoy.

“I think it’s wait and see. I think it would be very unfair for me to give a view about when things will rebound because the macroeconomic conditions do not show any bounce back any time soon. We haven’t entered into an IMF program right now. II think until there’s clarity on us entering the IMF program it’s going to be very tough for anyone to make a comment on when inflationary pressures ease, when lending rates ease, or when demand starts increasing. I think it’s too soon to talk about that at the moment.”