TRADE DEFICIT TOUCHING ALARMING LEVELS
An exclusive interview with Chairman & CEO of Baig Group of Industries Dr. Mirza Ikhtiar Baig
Interaction with a person as diversified and having multi-dimensional status that Dr Ikhtiar Baig has was quite phenomenal. The session was quite enlightening and educative for us. So, join us in this captivating journey.
Dr Baig started his all-informative talk saying: Textile is a vital part of our economy as it comprises 55 percent of total exports. Pakistan’s total export was used to be 25 billion dollars out of which 13 billion dollars plus was textiles share. Now our export is reduced to 20 billion dollars with textiles export reduced to 11 billion dollars. I have already given a presentation to Prime Minister Nawaz Sharif and his cabinet over the reasons for falling exports. I told them that cost of production was rapidly increasing and was very high, the wages have risen to Rs 14,000/- per head a month, in Bangladesh this cost is only 7,000/- Taka, i.e. about half. I am not saying that 14,000 rupees is too much as even a poor man cannot survive in this amount, but for the purpose of manufacturing it is too much and on various counts such increases make a big difference. You have to see whether your industry can absorb it or not. Your electricity tariff is highest in the world.
I asked the top management of K-Electric why their tariff was highest in the region, while Prime Minister has ordered its reduction. They said we cannot cut it because of being a private concern.
In addition to this our government has made the export sector also a revenue collection source through imposing various taxes. They are charging 5 percent indirect taxes even on exports. This is a joke as nowhere in the world exports are taxed; it remains zero-rated because it earns foreign exchange. They are charging withholding tax, advance tax, turnover tax, export development tax etc., these are all indirect taxes imposed on exports making exporters unable to compete in the regional markets. This is the reason that even after geting GSP Plus status exports are not increasing. We are not the first choice of a buyer. Their main focus is on Bangladesh and Vietnam and we get small orders only. Our quantum jump would only come from mainstream orders, not from the spillover orders.
Another problem is our sales tax refunds worth 200 billion rupees that are stuck up with the government since last two years. Finance Minister Ishaq Dar has shown it as revenue collection just to reduce the budget deficit at 4.3 from 8.3 percent. But this amount belongs to exporters, although earlier it was 300 billion rupees. Now the exporters have two choices, one is to borrow similar amount from banks and pay additional financial cost, but each exporter cannot pay additional financial cost. And the other choice is to shrink your export activities and most of the people prefer to do latter. And you will amazed to hear as I come to know through a meeting of Senate Standing Committee from the bankers that every bank has at least 25 percent loans stuck up in textile sector and it has resulted in closure of textile industries all over the country. Recently, the government has given a package of 180 billion rupees of rebate to five export sectors, including carpet, leather, sports, surgical goods, textile and others. But it was too late as the international buyers have already diverted to other countries. India is envies our exports, New Delhi was giving 8 percent rebate to textile sector but when we got GSP-Plus status from EU they increased further 5 percent rebate for Indian textile exporters just to damage Pakistan’s exports. Indians want us to be out of the market.
On the other hand in the denim our main buyer was Turkey and our fifty percent production was booked for there. Turkish local industry agitated against us and their government imposed another 18 percent duty on our exports which was earlier 6 percent and the total amounting to 24 percent. With this huge amount of duty you can’t compete. Hence, the fifty percent export of most of the denim industrial units is down to 5 to 6 percent only. Now we are trying to sign FTA (Free Trade Agreement) or PTA with Turkey to get rid of this additional 18 percent duty. Turkish authorities did not wanted to include textile sector in FTA but due to personal interest of President Tayyeb Erdogan they have agreed and it is expected to be materialized in the end of May this year.
Our cotton crop is also on decline since last many years. It was about 14-15 million bales per year but today it is reduced to 10 million bales. The reason is the lack of introduction of high yield new seeds. Our seed research council is always in sleeping mode. Indian cotton production was 18 million bales above 5 year back, now it has crossed 36 million bales per annum. Our basic economy was agro based and turning into industrial growth. But in present circumstances the agriculture and industry both are suffering from heavy losses, while services sector is growing enormously like restaurants, banking etc. Our services sector has reached up to 52 percent while industry is 20-21 percent and agriculture is also 21 percent at present. We are being converted into consumer society instead of a producer society, working as a trading state. If our industries are closed we will not earn foreign exchange and not able to provide job opportunities. Our imports are increased and exports decreased and budget deficit is on the rise.
CPEC’s basic requirement is the production of alternative energy. Out of 46 billion dollar, 34 billion are reserved for various power production projects, and 12 billion dollars are for Gwadar port and infrastructure provision. Early harvest projects to be completed in 2018 would be able to produce 10,600 MW of electricity to end our shortfall. Our real benefits would be the construction of special economic zones along with the CPEC highway. If foreign countries, local investors and China took interest to relocate their industries in those zones then we will get progress, because in China too, cost of production has gone very high.
Special economic zones are open for all type of investors. In Gwadar port, government has allocated about 78 industrial licenses in free zone, and all are for the Chinese investors only except four or five for local services sectors like banks and communication companies. China is allowed 30 years tax free facilities. The other zones allocated for Pakistani industrial investors have five years tax holiday. The 12 billion dollars allocated by China is a 2 percent interest loan under ECA credit is allowed for raw material projects. Most of the projects are on BOT basis as stated by Chinese administrators.
Being Consul General of Yemen and Dean of Consul Generals in Karachi, I have used my influence to convince the diplomatic circles that law and order situation in Karachi has been restored and now this is peaceful city. We have got relaxed the travel advisory of most of the countries but the big countries like America and Britain have yet to change their minds. Our government should regularly brief its diplomatic fraternity about new investments, CPEC, development in Gwadar and the negotiations with the other countries and other current affairs. Pakistan is the center of attraction for world politics and the regional changes. Imran Khan’s frequent U-turns have shaken the confidence of his followers. He has no good advisers, one day he distributes sweets and the other day he was agitating in the parliament. He is paving the way for PPP success. Mr. Asif Zardari had called me recently and advised to get prepared for contesting the next general elections.
Dr Mirza Ikhtiar Baig is a renowned industrialist and Chairman and CEO of Baig Group of Industries, a multinational conglomerate, operating in diversified fields in Pakistan, UAE and Morocco for the last 30 years. He has done his Masters in Marketing and Doctorate in Business Administration from USA. He is the author of six books on economy, current national and international economic issues and his biography “A Limitless Pakistani”. He has been awarded “Certificate of Achievement” by the international renowned magazine “Economist”. The President of Pakistan conferred on Dr Baig the prestigious Civil Award “Tamgha-e-Imtiaz” in recognition of his contribution to the national economy.
He is the Honorary Consul General of Republic of Yemen in Pakistan and President of Hon. Consular Corps, Sindh Karachi. He is representing Pakistan on the Board of Directors of World Federation of Consuls Brussels. The President of Yemen has awarded prestigious Civil Award “Order of Merit” to Dr Baig in recognition of his contribution to enhance bilateral trade investment between Yemen and Pakistan.
He is former Adviser to the Prime Minister on Textiles and was instrumental for the 1st National Textile Policy. He has invaluable contribution in getting GSP Plus status from EU for Pakistan. He has been Chairman Pakistan Textile City and served on the board of directors of Pakistan State Oil and Karachi Electric Corporation. His company Pak Denim is the recipient of FPCCI Special Export Merit Award from President and Prime Minister of Pakistan for the last 15 consecutive years on export of denim fabric.
He is representing business community of Pakistan at FPCCI, the apex body of trade & industry of Pakistan, and is Chairman Standing Committee on Banking, Credit & Finance. He has also been appointed as President Sector Skills Council of Textile Industry by National Vocational & Technical Training Commission (NAVTTC) skill development.
Interview by: By Asif Shaikh and Nasir Mahmood
Photos by: Sultan Soomro