Is Pakistan Garment Industry Becoming More Cost Competitive With Bangladesh's?
Low wages and trade preferential deals with Western nations have helped Bangladesh, currently designated "Least Developed Country" (LDC), build a $30 billion ready-made garments (RMG) industry that accounts for 80% of country's exports. Bangladesh is the world's second largest RMG exporter after China. With its designation as LDC (Least Developed Country), garments made in Bangladesh get preferential duty-free access to Europe and America. Rising monthly wages of Bangladesh garment worker in terms of US dollars are now catching up with the minimum wage in Pakistan, especially after recent Pakistani rupee devaluation. Minimum monthly wage in Pakistan has declined from $136 last year to $107 now while Bangladesh has seen it increase from $64 last year to $95 today. Western garment buyers, known for their relentless pursuit of the lowest labor costs, will likely diversify their sources by directing new investments to Pakistan and other nations. Competing on low cost alone may prove to be a poor long term exports strategy for both countries. Greater value addition with diverse products and services will be necessary to remain competitive as wages rise in both countries.
Wage Hike in Bangladesh:
The government in Dhaka announced in September that the minimum wage for garment workers would increase by up to 51% this year to 8,000 taka ($95) a month, up from $64 a year ago, according to Renaissance Capital. But garment workers union leaders say that increase will benefit only a small percentage of workers in the sector, which employs 4 million in the country of 165 million people, according to Reuters. Bangladesh government promised this week it would consider demands for an increase in the minimum wage, after clashes between police and protesters killed one worker and wounded dozens.
Pakistan Wage Decline:
Pakistani currency has seen about 25% decline in value against the US dollar since January 2018. As a result of this devaluation, the minimum monthly wage in Pakistan has dropped from $136 last year to $107 now while Bangladesh has seen it increase from $64 last year to $95 today. Renaissance Capital projects a further 10% depreciation in Pakistani rupee this year.
Race to the Bottom?
Competing on cost alone is like engaging in the race to the bottom. Neither Pakistan nor Bangladesh can count on being lowest cost producers in the long run. What must they do to grow their exports in the future? The only viable option for both is to diversify their products and services and add greater value to justify higher prices.
Pakistan's Export Performance:
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| Minimum Monthly Wages in US$ Market Exchange Rate |
Wage Hike in Bangladesh:
The government in Dhaka announced in September that the minimum wage for garment workers would increase by up to 51% this year to 8,000 taka ($95) a month, up from $64 a year ago, according to Renaissance Capital. But garment workers union leaders say that increase will benefit only a small percentage of workers in the sector, which employs 4 million in the country of 165 million people, according to Reuters. Bangladesh government promised this week it would consider demands for an increase in the minimum wage, after clashes between police and protesters killed one worker and wounded dozens.
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| Monthly Minimum Wages in US$. Source: Renaissance Capital |
Pakistan Wage Decline:
Pakistani currency has seen about 25% decline in value against the US dollar since January 2018. As a result of this devaluation, the minimum monthly wage in Pakistan has dropped from $136 last year to $107 now while Bangladesh has seen it increase from $64 last year to $95 today. Renaissance Capital projects a further 10% depreciation in Pakistani rupee this year.
Race to the Bottom?
Competing on cost alone is like engaging in the race to the bottom. Neither Pakistan nor Bangladesh can count on being lowest cost producers in the long run. What must they do to grow their exports in the future? The only viable option for both is to diversify their products and services and add greater value to justify higher prices.
Pakistan's Export Performance:
The bulk of Pakistan's exports consist of low value commodities like chadar, chawal and chamra (textiles, rice and leather). These exports have declined from about 15% to about 8% of GDP since 2003. Pakistan's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable. What must Pakistan do to improve it? What can Pakistan do to avoid recurring balance of payments crises? How can Pakistan diversify and grow its exports to reduce the gaping trade gap? How can Pakistan's closest ally China help? Can China invest in export oriented industries and open up its huge market for exports from Pakistan? Let's explore answers to these question.
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East Asia's Experience:
East Asian nations have greatly benefited from major investments made by the United States and Europe in export-oriented industries and increased access to western markets over the last several decades. Asian Tigers started with textiles and then switched to manufacturing higher value added consumer electronics and high tech products. Access to North American and European markets boosted their export earnings and helped them accumulate large foreign exchange reserves that freed them from dependence on the IMF and other international financial institutions. China, too, has been a major beneficiary of these western policies. All have significantly enhanced their living standards.
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| Top 10 Textile Exporters. Source: WTO |
Chinese Investment and Trade:
Pakistan needs similar investments in export-oriented industries and greater access to major markets. Given the end of the Cold War and changing US alliances, it seems unlikely that the United States would help Pakistan deal with the difficulties it faces today.
China sees Pakistan as a close strategic ally. It is investing heavily in the Belt and Road Initiative (BRI) which includes China-Pakistan Economic Corridor (CPEC). A recent opinion piece by Yao Jing, the Chinese Ambassador in Pakistan, published in the state-owned China Daily, appears to suggest that China is prepared to offer such help. Here are two key excerpts from the opinion piece titled "A community of shared future with Pakistan":
1. China will actively promote investment in Pakistan. The Chinese government will firmly promote industrial cooperation, expand China's direct investment in Pakistan, and encourage Chinese enterprises to actively participate in the construction of special economic zones. Its focus of cooperation will be upgrading Pakistan's manufacturing capacity and expanding export-oriented industries.
2. China will also actively expand its imports from Pakistan. In November, China will hold the first China International Import Expo in Shanghai, where, as one of the "Chief Guest" countries, Pakistan has been invited to send a large delegation of exporters and set up exhibitions at both the national and export levels. It is hoped that Pakistan will make full use of this opportunity to promote its superior products to China. The Chinese side will also promote cooperation between the customs and quarantine authorities of both countries to facilitate the further opening-up of China's agricultural product market to Pakistan. China will, under the framework of free trade cooperation between the two countries, provide a larger market share for Pakistani goods, and strengthen cooperation and facilitate local trade between Gilgit-Baltistan and China's Xinjiang Uygur autonomous region. And China will take further visa facilitation measures to encourage more Pakistani businesspeople to visit China.
Pakistan's Role:
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| Top 10 Garment Exporters. Source: WTO |
Pakistan's Role:
Pakistan needs to take the Chinese Ambassador Yao Jing's offer to increase Chinese investments and open up China's market for imports from Pakistan. Pakistan's new government led by Prime Minister Imran Khan should take immediate steps to pursue the Chinese offer. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen to develop a comprehensive plan to attract investments in export-oriented industries and diversify and grow exports to China and other countries. Pakistan must make full use of its vast network of overseas diplomatic missions to promote investment and trade.
Summary:
Pakistani currency has seen about 25% decline in value against the US dollar since January 2018. As a result of this devaluation, the minimum monthly wage in Pakistan has dropped from $136 last year to $107 now while in Bangladesh has seen it increased from $64 last year to $95 today. Renaissance Capital projects a further 10% depreciation this year. While this can help Pakistan's RMG exports in the short term, it is not good long term strategy. Competing on cost alone is a race to the bottom. Pakistan's manufactured exports per capita have declined in the last decade. Pakistan's exports have declined from about 15% of GDP to about 8% since 2003. The nation's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable. Chinese Ambassador Yao Jing has offered a helping hand to increase Chinese investment and trade in Pakistan. Pakistan's new government led by Prime Minister Imran Khan should take the Chinese Ambassador's plan seriously. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen on a comprehensive plan to attract investments in export-oriented industries and diversify and grow high-value exports to China and other countries.
Pakistani currency has seen about 25% decline in value against the US dollar since January 2018. As a result of this devaluation, the minimum monthly wage in Pakistan has dropped from $136 last year to $107 now while in Bangladesh has seen it increased from $64 last year to $95 today. Renaissance Capital projects a further 10% depreciation this year. While this can help Pakistan's RMG exports in the short term, it is not good long term strategy. Competing on cost alone is a race to the bottom. Pakistan's manufactured exports per capita have declined in the last decade. Pakistan's exports have declined from about 15% of GDP to about 8% since 2003. The nation's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable. Chinese Ambassador Yao Jing has offered a helping hand to increase Chinese investment and trade in Pakistan. Pakistan's new government led by Prime Minister Imran Khan should take the Chinese Ambassador's plan seriously. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen on a comprehensive plan to attract investments in export-oriented industries and diversify and grow high-value exports to China and other countries.
PS: More recent data on wages and electricity rates from Business Recorder:
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Comments
It depends. It could be good news for #Pakistan #exports short term but not a good long term strategy to engage in this race to the bottom.
https://nation.com.pk/11-Jan-2019/garment-industry-shows-confidence-on-govt-policies
PRGMEA Chairman Mubashar Naseer Butt said that PM Advisor on Commerce, Textiles, Industries and Investment, Abdul Razak Dawood deserves appreciation for his focus on addressing key economic issues on an urgent basis and special attention to the problems of value-added textile industry. He vowed that garment exporters feel happy to work closely with the government with a view to enhance exports and reviving growth momentum.
Sharing his optimism, the PRGMEA leader pointed out that the incumbent government has fulfilled all its commitments made to the exporters within very short span, particularly lowering gas tariff to $6.5/MMBTU and reducing electricity rates to Rs7.50 cents/kWh for the exporting industry. He said that Sales Tax refund payment has been cleared against RPOs while payment processing of Deferred Sales Tax refunds, which were pending for the last 15 years, has also been started.
“PRGMEA also appreciates the government to allow advance payments for imports of basic industrial raw material.” He said that the decision would enable industrial units to import items for export purposes up to $10,000. Appreciating the government on taking serious notice of the severe issue, he said the move has raised the business community's confidence and such business friendly policies will definitely result in boosting the trade and industry. He said that such facility’s withdrawal had severely affected the export-oriented industries of the country. The move also delayed export shipments besides scaling up the cost of production.
“This step will help revival and growth of the value-added textile industry and the industry is committed to achieve targets of increasing exports, create millions of direct jobs. We appreciate the special efforts of PM Advisor who has pleaded the case of exporters in an excellent way as the issue of Rebates has also been resolved and payment in this regard is being started in a couple of weeks”, Mubashar Butt added.
RMG workers' pay structure revised after PM's directive amid unrest for eight days
https://www.thedailystar.net/business/bangladesh-garment-workers-salary-structure-be-revised-1686979
After eight days of labour unrest, the government yesterday announced a revised pay structure, with a slight increase in both basic and gross wages in six of the seven grades in the RMG sector.
In the new pay scale, which comes after years, the yearly increment has been fixed at 5 percent.
Workers had been demanding pay raise in three grades in particular -- grade 3, 4 and 5.
The decision came following directives of the prime minister after an event-packed day, on which workers continued their protests, factory owners threatened to shut down their units and a tripartite committee held almost a daylong meeting to reach a consensus on the hike.
The meeting of the 20-member committee, which has representation of the workers, owners and the government, approved wage increase in grade 1-6. The hike ranges from a token Tk 15 to a modest Tk 747.
The raise is effective from December last year and will be adjusted from February.
The gross pay in grade 7 remains unchanged at Tk 8,000, which was Tk 5,300 in the previous pay structure announced in 2013.
The government will publish a new gazette of the revised wage in the next three to four days, said Labour and Employment Secretary Afroza Khan, who heads the tripartite committee.
The committee was considering pay hikes in the three “most problematic” grades -- 3, 4 and 5.
But at a meeting at Gono Bhaban on Saturday night, Sheikh Hasina instructed officials to revise the latest pay structure, originally announced in September last year, for all grades, sources said.
The workers will receive the arrear with their pay for February, Commerce Minister Tipu Munshi told reporters after the meeting.
“We were mainly concerned about the pay in grade 3, 4 and 5. But we eventually revised the wages six grades so workers get a little more,” he said, announcing the decision at a press conference at the ministry.
Amirul Haque Amin, president of the National Garment Workers Federation, said, “We welcome the revision and the new wage structure.”
He was speaking on behalf of the trade union leaders who are on the tripartite committee.
Reaction among the workers were mixed.
Alamgir Kabir, who works at a Ha-Meem Group factory, said he was happy and that he would join work today.
Another worker, however, said he was not satisfied. But still he would go back to work, if his colleagues did so.
Incidents of labour unrest over the pay structure made headlines in early December, just two months after the pay package was announced.
That protest died down ahead of the general election.
Country Bottom 40% income growth vs Average Income Growth
Pakistan 2.7% vs 4.3%
Bangladesh 1.4% vs 1.5%
Iran 1.3% vs -1.3%
Indonesia 4.8% vs 4.8%
Sri Lanka 4.8% vs 5.3%
Vietnam 5.2% vs 3.8%
Thailand 5.0% vs 3.0%
Malaysia 8.3% vs 6.0%
China 9.1% vs 7.4%
http://www.worldbank.org/en/publication/poverty-and-shared-prosperity
People experience poverty differently even within the same household. Traditional measures haven’t been able to capture variations because the surveys stop at the household level. Measuring poverty as experienced by individuals requires considering how resources are shared among family members. While data are limited, there is evidence that women and children are disproportionately affected by poverty in many — but not all — countries. Sex differences in poverty are largest during the reproductive years, when, because of social norms, women face strong trade-offs between reproductive care and domestic responsibilities on the one hand and income-earning activities on the other hand. Worldwide, 104 women live in poor households for every 100 men. However, in South Asia, 109 women live in poor households for every 100 men. Children are twice as likely as adults to live in poor households. This primarily reflects the fact that the poor tend to live in large households with more children.
There is evidence from studies in several countries that resources are not shared equally within poor households, especially when it comes to more prized consumption items. There is also evidence of complex dynamics at work within households that go beyond gender and age divides. More surveys are needed to capture consumption patterns of individuals so that governments can implement policies to bridge the inequalities within households.
Thousands of garment workers in Bangladesh who make clothes for top global brands have clashed with police as strike action over low wages entered a second week.
Police said water cannon and tear gas were fired on Sunday to disperse huge crowds of striking factory workers in Savar, a garment hub just outside the capital, Dhaka.
“The workers barricaded the highway. We had to drive them away to ease traffic conditions,” said police director Sana Shaminur Rahman. “So far 52 factories, including some big ones, have shut down operations due to the protests.”
On Tuesday, one worker was killed when police fired rubber bullets and tear gas at 5,000 protesting workers.
Bangladesh is dependent on garments stitched by millions of low-paid tailors on factory floors across the emerging south Asia economy of 165 million people.
Roughly 80% of its export earnings come from clothing sales abroad, with global retailers H&M, Primark, Walmart, Tesco and Aldi among the main buyers.
Union leader Aminul Islam blamed factory owners for resorting to violence to control striking workers. “But they are more united than ever,” he told AFP. “It doesn’t seem like they will leave the streets, until their demands are met.”
The protests are the first major test for prime minister Sheikh Hasina since winning a fourth term in last month’s elections, which were marred by violence, thousands of arrests and allegations of vote rigging and intimidation.
Late on Sunday, the government announced a pay rise for mid-level factory workers after meeting manufacturers and unions. Not all unions have signalled they will uphold the agreement.
Babul Akhter, a union leader present at the meeting, said the deal should appease striking workers. “They should not reject it, and peacefully return to work,” he said.
Minimum wages for the lowest-paid garment workers rose by a little over 50% this month to 8,000 taka ($95) a month. But mid-level tailors said their rise was paltry and failed to reflect the rising costs of living, especially in housing.
Bangladesh’s 4,500 textile and clothing factories shipped more than $30bn worth of apparel last year.
The Bangladesh Garment Manufacturers and Exporters’ Association, which wields huge political influence, warned all factories might shut if tailors did not return to work immediately. “We may follow the ‘no work, no pay’ theory, according to the labour law,” association president Siddikur Rahman told reporters.
Last year Bangladesh was the second-largest global apparel exporter after China. It has plans to expand the sector into a $50bn-a-year industry by 2023.
But despite their role in transforming the impoverished nation into a major manufacturing hub, garment workers remain some of the lowest paid in the world.
https://twitter.com/theworldindex/status/1085029776556023808
Access to electricity (% of population)
🇪🇺EU: 100%
🇧🇷BRA: 100%
🇨🇦CAN: 100%
🇨🇳CHN: 100%
🇺🇸USA: 100%
🇨🇴COL: 99%
🇵🇰PAK: 99%
🇵🇭PHI: 91%
🇮🇳IND: 84%
🇿🇦RSA: 84%
🇲🇳MGL: 82%
🇧🇩BAN: 76%
🇳🇬NGR: 59%
🇰🇪KEN: 56%
🇪🇹ETH: 42%
🇹🇿TAN: 33%
🇺🇬UGA: 27%
🇳🇪NIG: 16%
🇸🇸SSD: 9%
https://indianpunchline.com/pakistan-wriggles-out-of-imf-clutches/
The visit by Saudi Arabia’s Energy Minister Khalid A Al-Falih on Saturday to Gwadar to inspect the site allocated for a multibillion oil refinery in the port city suggest that Riyadh and Islamabad are giving the final touch to reaching agreement for a Saudi Aramco Oil Refinery in Pakistan. Reports say that Saudi Arabia will be investing $10 billion in the proposed project.
Without doubt, this is a major development in the region. The Saudi-Pakistan relationship, which has been traditionally close and fraternal, is moving on to a new level of dynamism. The Saudi investment decision can be taken as signifying a vote of confidence in the Pakistani economy as well as in Prime Minister Imran Khan’s leadership. It comes on top of the $6 billion package that Saudi Arabia had pledged last year (which included help to finance crude imports) to help Pakistan tide over the current economic difficulties.
The visiting Saudi minister Khalid al-Falih told reporters in Gwadar, “Saudi Arabia wants to make Pakistan’s economic development stable through establishing an oil refinery and partnership with Pakistan in the China Pakistan Economic Corridor.” This remark highlights that Saudi Arabia is openly linking up with the China-Pakistan Economic Corridor (CPEC). China has welcomed this development, but countries that oppose the CPEC such as the US and India will feel disappointed.
From the Indian perspective, the Saudi investment in Gwadar becomes a game changer for the port city, which was struggling to gain habitation and a name. Inevitably, comparisons will be drawn with Chabahar. India has an added reason to feel worried that its Ratnagiri Refinery project, which has been described as the “world’s largest refinery-cum-petrochemical project” is spluttering due to the agitation by farmers against land acquisition. The Saudi Aramco was considering an investment in the project on the same scale as in Gwadar. Will Gwadar get precedence over Ratnagiri in the Saudi priorities? That should be the question worrying India.
The Saudi energy minister disclosed that Crown Prince Mohammed bin Salman will be visiting Pakistan in February and the agreement on the Gwadar project is expected to be signed at that time. Of course, it signifies that Saudi Arabia is prioritizing the relations with Pakistan. The fact remains that Saudi Arabia has come under immense pressure of isolation following the killing of Jamal Khashoggi.
There is much uncertainty about the dependability of the US as an ally and security provider. Riyadh is diversifying its external relations and a pivot to Asia is under way. Suffice to say, under the circumstances, a China-Pakistan-Saudi axis should not look too far-fetched. There is also some history behind it.
To be sure, Iran will be watching the surge in Saudi-Pakistani alliance with growing trepidation. The Saudi presence in Pakistan’s border region with Iran (such as Gwadar) has security implications for Tehran. Iran has been facing cross-border terrorism.
Egyptian billionaire Naguib Sawiris has offered to build 100,000 housing units in Pakistan to help realize Prime Minister Imran Khan’s dream of an ‘ambitious’ housing project, officials said on Friday.
“Naguib Sawiris has expressed his will to invest in 100,000 units of affordable housing to help prime minister (Imran Khan) in his vision toward Pakistan,” Tarek Hamdy, Chief Executive officer of Elite Estates — a partnership between Ora Developer and Saif Holding — told Arab News in an exclusive interview.
Owned by Sawiris, Ora Developers is already engaged in the construction of a multibillion-dollar housing scheme named ‘Eighteen’ which was launched in 2017 in Islamabad with local partners, Saif Group and Kohistan Builders.
Sawiris’ first investment in Pakistan was in Mobilink, a cellular operator.
PM Khan in October 2018 had launched ‘Naya’ (New) Pakistan Housing Project in line with his party’s election manifesto, which promised fivr million houses for the poor.
Hamdy says they have “set rules or guidelines of the way of doing things” that apply to every real estate projects — whether they are affordable or high value units.
“We will use our experience and knowhow to deliver this properly to the people of Pakistan,” he added.
Since the announcement of the low-cost housing project for the poor, the scheme has been at the heart of all political and economic discourses with several calling it too ambitious.
“This scheme is very ambitious yet very promising for the people of Pakistan. I think all the developers should help in this scheme. You cannot solely rely on the government to build five million houses,” Hamdy said.
Recently, the governor of Pakistan’s central bank had said that the massive housing project would require financing of upto Rs 17 trillion.
Hamdy believes that the promise of building five million affordable housing units cannot be realized in a short span of time. “I think the plan is right but it has to be in stages, has to be in steps. It could be achievable obviously that is not the project (to be achieved) in one or two years... may take few good years, may be couple of decades to be achieved,” he said.
In the Islamabad project the Ora Developers own a 60 percent stake in the project comprising a five-star hotel, 1,068 housing units, 921 residential apartments, business parks, hospitals, schools and other educational facilities and 13 office buildings, and a golf course. The networth of the project is $2 billion.
The next cities on the radar for real estate projects are Lahore, Karachi, and Faisalabad. “We intend to do more, we intend to invest more. I think that our portfolio of real estate could come to $10 billion worth of investments in the next five to 10 years including all the projects that we intent to do,” Hamdy said.
Pakistan’s housing sector is marred by frauds, scams and unfinished schemes which has been discouraging many potential investors from venturing into the sector. However, Hamdy says he is confident of delivering the promise by 2021.
Analysts say that Pakistan’s housing sector offers great opportunities for investment due to increasing demand. “According to estimates, the current real estate market value is around Rs900 billion which is three times that of the GDP,” Saad Hashmey, an analyst at Topline Securities, told Arab News, adding that the PM’s housing project is the need of the hour.
Pakistan faces a shortage of nearly 12 million housing units that may require a massive investment of around $180 billion, according to the former Chairman of the Association of Builders and Developers, Arif Yousuf Jeewa.
Pakistan expects to attract more than $40 billion foreign direct investment in the next five years in oil refining, petrochemical, mining, renewable energy, and real estate sectors. “We estimate that roughly around $40 billion investment will be made by three countries (Saudi Arabia, the UAE, and China) during the next three to five years,” Pakistan Board of Investment BoI chief, Haroon Sharif had told Arab News earlier, adding that “the investment would start materializing within the next two years”.
In a speech in the lower house of parliament, Asad Umar unveiled a cut in import duty on industrial raw materials to raise industrial productivity and help ease a chronic energy crisis that has caused repeated power outages and gas supply interruptions.
He also proposed a series of tax measures for investors in the stock market, as well as proposals to cut red tape and lower taxes for small and medium-sized businesses.
“We need to bring a balance in revenue and expenditure as it is vital for growth,” Mr Umar said. “Our imports are touching a dangerous point. We have to increase exports and bring reforms in agriculture and other sectors”.
Since he was elected in August, Mr Khan has focused on staving off a balance of payments crisis. In the year before Mr Khan’s election, liquid foreign currency reserves fell to the equivalent of about eight to nine weeks of imports,down from more than 12 weeks, mainly due to a widening current account deficit.
Under Mr Khan’s leadership, the country has secured at least $11bn in combined loans from Saudi Arabi a, the United Arab Emirates and China to meet its foreign payments in the financial year to June this year. But it has also drawn up plans to seek a bailout from the IMF.
Economists said an IMF loan was the only way for Pakistan to rebuild confidence and persuade multilateral lenders such as the World Bank and the Asian Development Bank to extend loans to the country.
With overall economic growth during this financial year set to fall to 4 per cent of GDP down, from 5.8 per cent in the last financial year, Mr Khan was risking popular anger, they said.
“Across Pakistan, there is a lot of bitterness among businesses and generally people feel that there is a definite slowdown,” one senior western economist said. “As Pakistan heads into an IMF programme, the slowdown will continue.”
Mr Umar announced cuts in import duty for five years on imported equipment for renewable energy generation as well as machinery for manufacturing in special economic zones.
He also said taxes on imported luxury cars would be raised.
But analysts warned that the outlook for the economy depended on how far Mr Khan’s government could successfully tackle areas in need of reform.
“As we go forward, much depends on how far the government can deal with long-term issues central to the economy,” said Abid Sulehri, member of a government economic advisory council.
Pakistan has one of the world’s worst systems of tax collection where less than 1 per cent of the population pays an income tax.
https://www.thenews.com.pk/print/443994-interloop-ipo-raises-rs5-025bln
Interloop Limited has successfully raised Rs5.025 billion through the largest private sector Initial Public Offering (IPO), placing itself among the top 50 companies listed on the Pakistan Stock Exchange (PSX) by market capitalisation, the company said on Thursday.
The company that supplies foot-hosiery to global sportswear giants like Nike and Adidas said, the two-day book building process was oversubscribed by 1.37 times with the price closing at Rs46.10/share.
The total demand received was Rs6,727 million against total issue size of Rs 4,905 million, oversubscribed by Rs1,822 million or 1.37 times.
Arif Habib Limited is the consultant to issue for the IPO, while Ismail Iqbal Securities has been the book runners.
The Interloop offer has surpassed the previous record for a private company, when Pakistan Stock Exchange Ltd raised Rs4.5 billion two years ago. There have been larger sales by state-controlled companies in Pakistan.
Interloop is one of the world’s largest hosiery manufacturers and has an annual turnover in excess of Rs30 billion.
The company in a statement said one of the main objectives for the IPO was to expand hosiery production by opening a new plant and simultaneously and entry into the apparel business by opening a denim plant in Lahore, for which land had already been acquired.
Interloop Ltd., which makes socks for Nike and Adidas, is planning Pakistan’s biggest ever initial public offering by a private firm.
The company plans to raise as much as 6.8 billion rupees ($51 million) to expand its sock manufacturing capacity by around 20 percent and enter the denim business, said Chairman and Co-Founder Musadaq Zulqarnain. It will offer 12.5 percent of the business in the sale, likely to take place in January, and is aiming to lift revenue by 77 percent over five years, he said.
“Our capacity is already full,” Zulqarnain said in an interview at the company’s head office in Faisalabad. Interloop can see more growth, so will “take that risk” to expand, he said.
The listing comes as Prime Minister Imran Khan tries to spark an export revival to make up ground that Pakistan has lost to low-cost manufacturing destinations like Vietnam and Bangladesh. The new government has announced plans to cut gas and electricity prices to support companies selling abroad, although the push has been criticized for relying too much on subsidies.
The Interloop offer will surpass the previous record for a private company, when Pakistan Stock Exchange Ltd. raised 4.5 billion rupees two years ago. There have been larger sales by state-controlled companies in Pakistan.
https://www.bloomberg.com/news/articles/2018-11-09/sock-supplier-for-nike-plans-biggest-pakistan-private-sector-ipo
Bangladesh’s garment makers have asked the government to extend a 5 percent export subsidy for the industry, saying they are being squeezed between low international prices for clothing and rising production costs.
The country’s garment industry, the world’s second biggest producer, currently receives a 5 percent cash incentive for exports but that is due to end on June 30.
Siddiqur Rahman, the president of the Bangladesh Garment Manufacturers and Exporters Association, told reporters on Wednesday that without the subsidy, more garment makers would go out of business. The association says that 1,200 garment factories have closed down in Bangladesh in the past five years.
Siddiqur said another 5 percent cash incentive on exports would cost the government $1.67 billion.
Commerce Minister Tipu Munshi told Reuters that he would talk to the finance minister about including the proposal in the budget for the fiscal year beginning July 1.
“After the enhancement of wages since December last year there is a pressure to the owners and if they get some cash incentive that would be a relief,” said Tipu.
Siddiqur said that the prices of readymade garments in 2018 were 7.4 percent lower in the U.S. market and 3.64 percent less in the European market than they had been in 2012.
At the same time the manufacturers’ costs have been climbing, mainly driven by labour costs.
Last year, there was a big increase in the minimum wage for Bangladesh garment makers and that drove the costs of production higher.
Bangladesh earns about $30 billion annually by exporting readymade garments.
The good news is that the Pakistani rupee has fallen by almost 20% since 2017. That’s virtually wiped out the currency’s overvaluation adjusted for inflation differences with trading partners, as estimated by the IMF. If the currency slides further and inflation doesn’t accelerate, Pakistani exports should receive a boost, provided global growth and cotton availability for the textile industry hold up.
https://www.bloomberg.com/opinion/articles/2019-06-12/pakistan-flirts-with-crisis-as-imf-agrees-another-bailout
by Apparel Resources News-Desk
21-May-2019
https://apparelresources.com/business-news/trade/pakistans-textile-exports-stagnant-rmg-marks-3-2-growth/
Mainstay of Pakistan’s economy, the textile industry of the country is in a sticky situation lately.
As per reports, in the first 10 months of the current fiscal year of 2018/19, textile exports from Pakistan remained flat at US $ 11.1 billion, as compared to the corresponding period of the previous year. And this despite Government’s various measures to boost exports.
However, on the positive side, export of readymade garments, bedwear and knitwear registered growth in the period under review.
As per data from Pakistan Bureau of Statistics (PBS), export of RMG improved 3.2 per cent to US $ 2.1 billion, while export of knitwear exports increased by 7 per cent year-on-year to US $ 2.3 billion and, export of bedwear marked an increase of 2.4 per cent to US $ 1.9 billion.
Further, in this period, export of raw cotton declined drastically by 67.2 per cent to US $ 18.5 million while export of cotton yarn fell 15.7 per cent to US $ 941.3 million.
Exports of cotton cloth also reportedly fell 2.7 per cent to US $ 1.7 billion (in the July-April period of the current fiscal year).
It may be mentioned here that due to continuous devaluation of rupee (fell by around 20 per cent in last year alone), exporters are able to improve on their margins on exports but on the flipside cost of doing business has gone up significantly.
https://www.ventureoutsource.com/contract-manufacturing/asia-labor-costs-china-manufacturing-relocation-impact-considerations/
Below, the annual cost (average) per manufacturer worker in China, Thailand, Malaysia, Indonesia, Pakistan, Philippines, India, Vietnam per Japan external trade organization (JETRO).
Average annual cost of a manufacturing worker (US$, 2017)
China: $10,131
Thailand: $6,997
Malaysia: $5,900
Indonesia: $5,421
Pakistan: $4,379
Philippines: $4,102
India: $3,982
Vietnam: $3,673
https://sourcingjournal.com/denim/denim-trade-shows/bluezone-collaborations-kickstart-creativity-denim-168343/
The Munich, Germany trade show held last week was home to several collaborations that demonstrate how each player in the supply chain contributes to creativity and innovation in the industry.
From mills and trim suppliers, to the next generation of denim designers, here’s a look at some of the notable partnerships found at the show.
Creative collaboration
Bluezone’s trend curators at Monsieur T introduced a new layer to their seasonal forecast with the All Related Collaboration, a project that emphasized teamwork and creativity.
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In partnership with Greek denim label Salt & Pepper Jeans Co., Pakistan denim mill Naveena presented a line of nostalgic-inspired jeans and overalls recreated with contemporary fabrics and sustainable processes. The result is a collection of unique handmade jeans that capture the spirit of American craftsmanship with a touch of European aesthetics and an environmentally-friendly process.
The capsule collection, custom made by Salt & Pepper Jeans Co., are made with Naveena’s Retro Tech fabrics, which are designed to provide the wearer comfort without sacrificing a vintage authentic look. The jeans were washed by Italian chemical company, Officina+39, using its Trustainable substances and technology. The Trustainable portfolio uses fewer hazardous chemicals, reduces power usage and conserves water.
Naveena also teamed with Lenzing and Chottani for the show giveaway denim sailor bag made of Tencel x Refibra Lyocell.
“By collaborating with our partners, we link progressive design with technical innovation, making innovative and beautiful products in a clean, transparent way,” said Aydan Tuzun, Naveena head of global sales and marketing.
A technical seminar in Karachi will be held at the Hotel Karachi Avari Towers on November 12 and a second in Lahore will be held on November 14 at the Hotel Avari Lahore Towers.
“The regions surrounding both of these cities have become major hubs for textile manufacturing, especially in areas such as home textiles and denim, where Monforts enjoys market-leading positions with its finishing systems,” said area sales manager Manfred Havenlith, who in addition to presenting at the seminars, will be holding meetings and networking with existing Monforts customers and potential new ones during the trip. “The Punjab region around Karachi, as Pakistan’s largest city, for example, is now dense with denim manufacturers, many of whom have already expressed keen interest in the new Monforts CYD continuous yarn dyeing system we introduced at ITMA 2019 in Barcelona in June.”
The CYD system integrates new functions and processes into the weaving preparation processes — spinning, direct beaming, warping and assembly beaming, followed by sizing and dyeing – in order to increase quality, flexibility, economic viability and productivity. The unique Eco Bleach process is the first bleaching system for yarn treatment available on the market and is combined with the washing units, after which the fabric is then dyed immediately, resulting in considerable savings in wastewater and chemicals.
It is possible to process short batches of yarn in order to produce minimum runs of finished fabrics in a single continuous process and by comparing the usual processing sequences within the denim industry with the new CYD system, the advantages become immediately clear.
Key customers
Existing Monforts denim manufacturing customers in Karachi include Artistic Milliners, Artistic Fabric & Garment Industries (AFGI), Denim Clothing Company, Denim International, Kasim, Rajby Industries and Soorty. Home textiles customers meanwhile include Afroze, Al Karam, Lucky Textile Mills, Mustaqim and Yunus.
The situation is similar in the region around Pakistan’s second largest city, Lahore, where major Monforts customers include Azgard-9, Crescent Bahuman, Crestex, Kohinoor Textile Mills, Naveena, Sapphire Textiles and US Denim Mills.
On Monday, November 11, the VDMA delegation will also be visiting Karachi-headquartered Gul Ahmed Textile Mills, a leader in the home textiles field, which operates both yarn dyeing and fabric finishing lines from Monforts, and in recent years has expanded into retail, with over 40 stores across Pakistan, offering a diverse range of products, from home accessories to fashion clothing.
Trading partner
The European Union is Pakistan’s most important trading partner and textiles and clothing accounted for over 80 percent of its total exports of 6.8 billion euros to the EU in 2018, according to the European Commission.
Starting from January 2014, Pakistan has benefited from generous tariff preferences — mostly zero duties — under the EU’s GSP+ arrangement, which aims to support the country’s sustainable development and good governance. In order to maintain GSP+, Pakistan has to effectively implement 27 core international conventions on human and labour rights, environmental protection and good governance.
The VDMA delegation is being organised by SBS systems for business solutions on behalf of the German Federal Ministry for Economic Affairs and Energy (BMWi), in collaboration with the German Pakistan Chamber of Commerce and Industry (GPCCI) and with the technical support of the VDMA Textile Machinery Association.
Being a cheap labour market (after huge currency devaluation), Pakistan can transform into an excellent destination for Taiwanese textile companies, which are willing to relocate their units outside Vietnam, said Taiwan Textile Federation President Justin Huang.
“At present, Vietnam is crowded, which causes difficulties for Taiwanese textile firms there, such as labour shortages,” Justin said in an interview with The Express Tribune. “In Pakistan, however, labour issues will not emerge at least for the next 10 years and this is something attractive for us.”
He pointed out that China had invested massively in Pakistan’s infrastructure development projects under the China-Pakistan Economic Corridor (CPEC) and stressed that Taiwanese businessmen could take maximum advantage from such investment.
Pakistan had a duty-free export agreement with the European Union and in December, the second phase of a free trade agreement (FTA) with China would also become functional, which would prove to be helpful for the Taiwanese investors and trade and industrial development in Pakistan, he said.
“We are different from China and other countries because we focus more on technical and functional textiles,” he emphasised.
Justin added that he would forward all the information collected from Pakistan to other federation members in Taiwan including the fact that Pakistan was a huge market of 200 million with excess labour and the government was willing to support foreign investment.
The federation president expressed the resolve to devise a mechanism for enhancing trade and investment collaboration between Taiwan and Pakistan in the textile and garments sector. He was of the view that Pakistan’s textile industry produced excellent products for home use and had the capacity to produce quality apparel as well.
“If things follow the right direction, we will transfer new technologies and manufacturing processes to Pakistan, which will facilitate the country in upgrading its products,” Justin stressed.
“After that, Pakistan will not have to compete with China or Bangladesh on price issues and the country will be able to add value to its products.”
Textile companies based in Taiwan have already designed products for global brands like Nike and Adidas. Sixteen teams in the football World Cup 2018 used Taiwan-based fabric in their kits.
He voiced hope that the FTA with China would also assist Taiwanese companies, which had already invested in China and had set up their units in the country.
“Our officials can bring in their work experience to Pakistan along with the academia to train the local human resources,” he pointed out. “In future, Pakistan will need a lot of textile engineers, hence, there is a need to provide sufficient training to them so that the country can utilise its manpower.”
He also stressed the need for easing the visa approval process for the Taiwanese investors.
“Right now, it is difficult for us to visit Pakistan due to a long process of applying for the entrance visa,” he said. “It took me more than three weeks to get approval for Pakistani visa.”
On the ground, we found most companies in a depressed state due to currency devaluation and struggling domestic economy. However, the exporters are poised to benefit from the devalued rupee, while import substitute businesses take advantage of government policies such as tax subsidies designed to reduce the problematic current account deficit. As a result, we invested in four companies which we believe will do well even in this turbulent time for the economy: three export-related businesses (an IT company, a textile manufacturer, and a hydrogen peroxide producer that supplies textile industry) and a fertilizer business benefiting from import substitution policies.
The IT services company we invested in is a hidden gem that shines from all angles. First, the business stands to benefit from the weak currency: while they hire the best IT talent locally, 80% of their revenue comes from overseas thanks to strong client relationships in North America, Germany and the Middle East. Second, they have grown earnings for many quarters and expect further 15% bottom-line expansion next year. And third, they have built an open-minded, friendly culture: we were impressed that the company’s CFO is female (having women in top positions is rare in Pakistan), there is a gym at the office (with female-only hours), and the employees collaborate, look happy, and smile. This progressive and growing business was trading at only 7x P/E, a bargain compared to its historical levels of around 20x and IT outsourcers in other markets trading at over 30x.
----------------
After many unsuccessful attempts to get a meeting with Pakistan’s finance minister, we decided to simply show up at his office. Getting through security was surprisingly easy, but as we were about to waltz into the minister’s office, a large man summoned us.
The large man was the “Additional Finance Secretary”. We explained that we have been active foreign investors in Pakistan for six years, and had sent five unanswered emails to the minister over the past four weeks requesting a meeting. The man assured us that every email gets printed and placed on his desk so he personally saw every message we sent (though he did not recall seeing any of them). Instead of minister@finance.gov.pk, he said we should send our request to the Yahoo! email address on his official business card (?!) and he would get back to us in a few weeks. As it was apparent he was just trying to get rid of us, we persisted. He finally told us that if we follow him he would take us to shake the minister’s hand and make the appointment.
However, as we were passing by the minister’s door we realized that the man had no intention to stop. Instead, he said he was escorting us out of the building. In a last-ditch effort, we knocked on the door and were about to open it – only to be dragged away by the large man. We later learned that finance minister takes 2-hour afternoon naps in his office, so we hope we didn’t wake him up.
https://www.outlookindia.com/website/story/news-analysis-china-pakistan-fta-2-a-new-regional-hub-for-cotton-garments-in-the-offing/348942
With the second phase of the CPFTA, there is a possibility of relocating the production of international brands, many of which have facilities in China that import cotton fabric from Pakistan as raw material—to Pakistan itself. The inflow of Chinese investment in machinery and technology in order to set up production bases in Pakistan will drive innovation and economies of scale, thereby making Pakistan regionally competitive in cotton-based garments. In addition, Pakistan will garner a favourable position for exporting to other markets that have so far been trading primarily with China as well as potentially to other Regional Comprehensive Economic Partnership (RCEP) members.
-----------------
In January 2020, Pakistan and China entered into the second phase of China-Pakistan Free Trade Agreement (CPFTA2), under which China has eliminated tariffs on 313 priority tariff lines of Pakistan’s export interest. In return, Pakistan has offered China market access to raw materials, intermediate goods, and machinery.
Of the 313 high-priority products that Pakistan can now export without duty payments to China, 130 are from textiles and clothing sector. Reduced tariffs, an expected surge in Chinese investment into Pakistan and the potential shift of production base from China to Pakistan, may change the regional dynamics of textiles trade. The numbers explain how.
Under the CPFTA2, many Pakistani textile products will now enjoy duty-free access to China, which has extended similar tariff reductions to other trading partners - Bangladesh, Thailand and Vietnam among others - under the ASEAN-China FTA. Tariffs on readymade cotton garments (HS codes 61, 62 and 63), have been massively reduced. For example, men’s ensembles of cotton (HS code – 62032200), Pakistan’s top world export, was traded with China at 17.5 per cent (MFN rate) which reduced to 12 per cent under Phase-I of FTA and has dropped to 0 per cent in the Phase-II of FTA. This places Pakistan at a more than equal footing with Bangladesh, and ahead of India which faces a tariff rate of 8 per cent on the export of this product to China.
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Pakistan is likely to be preferred over Bangladesh given the former country’s comparative advantage in producing cotton fabric (nearly 25 per cent of Pakistan’s total cotton exports in 2018 were to China); ease of doing business (Pakistan ranks at 108 compared to Bangladesh at 168 and India at 63 under the World Bank’s Doing Business 2020 study); ease of trading across borders (Pakistan ranks at 111 compared to Bangladesh at 176 and India at 68) and ease of starting a new business (Pakistan ranks at 72 compared to Bangladesh at 131 and India at 136).
Pakistan’s government targets raising the country’s textile and clothing exports from USD 13.5 billion in 2018 to USD 25 billion by 2025. As China has the world’s largest textile industry—in terms of both production and export—it is an inevitable trading partner for Pakistan to meet this 2025 target.
For Pakistan, to fully reap the benefits of the CPFTA2, access to cheaper imported inputs will be crucial to its export competitiveness for cotton-based readymade garments.
While Pakistan grows cotton domestically, 37 percent of its cotton imports came from India. After the trade ban between India and Pakistan in 2019, Pakistan began sourcing cotton/yarn from the US and Vietnam, thereby witnessing a rise in cotton prices, amid low production and higher import tariffs (11% from the US and Vietnam, compared to 5 per cent from India for cotton yarn (HS Code 520524), one of Pakistan’s major imports from India).
https://profit.pakistantoday.com.pk/2020/11/28/interloop-divests-from-bangladesh-operations/
Why is it that if one looks at the tags of clothes bought in Europe, they will invariably say ‘Made in Bangladesh’? Entirely European fast fashion brands like Zara (which is a Spanish retailer) will manufacture their clothes in Bangladesh.
There is a specific reason for this, and not just the usual developing world cliches of ‘cheap labour’ and ‘advantage in cotton’. Technically speaking, Bangladesh has been part of the World Trade Organisation since 1995. But in 2001, it would make a decision that would alter its fortunes for the better. That year, the country signed the ‘EU-Bangladesh Cooperation Agreement’ with the European Union. That agreement provides broad scope for cooperation, extending to trade and economic development, human rights, good governance and the environment.
But the real benefit, of course, was trade. Bangladesh was to receive duty-free access to EU markets under a programme known as the globalised scheme of preferences (GSP), designed to help developing countries grow through trade. The country has the most generous level of GSP, aimed at least-developed countries.
And it worked. For instance, in 2015, the EU accounted for 24% of Bangladesh’s total trade. Over 90% of the EU’s total imports from Bangladesh were in clothing. More impressively, between 2008 and 2015, EU imports from Bangladesh trebled from €5,464 million to €15,145 million, which represented nearly half of Bangladesh’s total exports.
One textile company in Pakistan took notice: the sock moguls, Interloop. The company is one of Pakistan’s fastest-growing and most exciting textile companies, and let us explain why.
https://www.arabnews.pk/node/1782136/pakistan
“Pakistan’s policy of early easing of lockdowns and opening the economy has diverted export orders from China, India and Bangladesh to Pakistan,” she said. “The exports in November 2020 have broken a nine-year record.”
Malik said the industry was currently running at 110 percent capacity, with export orders until June 2021.
Waheed Khaliq Ramay, chairman of the Power Looms Association of Pakistan, said factory owners were “desperately” searching for workers as “almost all power looms in Pakistan, and particularly in Faisalabad, were running at full capacity.”
“Those that were closed since 2016-17 and before are now back in business and continuously expanding,” Ramay said.
Faisalabad has around 300,000 fabric-manufacturing power looms, of which more than 50,000 were closed in 2016-17 due to a long-running energy crisis. But industry officials say the industry is picking up once more, with 40,000 new power looms being set up to meet growing demand, Malik said.
The textile industry, which comprises 46 percent of the total manufacturing sector and provides employment to around 25 million Pakistanis, contributes 8.5 percent to the GDP, according to the Pakistan Board of Investment. It also contributes 60 percent to overall exports and is one of the major earners of foreign exchange for Pakistan.
Despite a global economic slowdown due to COVID-19, Pakistan’s textile sector reached $6 billion exports in the first five months of current fiscal year (July-November 2020), which is 62 percent of total exports (worth $9.7 billion) and almost 5 percent higher compared to the same period last year, official data shows.
“Incentives and export facilitations have played a big role in making Pakistan a competitive exporting country,” Malik said.
https://www.wsj.com/articles/bangladesh-is-becoming-south-asias-economic-bull-case-11614763213
Bangladesh is notable in South Asia for being the closest proxy for the successful development models seen at various stages in South Korea, China and Vietnam. Export-led development has the best modern track record of moving countries from very low income levels into middle-income status.
Bangladesh’s exports have risen by around 80% in dollar terms in the past decade, driven by the booming garment industry, while India and Pakistan’s exports have actually declined marginally.
There are other factors in the country’s favor as far as its development model goes: a very young demographic structure, a continued competitive edge in terms of wage levels, strong and rising female labor-force participation especially relative to the rest of South Asia.
There are some meaningful potential hindrances, however. For one, Bangladeshi export growth is well below that of Vietnamor Cambodia, where exports have more than tripled and more than doubled respectively over the past 10 years. India’s exports boomed in the early 2000s and then stagnated, so a continued upward trend isn’t guaranteed.
The next step for Bangladesh would be to transition toward higher-value forms of manufacturing and exporting, as Vietnam has done. Its export industry is still overwhelmingly focused on garment manufacturing. The country’s economic complexity, ranked by Harvard University’s Growth Lab, is 108 out of the 133 countries measured. That is actually lower than it was in 1995.
Bangladesh also finds itself, like India, outside of major Asian trade blocs. It isn’t a member of the Association of Southeast Asian Nations, or the Regional Comprehensive Economic Partnership or the Comprehensive and Progressive Trans-Pacific Partnership. Diversifying its manufacturing exports would require greater participation in intra-Asian supply chains—and probably a closer economic relationship with its neighbors to the east.
Caveats aside, Bangladesh’s exit from LDC status is probably a sign of further progress ahead—and a shot across the bow of other South Asian neighbors taking a very different approach to development.
Bangladesh has Least Developed Country (LDC) status that qualifies it for duty-free market access or reduced tariff facilities to many developed and developing nations, globally. Bangladesh enjoys duty-free access to around 52 countries, including countries in the EU, the USA, Australia, Switzerland, Japan, Turkey, Russia, Norway, New Zealand, China, South Korea, Thailand, Malaysia, and India, for the trade of many products.
Bangladesh has also signed many trade deals offering Bangladesh exports a preferential treatment, like SAARC Preferential Trading Arrangement, Asia-Pacific Trade Agreement, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Co-operation, South Asian Free Trade Area, and the Trade Preferential System among the OIC member states.
https://medium.com/@stitchdiary/what-makes-bangladesh-a-hub-of-garment-manufacturing-ce83aa37edfc
Neighbouring country Pakistan topped the chart in South Asia with a monthly minimum wage level of $491, while India has the second lowest minimum wage level of $215
https://www.tbsnews.net/economy/bangladeshs-monthly-minimum-wage-lowest-asia-pacific-region-ilo-166438
The monthly minimum wage level in Bangladesh was $48 or around Tk4,070 in 2019 – the lowest among all nations in Asia and the Pacific region, reveals the Global Wage Report 2020–21.
Published by the International Labour Organization (ILO) on Wednesday, the report calculated the "Gross Monthly Minimum Wage Levels in Asia and the Pacific" using the Purchasing Power Parity (PPP) values.
Globally, Bangladesh ranked fifth from the bottom among 136 countries. Neighbouring country Pakistan topped the chart in South Asia with a monthly minimum wage level of $491, while India has the second lowest minimum wage level of $215 in the region, it says.
In the Asia and the Pacific region, the median (average) minimum wage is $381, which is $333 or around Tk18,250 higher than that of Bangladesh. However, the ILO report excluded agriculture and domestic workers while calculating Bangladesh's monthly minimum wage level.
Commenting on the matter, Policy Research Institute's Executive Director Dr Ahsan H Mansur said, "Actually, minimum wage is only applicable to Bangladesh's garments sector, and it has no application in any other ones. Elsewhere, the minimum wage is even lower.
"So, the report is not a real reflection of the true picture, and if the minimum wage is increased artificially, it would not be very beneficial at all. If we increase the minimum wage level only in a particular segment and exclude the whole economy, there will not be any positive."
He added that Bangladesh does not have a minimum wage level in every sector and for every job, so the comparison made by the ILO is not appropriate.
Additionally, the report mentions that Bangladesh's actual monthly minimum wage was only $18 last year.
In the region, Australia has the highest monthly minimum wage of $2,166 in terms of PPP, followed by New Zealand with $2,126 and South Korea with $2,096.
What is the situation in South Asia?
Nepal is following the chart-topper Pakistan with a minimum wage level of $396 in this region, and Afghanistan is just behind Nepal with $306.
At the bottom end, Bangladesh and India is followed by Sri Lanka, which has the third lowest minimum wage level of $247 in the South Asia region.
Bangladesh revises the minimum wage every five years and last did it in December 2018. The report mentions that out of 149 countries, only Bangladesh and Angola have not yet made any schedule for the next adjustment of the minimum wage.
About the issue, Dr Mansur said, "Amid this Covid-19 crisis and the ongoing export situation, if the minimum wage is increased now, unemployment may rise further. Instead, we should focus on increasing our labour productivity.
"Productive workers can get an annual pay rise automatically."
Globally, the median value of gross minimum wages for 2019 is $486 per month, indicating that half of the countries across the globe have minimum wages set lower than this value, and half have minimum wages set higher.
Largest decrease in real minimum wage
Bangladesh has seen 5.9% decrease in real minimum wage growth annually, from the period between 2010 and 2019. This was the largest decrease in Asia and the Pacific region.
Meanwhile, the neck and neck RMG export competitor Vietnam (11.3%) observed the highest increase of real minimum wage growth.
Addressing the issue, Dr Mansur said, "This is not desirable and a matter of deep concern too."
On a separate note, the annual labour productivity growth increased by 5.8% in Bangladesh, compared to 5.1% of Viet Nam for the same period.
https://www.brecorder.com/news/40143546
The arguments goes that “textile units in Pakistan are incurring power and energy costs 2.4 percentage points more than India and 7.8 percentage points higher than Bangladesh…ideal regionally competitive electricity tariff would be around 7.4 cents/kWh”. There is no denying that textile is an intensely competitive market when it comes to export, and regionally competitive electricity tariff is only a fair demand.
Only that a look at electricity tariffs for industries in the region tells the textile players in Pakistan are not worse off. If anything, they get better power tariffs than both India and Bangladesh, where only Vietnam offers electricity at cheaper rates – even at 9 cents per unit. The research being quoted by the textile lobbyists may well be outdated, as the very sources mentioned in the research indicate that electricity tariff for industries in Bangladesh are close to 11 cents, whereas those in India are north of 10 cents per unit.
In terms of natural gas, there is a clear advantage that competitors have over Pakistani textile players, based on PIDE’s research titled “Regionally Competitive Energy Tariffs and Textile Sector’s Competitiveness” from 2020. BR Research has not been able to independently verify the same. That said the overall picture in terms of regionally competitive tariffs is not as bleak as some representative bodies of the textile sector would paint. Surely, the power tariffs are nowhere close to 7.4 cents, which is being termed as “ideal”.
The second most significant element in conversion cost is labor, which accounts for roughly 29 percent as compared to 35 percent of power and fuel, as per PIDE’s aforementioned research. Pakistan’s labor rates are 80 percent lower than that of India and only 12 percent cheaper than that of Bangladesh. Given the massive currency depreciation in the past two years, the labor wages in dollar terms have only tilted more in favor of Pakistan - as no other currency in the region has seen such a hammering.
As per data provided by the Punjab Bureau of Statistics, wages in textile sector have grown at an average of 2 percent every quarter in rupee terms, since 1QFY19. The data presented in the “Monthly Survey of Industrial Production & Employment in the Punjab” puts the average monthly wage at Rs18,608 per worker in the industry.
The disregard to minimum wage law is best left for another day, but even if one assumes wage rate to have outgrown historic average of 8 quarters, growing by 4 percent quarter-on-quarter instead, the wage rate in dollar terms comes at $115. This is still lower than what it was 12 quarters ago, having seen the lows of $102 during the journey. Granted that the LSM approach will have shortcomings in terms of inclusion, but it is difficult to see the ground reality deviating any significantly from the trend.
One can safely say that Pakistan’s textile is getting electricity at better rates than India and Bangladesh, even though gas is still pricier – which may or may not put Pakistan at par in terms of regionally competitive energy tariffs. One can say with a greater degree of certainty that the rupee hammering has given a head start to Pakistan in terms of labor costs. Let’s not even go into the concessional financing schemes out there. But surely, based on these numbers, this is as competitive as it gets for Pakistan. It is now up to the industry to prove the mettle and show the growth.
Like Colombo, Dhaka has also taken on massive foreign loans to embark on what critics call "white elephant" projects. The economic turmoil in Sri Lanka should serve as a cautionary tale, say experts.
Sri Lanka has been mired in economic turmoil over the past few months, with the country battling severe shortages of essential items and running out of petrol, medicines and foreign reserves amid an acute balance of payments crisis.
The resulting public fury targeting the government triggered mass street protests and political upheaval, forcing the resignation of Prime Minister Mahinda Rajapaksa and his Cabinet, and the appointment of a new prime minister.
Many in Bangladesh fear that their country could face a similar situation, given the rising trade deficit and foreign debt burden.
Bangladesh imported goods worth $61.52 billion (€58.48 billion) in the first nine months of the 2021-2022 fiscal year, a rise of 43.9% compared to the same period last year.
Exports, however, rose at a slower pace of 32.9% while remittances from Bangladeshis living abroad — a key source of foreign exchange — dropped about 20% in the first four months of 2022 from the year before, to $7 billion.
'Foreign reserves will go down to a dangerous level'
Muinul Islam, a Bangladeshi economist and former professor at Chittagong University, fears that the trade deficit could grow in the coming years as imports are increasing at a faster pace than exports.
"Our imports are set to reach $85 billion by this year, while exports won't be more than $50 billion. And, the trade deficit of $35 billion can't be bridged by remittances alone," Islam told DW, adding: "We will have to live with around a $10 billion shortfall this year."
The expert also pointed out that Bangladesh's foreign exchange reserves have fallen from $48 billion to $42 billion over the past eight months. He is worried that they may drop further in the coming months, likely down another $4 billion.
"If the trend of more imports against exports continues and we fail to minimize the gap with the remittances, our foreign reserves will go down to a dangerous level in the next three to four years," he stressed, underlining that this would lead to a significant devaluation of the nation's currency against the US dollar.
Massive loans for 'white elephant' projects?
Bangladesh, like Sri Lanka, has also taken on foreign loans in recent years to fund what critics call "white elephant" projects, which are expensive but totally unprofitable.
These "unnecessary projects" could cause trouble when the time comes to repay the debts, Islam said.
"We have taken a loan of $12 billion from Russia for a nuclear power plant which has a production capacity of just 2,400 megawatts. We can repay the debt in 20 years but the installments will be $565 million per year from 2025," he pointed out. "It's the worst kind of a white elephant project."
In total, the country will likely have to repay $4 billion per year from 2024, as installments for foreign loans, Islam estimated.
"I fear Bangladesh won't be able to repay those loans at that time because of the shortage of income from the mega projects," he stressed.
By Avinash Paliwal
https://www.hindustantimes.com/opinion/the-ground-under-sheikh-hasina-s-feet-is-shifting-101657725078715.html
Bangladesh's foreign minister
AK Abdul Momen arrived in
India last month to fight polit-
ical fires. But he found himself
dealing with massive floods
that hit Sylhet and Assam.
Nature has its ways to convey
that not all is well in India's
near-east. Far from the glitz
about Bangladesh's economic
success, on display during the
recent inauguration of the
Padma Bridge, clampdown on
Islamists, and shrewd man-
agement of big power rivalries,
is a parallel potent reality of
Prime Minister Sheikh Has-
ina's authoritarianism,
heightened polarisation, and
economic distress. As an
Indian official mentioned to
me, and a Bangladeshi official
echoed. Hasina "has built a
house of cards"
The economic, social, and
political ground under Has-
ina's feet is shifting in real
time. It is slow enough to be
dismissed as non-urgent, but
sure enough to become press-
ing, if not dealt with urgently.
With general elections due in
2023, and external debt repay-
ment schedules kicking in
from 2024, it is a matter of
time for the veneer of (forced)
stability to lose its sheen. The
risk of dislocation, if not col-
lapse, of this so-called house
of cards has increased in
recent years, and it could
undermine whatever is left of
India's connectivity aspira-
tions in its near east.
Domestically, the Hasina gov-
ernment has exacerbated two
contradictions in a tradition-
ally polarised polity. One, she
is in power, but with little to
no electoral legitimacy. The
Awami League's (AL) manipu-
lation of the 2014 and 20118
elections (a practice not just
reserved for national elections
and against opponents),
unceasing harassment of its
key opponent, the Bangladesh
Nationalist Party (BNP), gag-
ging of media, social media
monitoring using advanced
digital surveillance, and a
forced tilt towards the conser-
vative Islamic Right as a bal-
ancing move after targeting
these formations using force,
has created wide pockets of
intense frustration.
Unlike her father, Sheikh
Mujibur Rahman, who created
a one-party State, but failed to
contain a famine in 1974, Has-
ina has placed her bets on eco-
nomic development. The argu-
ment runs that good economic
performance coupled with lib
eral use of force will make a
one-party State under Has-
ina's leadership sustainable.
But this is where the second
contradiction kicks in.
Bangladesh's external debt to
Gross Domestic Product ratio
has increased to 21.8%, import
spending has shot up by nearly
44%, forex reserves of $42
billion are falling and can
cover about five months'
worth of imports, and the rev-
enue from readymade gar-
ments export and remittances
is not keeping pace with the
fast rising costs to the
exchequer.
Couple this with the global
inflation created by the Rus-
sia-ukraine war and United
Statesled sanctions, and it
becomes clear why Momen is
asking India to remove anti-
dumping duties on Banglade-
shi jute exports. Further com-
plicating this situation is
Dhaka's propensity to accept
external loans for infrastruc-
tural projects at highly inflated
costs, making repayment dif-
ficult. One of the cases in point
is the 2015 Rooppur Nuclear
Power Plant deal with Russia
for which Dhaka is to repay
$13.5 billion. India paid $3 bil-
lion for a similar plant in
Kudankulam.
Why does Dhaka accept such
deals? Because external fin-
ance fuels (limited) infra-
structural growth, chronic
corruption, and keeps the
political illusion of economic
development alive. To be clear
and fair, Bangladesh's eco-
nomic journey has been more
than commendable. But to
expect an economic miracle,
which is bound to dwindle due
to internal or external shocks,
to sustain a corrupt system
pretending to be a democracy
is a tall ask. Herein, Hasina has
ensured that neither the
Islamists nor the BNP
which enjovs public sympathy,
even if it may not get a fair
election - pose a serious
challenge to her.
By Avinash Paliwal
https://www.hindustantimes.com/opinion/the-ground-under-sheikh-hasina-s-feet-is-shifting-101657725078715.html
But her real challenge doesn't
come from known opponents.
It comes from opaque factions
within a securitised State (and
the party) that has made so
much illicit profit that being
out of power is not an option
for them. This leaves Hasina
with an unenviable dilemma.
Either she allows free elections
and risks being ousted or
manipulates them and invites
international opprobrium that
could unleash mass protests
and violence. Bereft of a clear
succession plan, both these
scenarios could tempt oppor-
tunistic adversaries to force a
regime change, of which there
is an unfortunately rich his-
tory in Bangladesh.
Hasina's internal problems are
linked to external dependen-
cies. Politically reliant on New
Delhi, she is finding it increas-
ingly difficult to manage the
ramifications of India's turn
towards Hindu nationalism
that misuses migration from
Bangladesh and the Rohingya
crisis for domestic electoral
gain. Similarly, accepting of
Chinese finance that may not
translate into political sup-
port, Dhaka is struggling to
keep targeted US sanctions
against the Rapid Action Bat-
talion, an anticrime and anti-
terrorism unit of the
Bangladesh Police, for serious
human rights violations, at
bay. Dhaka's replacement of
its ambassador in Washington
DC after a visit by a team of AL
parliamentarians from the
standing committee on foreign
affairs will make little differ-
ence in how the US deals with
Bangladesh.
Add to this, an uptick in
demand for repatriating
Rohingya migrants - some of
whom have been silently
resettled in the Chittagong Hill
Tracts to the locals' displeas-
ure - to Myanmar, including
within Bangladesh's military
establishment, and the situ-
ation becomes even more
volatile. Hasina requires a
political off-ramp to prevent a
foreseeable crisis that can turn
violent. The last thing the sub-
continent needs is turmoil in
Bangladesh
https://www.dawn.com/news/1726412/workplace-safety-accord-extended-to-pakistan
KARACHI: A comprehensive Workplace Safety Programme (WSP) is being launched in Pakistan by the signatories to the International Accord for Health and Safety in the Textile and Garment Industry, a move that will support the country to boost its textile sector.
The programme will cover Pakistan’s garments and textile suppliers, helping the country improve the industry like that of Bangladesh and other signatories to the accord.
The decision to expand the programme to Pakistan was announced during a signatory brand caucus meeting held on Wednesday in Amsterdam. Brands will receive an information package on the Pakistan Accord and will be invited to sign it on Jan 16, 2023, said a press release issued here on Wednesday.
“I am pleased to see the International Accord signatories reach an agreement to establish a WSP covering the signatories’ garment and textile suppliers in Pakistan. We are committed to working closely with Pakistani stakeholders to ensure our collective efforts are beneficial to the industry and its workers,” said Joris Oldenziel, Executive Director of International Accord Foundation.
The programme aims to incrementally cover more than 500 factories producing for over 100 accord signatory companies throughout Sindh and Punjab, where most of Pakistan’s $20 billion in garment and textile exports are manufactured annually.
The International Accord has undertaken extensive engagement in Pakistan with federal ministries and provincial governments, industry associations, suppliers, trade unions and civil society organisations.
The Pakistan Accord covers Cut-Make-Trim (CMT) facilities cover ready-made garment (RMG), home textile, fabric and knit accessories suppliers (including vertically integrated facilities). Fabric mills within the supply chains of the signatories are also covered, with implementation scheduled for a later stage in the programme.
The successful experience in Bangladesh prompted the signatories to expand the workplace safety programme to at least one other textile and garment-producing country. Through signatory surveys, extensive research, and local stakeholder consultations, the Accord Secretariat assessed the feasibility of expanding based on key factors. Pakistan emerged as a priority country, in part because of its importance as a garment and textile sourcing country for the accord brands.
The Pakistan Accord programmes will be implemented in phases, in close collaboration with these key stakeholders and through the establishment of a national governance body.
The new Pakistan Accord on Health and Safety in the Textile and Garment Industry is a legally binding agreement between global unions, IndustriALL and UNI Global Union, and garment brands and retailers for an interim term of three years starting from 2023.
Building on widespread safety improvements in Bangladesh, the Pakistan Accord includes all key International Accord features — independent safety inspections to address identified fire, electrical, structural and boiler hazards, monitoring and supporting remediation, safety committee training and worker safety awareness programme, an independent complaints mechanism, a commitment to broad transparency, and local capacity-building to enhance a culture of health and safety in the industry.
https://www.wsj.com/articles/america-pays-a-high-price-for-low-wages-d706894d
For decades the U.S. has used wage subsidies to support the country’s lowest-paid workers—a welfare system that keeps the poor down, primarily benefits the wealthy and undermines technological innovation.
In “The Wealth of Nations,” the founding text of free-market economics, Adam Smith took it for granted that workers should be paid enough to cover the living costs of themselves and their dependents. “A man must always live by his work, and his wages must at least be sufficient to maintain him,” wrote Smith. “They must even upon most occasions be somewhat more, otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation.”
In the last half-century, policy makers of both parties in the U.S. have successfully refuted Adam Smith. It turns out that it is indeed possible to pay wages to workers that are too low for their own maintenance, much less that of their families. This depends on using means-tested welfare programs like the earned-income tax credit (EITC), food stamps and housing vouchers, all of which compensate for wages that are too low for workers to live on.
Since its creation in 1975, the EITC, a federal wage subsidy for low-income workers and their children, has been expanded repeatedly under Democratic and Republican presidents alike. Many states also have their own versions of the EITC. Liberals like the EITC because it reduces absolute poverty, and conservatives like it because it attaches a work requirement to welfare.
But it is a myth that wage subsidies like the EITC “make work pay.” On the contrary, they make taxpayers pay to rescue workers whose work does not pay enough. Nor are such wage subsidies an alternative to welfare. They are welfare in the form of cash rather than in-kind benefits like food stamps or housing vouchers. The term “refundable tax credit” is just a euphemism for redistributing income.
Wage subsidies also entangle eligible workers in the operations of the welfare state and its complex paperwork. It is puzzling that many critics of big government support the EITC, a costly federal welfare program that partly socializes the incomes of millions of American workers and makes their employers reliant on government spending.
We can call the current American labor market system the low-wage/high-welfare model. It is a success from the perspective of employers who get to pay lower wages. It is also a success for some consumers, since lower wages mean lower prices. The losers include taxpayers, the working poor themselves and workers who are not poor but fear poverty. The low-wage model also saps the incentives for technological innovation, because cheap labor so often substitutes for labor-saving machinery.
"It used to be four seasons in a year; now it may be up to 11 or 15 or more," says Tasha Lewis, a professor at Cornell University's Department of Fiber Science and Apparel Design.
The top fast fashion retailers grew 9.7 percent per year over the last five years, topping the 6.8 percent of growth of traditional apparel companies, according to financial holding company CIT.
Fashion is big business. Estimates vary, but one report puts the global industry at $1.2 trillion, with more than $250 billion spent in the U.S. alone. In 2014, the average household spent an average $1,786 on apparel and related services.
https://www.npr.org/2016/04/08/473513620/what-happens-when-fashion-becomes-fast-disposable-and-cheap
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See the World's Unsold Clothing in a Huge Desert Pileup
A satellite image shows where tons of fast-fashion items are heaped in a clothing graveyard in the Atacama Desert
https://gizmodo.com/clothing-pile-chile-atacama-desert-satellite-image-1850443019
The world’s fast-fashion addiction is wrecking the planet. It’s also contributing to an enormous and growing pile of clothing that is sitting in Chile’s Atacama Desert.
SkyFi, a company that provides access to satellite imagery, recently shared a striking view of the Atacama Desert. The company explained in a blog post last week that members of its Discord channel had helped find the coordinates for the growing graveyard of trashed garments.
https://www.voanews.com/a/bangladesh-increases-garment-workers-minimum-wage-/7345476.html#:~:text=Bangladesh's%20government%20announced%20a%20higher,dead%20and%20several%20more%20injured.
The new wage comes after weeks of violent protests by workers demanding higher salaries, which left two workers dead and several more injured.
The wage increase, which was agreed upon by a panel of factory owners, union leaders and officials, has been criticized as too small, with inflation in Bangladesh running at about 9.5%, increasing the price of basic needs.
Protesting workers have demanded a wage of $208 per month. Demonstrators have clashed with authorities and attacked factories.
The demonstrations were sparked when the Bangladesh Garment Manufacturers and Exporters Association offered to increase wages 25% to only $90 per month.
Low wages in Bangladesh factories have led to the growth in the country's garment industry as garment production and exports account for nearly 16% of Bangladesh's GDP.
Bangladesh employs 4 million workers across 3,500 factories and is currently the second-largest garment-producing nation behind China. The country's factories supply many large clothing brands such as H&M and Gap.
Factory owners have hit back at the protesters' demands, saying that production costs are higher because of rising energy and transportation costs, and that Western brands are offering to pay less for production.
Bangladesh, having primarily focused on exporting to Europe and the United States, is looking to find markets in China, India and Japan.
Pakistan’s textile industry faces a series of significant challenges that hinder its ability to capitalise on it
https://www.geo.tv/latest/561011-can-pakistan-emerge-as-textile-sourcing-hub-amid-bd-turmoil
Bangladesh, which has increased its exports to $47 billion per annum, is in massive political and economic turmoil.
Many multi-national companies are in the process of shifting their sourcing operations away from Bangladesh to mitigate risks.
This provides a unique opportunity for Pakistan to step in as an alternative sourcing hub, keeping in view its established textile industry and strategic location. Moreover, increasing exports is crucial for Pakistan to address its foreign exchange shortage, which is expected to exceed $25 billion annually for the next five years.
Pakistan has a long history of textile and garment production, with well-developed infrastructure, skilled labour, and a reputation for high quality and environmental sustainability.
Facts are that Pakistan has access to major markets in Europe, North America, and the Middle East and it can enhance its attractiveness as a potential alternative to Bangladesh. In FY22, Pakistan’s textile exports reached nearly $20 billion, signaling strong potential in the sector.
However, by FY24, exports plummeted to $16.7 billion due to prohibitive increases in energy prices, withdrawal of zero-rating and overall economic deterioration. The withdrawal of zero-rating (SRO 1125) was a significant blow to the industry as it squeezed all liquidity out of the market, leaving manufacturers struggling to maintain operations.
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If the decision-makers in the country make sure regionally competitive energy tariff at 9 cents per unit electricity supply and $9 per MMBTU gas supply, Pakistan’s textile industry will regain its viability, compete effectively on the global stage and capture garment sourcing shifting away from Bangladesh but several reforms are essential. There are reports that the task force on the power sector is vigorously working out a strategy under which the industrial tariff would be reduced to a reasonable level apart from scaling down the electricity tariff for other consumer categories.
In addition, the taxation regime for domestic supply chain needs to be aligned with that of the import supply chain to create a level playing field. And, more importantly, zero rating (SRO 1125) for the entire textile value chain must be restored. And interest rates should be reduced to single digits to ease the liquidity crisis and encourage higher production and investment. However, some economists say that there are chances that at the end of the current calendar year, interest rate may come down to 12-13%. And finally, the government top notches need to increase their focus on hiking cotton production to a minimum of 15 million bales annually at sustainable basis.
Pakistan’s textile industry faces a series of significant challenges that hinder its ability to capitalise on the shifting global garment sourcing dynamics. A major obstacle is the prohibitive cost of energy. Industrial power tariffs in Pakistan are upwards of 15 cents/kWh, which is almost double the 8.3 cents/kWh in Bangladesh. Moreover, while Bangladesh’s industry benefits from cheap gas at $7.4/MMBtu, industry in Pakistan is being supplied with an RLNG/gas blend at $13/MMBtu.
Labour costs also contribute to the financial strain on Pakistan’s textile sector. The minimum wage for garment workers in Bangladesh is $113 a month, whereas in Pakistan, it stands at $135, a difference of approximately 20%. This wage gap, coupled with higher energy costs, further erodes Pakistan’s competitiveness.