Cost of doing business surges 15%

Margin of textile businesses comes down.

Imran Rana June 05, 2012


Energy shortages and a sharp spike in oil prices have pushed up the cost of doing business by at least 15%, say industrialists and traders.

Mian Latif who is chief executive officer of the Chenab Group, told The Express Tribune that the margin of textile businesses, earlier averaging around 10%, had come down with the increase in production cost.

“If the cost of doing business is brought down, profit will increase. But the present circumstances have made it difficult for the industrialists to even bear their fixed expenses,” he commented.

Despite gas and electricity outages, fixed costs remained constant, eating into the profit of business enterprises. However, he added, if the industry ran at full capacity the whole year, then the margin would improve.

“We pay interest on bank loans for 365 days but are able to run our factories for 150 days only, reducing the margin and forcing many to review their business strategies,” he said.

Besides unscheduled outages of gas and power, additional electricity surcharge, cost of transportation and penalties for delay in meeting export orders also inflated the business cost, industrialists said.

“Facilitation fee paid to different government departments involved in certifications is a bribe, which has augmented problems,” remarked Tariq Mahmood Noorani, who was associated with solar energy panel business.

He also claimed that the hidden cost of business in Pakistan was one of the highest for the industry.

“If we add our extra cost honestly to our product, we will not be able to export to the international market. As a result, we will be forced to lay off workers for reducing the cost of production,” said Qamar Bukhari, a leading exporter.

The market had become very competitive, particularly for exporters with regional players China, India and Bangladesh competing and expanding their share in international trade, he added.In the manufacturing sector, exporters had to spend more than those catering to the domestic market, he said.

A leading exporter of garments pointed out that the exporters could not afford to add real cost to the prices of their products as it would render their exports uncompetitive.

“Five years ago, Pakistan was ahead of many regional players in the international textile market. In recent times, we have been beaten by China, India and even Bangladesh,” he said.

In order to ease the pain, the manufacturers, traders and exporters are pressing the government to formulate supportive trade policies and reduce the crippling electricity load-shedding, which has crossed 16 hours a day in some cases.

Published in The Express Tribune, June 5th, 2012.


Falcon | 10 years ago | Reply

One of the key problems with Pakistan's political structure has been that small and medium businesses have not been politically active, leaving it for the big players only. The result is that any lobbying that is done is for tax reduction only rather than broader systemic reforms. But businesses need to realize that they have a bigger responsibility than just making profits, to sustain the society in which they operate otherwise their long term profitability is at significant risk. Hence, it is about time that businesses club together to form influential representative groups that can work with govt. in cooperative relationship to stop the pace of de-industrialization in the country and ensure that issues such as energy shortage remain top priority of whoever comes to power next.

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