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News Clips 10 July, 2013


[ Zero borrowing by private sector in FY13 ]
[ Faisalabad: home to yarn traders and notorious tax dodgers ]
[ Bangladesh garment sales soar despite deadly incidents ]
[ Retailers agree Bangladesh garment factory inspections ]
[ For cost-crunching retailers, Bangladesh reigns supreme ]
[ India: Action plan in four weeks to push textile sector ]

Zero borrowing by private sector in FY13   [ top ]

DAWN, Shahid Iqbal, July 9, 2013
KARACHI, July 8: The private sector almost disappeared from the banking system in FY13, the State Bank reported on Monday. The previous government borrowed recklessly during its five-year tenure to close fiscal gap leaving little space for the private sector.

The central bank reported that the private sector was out of banking system during 2012-13. Instead of borrowing it retired debts as the accounts showed minus Rs1.833 billion borrowing on June 21, 2013.

The preceding fiscal year (2011-12) was also depressing but the private sector borrowed Rs184bn from banks during FY12. Analysts said the private sector might have borrowed for short-term in FY13 and paid back the same year. However, they said it never happened before in the economic history of the country.

The massive government borrowing has changed the orientation of banking as banks preferred investing in the government securities. State Bank and independent economists have been warning the government to avoid the practice that crippled the private sector already facing multiple problems including hostile business environment and depreciation of the rupee with shrinking foreign markets for the exporters.

The government borrowing from commercial banks till June 30, 2012 was Rs2.360 trillion while in the outgoing fiscal year it borrowed Rs927bn more making the total at Rs3.287tr. However, the private sector borrowing till end June FY12 was Rs3.376tr which did not grow because of almost zero borrowing by the private sector.

Banking circle believes that the PML-N government cannot stop borrowing from the banks as the fiscal deficit could remain around 7 per cent of GDP in the current fiscal year (FY14).

The ministry of finance believes the fiscal deficit for the just ended fiscal FY13 would be 8.8 per cent.

The government has projected ambitious revenue target for 2013-14, bankers said the government still requires foreign inflows to meet its expenses.

For bankers the situations is satisfactory as the real interest being paid by the government still high around 3.5 per cent. The plus point is that the non-performing loans have come down as no fresh loans are given to private sector while the investing in government papers is risk free.

Faisalabad: home to yarn traders and notorious tax dodgers   [ top ]

THE NEWS, Mansoor Ahmad, July 9, 2013
LAHORE: Yarn traders, based mainly in Faisalabad, have succeeded in dodging the tax authorities due to loopholes introduced in the system by the tax regulator, sources report. While their market share has reduced, these traders still supply 50 percent of the yarn available in the domestic market.

“These traders do not pay any income tax although their undocumented yearly turnover runs into billions,” said a spinner who requested anonymity. ‘They are the main buyers of yarn produced in Pakistan and spinners cannot afford to annoy them,” he said.

Official statistics reveal that Pakistan produces 30 million tonnes of cotton yarn per year. Of this, 600 million tonnes of yarn is exported. Documented weaving mills consume 11 million tonnes of yarn. Officials have no idea where the remaining 13 million tonnes is consumed. However, the remaining amount is bought by yarn traders and disposed in retail to the 300,000 power looms in Faisalabad as well as over 100,000 power looms scattered in Kasur, Multan, Gujranwala and Kamalia.

“The undocumented chain in textiles besides yarn traders includes the power looms, sizing industry and small processing units,” said an industry player. These have been subjected to indirect taxation, he said. They have to pay withholding tax on their utility bills which have been enhanced in the current budget, he added. Yarn traders remain outside any tax net as they stock yarn in an unregistered warehouse, he said.

Experts say that tax collectors face a dilemma with respect to documented power looms and downstream industries. The power loom sector provides direct employment to 1.6 million workers in Pakistan, they said. Of these, 1.2 million reside in Faisalabad alone. Taking tough measures with respect to the sector may jeopardise the livelihood of a large number of textile workers, they added.

“The recent decision to enhance withholding tax on electricity and gas bills will certainly increase the cost of looms. This may force many of them to get registered,” he added.A spinner said there is no mechanism available to nab yarn traders. Power loom owners do not have enough resources to buy yarn in bulk so they cannot buy directly from the mill, he added.

The yarn investor supplies them yarn in small quantities to keep their looms operating, he said. “Naturally the investor charges premium on his investment,” he said, adding that the investor also earns discounts on heavy bulk purchases from spinners. This way the investor earns a hefty profit without any documentation.

A leading spinner said that the approach of the government in documenting yarn traders is flawed. He said the spinning mills are asked to deduct three percent sales tax on the undocumented supplies, which is not adjustable. For supplies to registered entities, the sales tax deduction is two percent (adjustable). He said this arbitrage gives incentive to undocumented traders to cheat.

They open fake accounts in the name of any firm and give cross cheques to the mill, he said. After a while, the account is closed and another fake account is opened under another untraceable name. This practice goes on and the transactions remain outside the tax net.

The spinner further said that tax dodgers should be charged indirectly by way of taxing utility bills, school and college fees and luxury goods paid for and consumed by them. These traders have dodged the tax collectors for more than three decades and will continue to do so unless innovative methods of taxation are introduced, he added.

Two decades back the entire weaving sector was not documented, he said. Currently, there are more than 10,000 air jet looms and 25,000 other looms account for half the domestic yarn. Many spinning mills have established their own retail outlets to wriggle out of yarn investors’ trap. Still, cash-starved spinning mills in Faisalabad depend on financing by yarn traders as this enables them to operate smoothly.

Bangladesh garment sales soar despite deadly incidents   [ top ]

REUTERS, July 9, 2013
DHAKA (Reuters) - Bangladesh's exports rose 16.3 percent in June to $2.7 billion on the year, boosted by stronger clothing sales, an export body said on Tuesday, as the low-cost country retains its allure for cost-crunching global retailers despite deadly incidents.

Duty-free access to Western markets and low wages have helped make Bangladesh the world's second-largest apparel exporter after China, with 60 percent of clothes going to Europe and 23 percent to the United States.

Garment exports totaled $21.5 billion for the financial year that ended in June 2013, up 13 percent from a year earlier, according to Bangladesh's Export Promotion Bureau. Total exports rose 11 percent to more than $27 billion in the fiscal year, but were nearly $1 billion short of the target.

The surge comes as the government considers measure to reform the industry after 1,132 people were killed in the April collapse of the Rana Plaza factory complex in the capital. A fire at another factory last year killed 112 people.

The incidents have put pressure on the government, industrialists and the global brands that use the factories to reform an industry that employs four million and generates 80 percent of Bangladesh's export earnings.

A revised labor law is in the works to ease the path for workers to form trade unions. They now need the permission of the factory owner to do so. A panel has also been formed to set a new wage within months.

Last week, the United States cut off long-time trade benefits for Bangladesh in a mostly symbolic response to the garment industry conditions that have cost more than 1,200 lives in the past year.

The U.S. move does not directly affect Bangladesh's clothing exports, since garments are not eligible for U.S. duty cuts. But it could prompt similar action by the European Union that would have a bigger impact, as Bangladesh's clothing and textiles exports to the EU are duty-free.

Retailers agree Bangladesh garment factory inspections   [ top ]

BBC NEWS, July 8, 2013
A group of 70 retailers have agreed a plan to conduct inspections of garment factories in Bangladesh in an attempt to improve safety standards.

They will provide details of factories they source goods from, which will be inspected within the next nine months. Funds will be made available for any safety upgrades needed at the units.

The legally-binding code was announced earlier this year after the collapse of a garment factory in Bangladesh in April killed more than 1,100 people.

The eight-storey Rana Plaza building came crashing down on 24 April, a day after cracks had been spotted in the building. It was the deadliest in a series of accidents that have resulted in global attention being focussed on safety standards in Bangladesh's garments export industry, the second biggest in the world after China's.

'Strong coalition'

Several big names, including Sweden's H&M, the biggest buyer of Bangladeshi-made clothes, signed up to the code after the incident.

It requires them not just to meet minimum fire and building safety standards, but also to pay for them.

Other signatories include Inditex, which owns Zara, Benetton, Metro, Carrefour, Marks and Spencer, Tesco, Esprit and Abercrombie & Fitch.

"This historic, legally binding accord will effect tangible change on the ground and help make the Bangladeshi garment industry safe and sustainable," said Jyrki Raina, general secretary of IndustriALL, a labour group which played a key role in creating the pact.

Mr Raina added that the factory fires and collapses in Bangladesh over the past few years indicated that efforts by individual retailers had "proved insufficient" in addressing the issue.

"A profound change is possible only with a strong coalition between trade unions, international brands and retailers, Bangladeshi authorities and employers, and with worker involvement in the workplace with guaranteed freedom of association."

The International Development Secretary, Justine Greening, said UK companies needed to play their part in helping raise standards: "British business must be a force for good in the developing world too, so that together we can help end aid dependency through jobs."

She said she had been talking to business leaders from the retail industry to decide how they could work with the government to improve supply chains, in order to ensure clothes were produced responsibly and conditions were improved.

Last month, US suspended trade privileges extended to Bangladesh over concerns about dangerous working conditions and labour rights.

This decision was taken after a year-long review of labour practices and workplace safety in Bangladesh.

For cost-crunching retailers, Bangladesh reigns supreme   [ top ]

REUTERS, Anupama Chandrasekaran, July 10, 2013
With knitwear exports of over $2 billion a year, India's garment manufacturing hub Tirupur has earned the nickname "Dollar City," but its allure for price-conscious global retailers obsessed by discounts of as little as one U.S. cent pales before Bangladesh. Indian and Southeast Asian apparel manufacturers had hoped the orders would come flooding in, after the deadly collapse of a Bangladesh garment factory complex this year galvanised global brands such as Hennes & Mauritz AB (H&M) to consider relocating production.

But several industry organisations and factories contacted by Reuters in Vietnam, Cambodia, Indonesia, Sri Lanka and India - Asia's top apparel makers outside China - said international retailers were not beating a path to their door just yet. When it comes to price, Bangladesh is king.

"The reason Bangladesh went from zero to hero in the garment sector is because there is no country with such low labour and other costs," said Arvind Singhal, chairman of India-based retail consultancy Technopak Advisors.

"No buyer is in a hurry to move from Bangladesh because Western retailers are stressed about passing any retail price increases to customers," he said. "Currently, there is no substitute for Bangladesh, where manufacturers even risk operating from rickety structures to cap costs."

Wal-Mart Stores Inc has stood by its Bangladesh production, saying the South Asian nation remains an important sourcing market. H&M also said its quest for alternative manufacturers was not at the expense of Bangladesh.

"We are not reducing our purchases from Bangladesh. We aspire to have long-term relations with our suppliers," H&M spokeswoman Elin Hallerby said. "We are always looking at new production capacity to support our continuous expansion."

The latest data from Bangladesh highlights its enduring appeal: garment exports in June rose 26 percent year-on-year to $2.2 billion.

COST IS KING

More than four million people, mostly women, work in Bangladesh's clothing sector, making it the second-largest global apparel exporter behind China.

The world's biggest fashion retailers, Inditex SA and H&M, as well as Wal-Mart, Gap Inc and JC Penney Company Inc are a few of the brands manufacturing there.

The $21 billion-a-year industry has been built on low wages, government subsidies and tax concessions from Western countries. But the collapse of the Rana Plaza factory complex outside Dhaka in April raised concerns about safety loopholes. The disaster, one of the world's worst industrial accidents, killed 1,132 people.

The collapse prompted global brands to consider tapping regional alternatives.

Indonesian textile firm Sri Rejeki Isman PT (Sritex), which makes clothing for Zara, H&M and other brands, said it was in talks with H&M about taking over an as yet unspecified amount of Bangladesh-sourced production. H&M declined to comment.

But as large factory owners across the region discovered, translating talks into orders is difficult as, compared to Bangladesh, they are considered too expensive.

"Garments produced in Bangladesh have a very competitive price, around two-to-three times lower than in Vietnam," said Hguyen Huu Toan, deputy director of SaiGon 2 Garment JSC, a Vietnam factory whose clients include British fashion retailers New Look and TopShop.

The cost disadvantage also impacts Sri Lanka's $4 billion-a-year garment industry, and factory owners there say any shift in production from Bangladesh will be transient.

"We are much better than any other country in the region, but it is a temporary advantage," said Tuly Cooray, the secretary-general of industry group Joint Apparel Association Forum. "At the end of the day, the price is going to matter."

NOT CUT FROM THE SAME CLOTH

The economic slowdown in Europe and the United States has made retailers all the more keen to seek out the lowest-cost manufacturing centres to keep their store prices down.

N. Thirukkumaran, owner of Tirupur-based apparel maker Estee which racked up $8.3 million in sales last year, said he holds marathon haggling sessions with foreign customers demanding discounts as little as one cent per unit.

At least one U.S. retailer asked about moving production from Bangladesh, he said, but they have yet to place orders. Thirukkumaran would not name the brand, citing client confidentiality.

"There are positive signals from buyers, but they are still sceptical about price," he added.

Monthly minimum salaries for garment sector workers in Bangladesh average around $38, far below the $100 average for Indian factory workers.

After the Rana Plaza collapse, the cabinet approved changes to the labour laws that pave the way for garment workers to create trade unions without the approval of factory owners.

The cabinet also formed a wage board to consider pay increases. But industry experts say Bangladesh has too much to lose by alienating global retailers, which means that for now, the low costs are here to stay.

"No other destination has what we have and that is skilled and cheap labour," said Mohammad Mujibur Rahman, a Bangladeshi academic leading factory inspections.

"Foreign buyers realize this and nobody is in a hurry to move out ... there might be a small trickle outside, but nothing significant that will hurt us."

India: Action plan in four weeks to push textile sector   [ top ]

SME TIMES, News Bureau, July 10, 2013
In a bid to enhance competitiveness of the Indian textile sector, an inter-ministerial group will work out an action plan in four weeks based on the recommendation of a High Level Committee on Manufacturing led by Prime Minister Manmohan Singh.

"The goal would be to leverage the strengths we have in cotton and other fibres to enhance employment generation and achieve a greater share in global markets, especially in apparel," an official statement detailing the recommendations of the HLCM said.

Manmohan Singh held the meeting of the committee on manufacturing on Tuesday, in New Delhi and hold discussion with Union Minister for Textiles, Kavuru Sambasiva Rao.

Besides Rao, the meeting was attended by all the Ministers and officials of departments relating to the manufacturing sector including the Ministers of Science & Technology, Heavy Industry, Civil Aviation, Steel, MSME and the Deputy Chairman of the Planning Commission.

The meeting was convened to discuss the strategy for boosting competitiveness and output in two important sectors - textiles and steel - and for formulating a long term approach in three strategic industries - civilian aircraft manufacture, electric and hybrid vehicles and advanced materials and composites.

The discussion centred around the proposals made by the National Manufacturing Competitiveness Council which were presented by the Chairman, Dr. V. Krishnamurty.

The official communique release added that the goal would be to leverage the strengths we have in cotton and other fibres to enhance employment generation and achieve a greater share in global markets, especially in apparel.

The core of the strategy is to facilitate the rapid scaling of competitiveness of the garment segment of the textile sector in the country through a comprehensive package of measures.

Some of the elements of the strategy include having ready availability of work space, having adequate and comfortable housing for workers, having more flexible work timings, leveraging textile clusters and obtaining the best technologies.