How lack of social compliance hinders growth

LAHORE: Social compliance in Pakistan is gaining traction in export-oriented industries, but remains almost nonexistent in sectors serving the domestic market. This results in the denial of fair wages, safe working conditions, reasonable hours and environmental safeguards.

Social compliance in the manufacturing sector refers to adherence to labour standards, safety protocols, environmental regulations and ethical practices that ensure worker well-being and sustainable operations.

While some Pakistani industries have partially adopted these practices, the result has been improved worker morale and productivity. When workers feel safe and fairly treated, they are more motivated, leading to higher efficiency.

However, social compliance in export industries has largely been driven by foreign buyers, who enforce strict standards to protect workers’ rights. These buyers insist on liveable wages rather than the minimum wages set by the state.

Better health and safety measures directly reduce workplace injuries and illnesses, which in turn lowers absenteeism. Providing clean facilities, proper ventilation and access to healthcare improves overall worker well-being. Pakistani exporters that have sincerely implemented costly compliance measures have found that, in the long run, it saves them money by reducing turnover; lowering healthcare costs; and improving employee loyalty.

Nevertheless, social compliance can be a significant financial burden, particularly for small businesses. Implementing safety measures, ensuring fair wages and meeting environmental standards, such as installing water treatment plants, require substantial upfront investment. The cost varies depending on local regulations and the extent of compliance required.

For industries like textiles and chemicals, water treatment is a major expense. A common treatment plant, funded by the government but maintained through user fees, could be an effective solution for small and medium-sized enterprises (SMEs). This practice is seen in some regions where centralised plants reduce the compliance burden on individual businesses.

Globally, common effluent treatment plants (CETPs) are widely used in industrial clusters, particularly in developing countries, to reduce individual compliance costs. India has successfully implemented CETPs in several industrial regions. In contrast, larger firms in countries like China often manage their water treatment due to scale advantages. Unfortunately, Pakistan has yet to establish a single government-supported CETP, despite promises from both federal and provincial governments to implement such plants in industrial estates.

Providing soft loans to small garment units could help them meet compliance standards without financial strain. This is particularly important in countries like Pakistan and Bangladesh, where many garment factories operate on thin margins and struggle to afford high compliance costs.

Among textile-exporting countries in the region, China has enforced compliance due to international pressure and strong government oversight. Bangladesh has made significant progress since the Rana Plaza disaster, focusing on fire safety, building integrity, and labour rights, though challenges remain. In India, compliance varies by state, but there is increasing attention to labour rights and environmental impact, especially in export-driven industries. Pakistan lags behind in several areas of compliance but is facing growing international pressure to improve.

For Pakistan, government enforcement of critical safety measures, such as firefighting arrangements and emergency exits -- which require minimal investment -- is essential. The state should provide soft loans and subsidies for compliance-related investments.

The private sector should pursue international partnerships to meet global supply chain standards. Regular audits, penalties for non-compliance, and training programmes for workers and management are needed to ensure sustained improvements in safety. If similar compliance standards are applied to industries serving the domestic market, improvements in efficiency could follow, and some manufacturers may even expand into exports.