Industrial lockdown may deadlock economy

Pakistan’s textile sector is mostly made up of major denim industry, which feeds into jeans and fashion retailers and brands all over the world. A few weeks after the COVID-19 pandemic outbreak, all the global players started to cancel orders they had placed with the local manufacturers.

Once an order is placed by a customer, the manufacturer orders raw materials from other suppliers. Some of these materials take up to three months to prepare. The order pipeline therefore is based on a 6-month forecast that allows smooth continuity of supplies and deliveries.

For most of these orders that were cancelled, raw materials were already ordered or were in the chain. Manufacturers had even produced products and bulk of the merchandise was lying on the shop floors. It is a separate story as to how the global players need to be more ethical or whether there are other solutions instead of cancelling orders; however, the fact remains that up to 70 to 80 percent orders were held up and the industry in Pakistan is left to service 20-30 percent of the remaining ones.

In the backdrop of this situation, a lockdown was imposed where all factories and industries were asked to shut down. The Ministry of Labour and the Sindh Government announced that it would be illegal to lay off any labour during this lockdown. To a certain extent and a limited period, this is fair; however, this is not possible for an indefinite period. After raw materials, the largest cost is of employees and labour and unless sales are stable or constant, it is not possible for the companies to finance their wages; more so in the textile segment that faces very strong international competition and operates with very thin profit margins. If these orders are shifted to countries like China, there is no return likely. Even hard-hit developing countries like Bangladesh and Sri Lanka – which have even more grave problems in some dimensions have resorted to allowing the industry to operate.

Two weeks into the lockdown, the manufacturers approached their trade associations and the government seeking allowance to resume limited operations so that at least ready-orders, or orders that could immediately be shipped, were exported. This was manageable with limited resources, and after a couple of days, finally exporters were allowed to send out goods to customers. Still, no manufacturing is allowed. Millions of dollars of unprocessed products are lying in the warehouses. If orders are cancelled, the government does not have the might or the muscle to revive this sector or to even compensate for the losses.

As the original lockdown period came to an end and no announcements were being made by the government, another meeting was conducted in which the Sindh government again explained their rationale for extending the shutdown. All reasons they presented were logical and correct. The exporters also presented their side of the story. The failure of this meeting was that instead of finding a midway, the government considered their stance as correct and did not take any clear actions. The government’s priority to save lives is clear; however, it is critical for the government to understand that an extreme approach in either direction is not an optimal solution. As industries remain closed, whatever remaining orders they have will be cancelled. Today, there is a demand for our products and it might dwindle in the future. By the time the government takes a decision to restart industry, there might as well be no orders to service.

There are also industries which do not fall with the government’s definition of essential industries, however, these industries are manufacturing goods that are extremely critical to the essential industries all over the world. In Pakistan, only food and pharmaceutical industries have been classified as essential services; however all over the world even safety service providers such as protective equipment, are classified as essential services. One of the exporters from Pakistan manufactures filters which are used for water sanitation. This exporter has not been classified as a critical service, however in the UK and the US water filtration devices are provided by suppliers such as this one.

Avoiding transmission of the disease is a top priority; however it is a short-term objective. Business on the other hand may not be a top priority for the short-term, but in the longer term it is imperative in order to stabilise the economy. The manner in which the government approached the issue of the virus it appeared as if one had to be sacrificed for another. In the government’s definition or perspective it appeared to be the only option. When the pharmaceutical and food industries continue to operate under controlled conditions, other industries also could have been asked to operate by maintaining the same kind of measures as have been adopted by those industries. This was not only possible, but it’s also expected. Exporters from Pakistan are used to social compliance audits and other audits which mandate the exporters to comply with processes that customers specify as best practices. These additional safety conditions could also have been met easily and this is what exporters were committing to the government also.

The government of Sindh appears to think it has taken a tough decision by shutting down industries. Sadly, putting all good intent aside, leadership is not only about taking tough, unfavorable decisions. It is also about being able to strike a balance between two difficult priorities, between the short term and the long term, between two different threats. The government quotes examples of countries like US, UK, and Italy, which have not been able to manage infections and fatalities, and hence shutting down industries appears to be the only justified option for a developing country. On the other hand, the government has to realise that the economy of the country is as fragile as its healthcare system.

Yes, saving lives is important – but not only in the short term. As it is, is there a guarantee that the workforce today which is not engaged in factories, is sitting inside the “safety” their houses? And if the industries were allowed to operate, this could have remained restricted to exporters only. Cinemas, public places, shops, schools, malls, shopping centers, restaurants – all of these could have remained closed as it is today. A total of perhaps 200,000 people are plying across roads under controlled conditions.

The writer is a senior journalist based in Karachi