LAHORE, Dec 15: Knitwear exporters have called for a major cut in export refinance rate to bolster exports, which dropped by 11.22 per cent in the first four months of the current fiscal year.

Addressing a press conference here on Thursday, Chairman Central, Pakistan Hosiery Manufacturers Association (PHMA) Shahzad Azam, said that about 92 knitwear units, including 30-35 in Lahore, had been forced to close down due to an unaffordable high cost of capital and inputs, like electricity etc.

The other factors responsible for the large scale closure of factories are country’s image abroad, and very high utility and labour rates. However, the high export refinance rate and the cost of capital remain the single largest factors responsible for the current state of the knitwear industry.

Others who were present on the occasion included M.I. Khurram, Babar Agha, Adil Butt, Nasir Abbas and Owais Mazhar. They pointed out that the Small and Medium Enterprizes Development Authority, (Smeda), conducted a study on the apparel sector and submitted its report to the Economic Coordination Committee (ECC) several months ago. It had recommended reduction in export refinance rate to three per cent from the current nine per cent and cutback in interest rates on all loans and leasing to five per cent.

In addition, the Smeda report, also proposed to the ECC to place a complete moratorium on repayment of the principal amount and mark up on all loans due to the knitwear industry for a period of three years and transfer the existing long-term loans to the State Bank’s scheme for long-term financing for the export-oriented industries.

The hosiery manufacturers said that the knitwear industry, which exported products worth $1.6bn in 2004-05, was the highest employer of manpower in the country. The closure of knitwear units would mean loss of thousands of jobs, which would add to poverty in the country.

They said that the knitwear sector was in a dire straits since the fateful events of 9/11 that scared buyers away from Pakistan and the exporters were forced to drastically reduce their prices in order to secure orders from the US and Europe. Though, the government had announced to provide six per cent R&D support to the industry from April this year, it has failed to salvage the exporters whose problems had compounded due to 300 per cent increase in their financial charges and 10 per cent inflation together with currency appreciation and reduction in duty drawbacks.

The manufacturers said Pakistan’s knitwear exports were 12-15 per cent expensive than India and 20-22 per cent than China. This makes us uncompetitive in the world markets,” they said, adding that both China and India had devised policies in support of their knitwear sectors.

The knitwear exporters of these two countries are getting government support in the form of discounted interest rates as well as attractive duty drawbacks paid as cash incentives to them. “India is providing working capital at Libor plus 0.7 per cent, which works out to be 5.25 per cent as against nine per cent in Pakistan for export refinance.

Again, in case of capital investment, funding is provided at five per cent in India as against Kibor plus up to four per cent, (or 13 per cent or more), in Pakistan. India enjoys certain other advantages including better security profile, relocation of buying houses from Hong Kong and Singapore to India, cheaper dyes and chemicals, and other garment inputs due to local production.

Similarly, Bangladesh enjoys 12 per cent duty advantage over Pakistan for export to EU in addition to cheaper labour and various other government incentives. These factors are forcing business to shift from Pakistan to India and Bangladesh,” they said.