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News Clips 8 July, 2013

[ CM forms core group to increase garments exports ]
[ Pakistan brings back death penalty, to anger of rights groups ]
[ Bangladesh begins to feel wider impacts from Rana Plaza ]
[ India: Premature crowing over Dhaka's textile sector problems ]
[ India: As margins of apparel makers rise, buyers seek discounts ]
[ India: Bhiwandi garment factory collapse: Death toll climbs to six ]
[ India: Falling rupee, flawed policy ]
[ More Taiwanese firms in China heading home ]

CM forms core group to increase garments exports   [ top ]

THE NEWS, Correspondent Report, July 2, 2013
LAHORE: CHIEF Minister Shahbaz Sharif has said that manufacturing sector is of key importance in exports and its growth can increase national exports and strengthen economy. He said there was vast export potential in garments industry which could help enhance investment and generate job opportunities.

He was presiding over a meeting on the promotion of garments industry and increasing textile exports at Model Town on Monday. The meeting considered matters related to promotion of garments industry, its problems, increasing exports, simplifying export policy and setting up of industrial forum.

The chief minister formed a core group, headed by Advisor Dr Ijaz Nabi, which would submit solid recommendations for the promotion of export of garments in one month after consultation with stakeholders in the light of which a comprehensive strategy would be devised. He directed the authorities to consider setting up a modern garments industrial estate near Lahore should be considered and all hurdles in the export of garments should be removed. He also sought a five-year plan for increasing export of garments and development of the sector.

Addressing the meeting, Shahbaz said despite being the biggest producer of cotton, Pakistan was lagging far behind the neighbouring countries regarding export of textile and garments which was a matter of concern. He said Pakistan should lead the world in export of textile and garments and it was essential to accelerate manufacturing for the purpose. He said solid measures would have to be taken for the development of textile and garments industry.

The chief minister said that use of information technology could not only help increase economic, industrial and trade activities but revenue could also be enhanced. He said the use of information technology in the manufacturing sector was vital in the modern world, adding that PML-N government would take effective measures for the promotion of manufacturing, especially in textile and garments industry.

The CM said that uninterrupted supply of electricity to industry, law and order and skilled manpower could strengthen manufacturing and the government was taking steps in this direction. He said Skills Development Programme was successfully continuing in four districts of south Punjab with the collaboration of UK Department for International Development and its scope would be expanded to the whole province. He said Skills Development Programme would help prepare skilled manpower for meeting the market needs, adding that after completion of training of the youth in various skills under the programme, their certification would be made from prominent companies of Turkey and Malaysia.

The delegation of garments industry gave proposals to the meeting on import policy, logistic support, industrial forum, skilled workforce and development of garments industry. The members of the delegation said that there was vast potential of exports in garments sector and solid measures were needed for the purpose. They said formulation of policies to increase national exports and investment was the need of the hour and expressed the hope that the PML-N government, led by Prime Minister Nawaz Sharif, would take positive steps in the direction which would strengthen the national economy.

The delegation said that the garments export to European countries were expected to increase to 12 billion dollars during next 10 years. They said China was a big market where garments exports could be increased through effective measures and proper policy. The delegation included Wasim Akhtar, Azfar Hassan, Tariq Mehmood, Shahzad and others.

Provincial Ministers Mujtaja Shujaur Rehman, Ch Muhammad Shafique, Begum Zakia Shahnawaz, advisors Azmul Haq, the chief secretary, chairman Planning & Development, vice-chairman Punjab Investment Board, officers concerned besides Central Chairman Pakistan Readymade Garments Association Sajid Saleem Minhas were present.

Pakistan brings back death penalty, to anger of rights groups   [ top ]

REUTERS, Syed Hassan, July 5, 2013
ISLAMABAD (Reuters) - Pakistan's new government, trying to appear determined to rein in escalating crime and militancy, has ended a ban on the death penalty, in a move condemned by international organizations as inhuman and retrograde.

Up to 8,000 people languish on death row in dozens of Pakistan's notoriously overcrowded and violent jails.

Once a moratorium is in place, reinstatement of capital punishment is rare, with more than 150 countries having already either abolished the death penalty or stopped administering it.

A 2008 moratorium imposed by Pakistan's previous government, praised at the time by global rights groups, expired on June 30. "The present government does not plan to extend it," said Omar Hamid Khan, an interior ministry spokesman.

Pakistan's president must approve all executions. The government puts the number of people on death row at about 400. The method of execution is usually hanging.

"Pakistan is part of a dwindling minority of States who continue to retain the death penalty and carry out executions," the International Crisis Group said.

"The prospect of lifting the moratorium is all the more alarming given the extraordinarily high number of people on death row." Khan said the new policy of Prime Minister Nawaz Sharif's government was to execute all death row prisoners, except those pardoned on humanitarian grounds.

There is, however, no firm evidence showing the practice can serve as a deterrent to crime or extremism, according to the United Nations and human rights groups.

"As long as the death penalty is in place, the risk of executing innocent people can never be eliminated," rights group Amnesty International said.

Pakistan says capital punishment is key to deterring crime in places such as Karachi, a megacity of 18 million plagued by violence, as well as in the areas on its border with Afghanistan where Taliban militants launch daily attacks.

Papua New Guinea, one of the world's poorest and most corrupt countries, reinstated the death penalty in May and repealed its sorcery laws after a string of gruesome "witch" killings and gang-rapes.

Asked about Amnesty's criticism, Khan pointed to the fact that capital punishment was still in use in parts of the United States, a nation he said was home to the "best judicial system".

Pakistan's moratorium drew praise because of concerns its courts and police were too inept to ensure the accused a fair trial. Pakistan did, however, break its own rules in 2012, when it executed a convicted murderer and a former army serviceman.

The previous government of the Pakistan's Peoples Party, whose former chairman, Benazir Bhutto, was a fierce opponent of capital punishment, enforced the moratorium soon after taking power in 2008 under President Asif Ali Zardari.

Zardari, the widower of Bhutto, who was assassinated in 2007, is due to step down later this year.

Bangladesh begins to feel wider impacts from Rana Plaza   [ top ]

JUST-STYLE, Petah Marian, July 5, 2013
Last week, the US government took a stand against what it deemed as a lack of progress in improving safety in the Bangladesh apparel sector, and suspended the country's trade privileges.

While the US' Generalized System of Preferences (GSP) programme in Bangladesh does not include garments, mostly focusing on imports of tobacco, sports equipment, porcelain china and plastic products, the move is a symbolic one and emphasises the seriousness of US concerns over the country's factory safety.

US trade representative Michael Froman said the Obama administration is initiating new discussions with the Bangladeshi government to improve the worker rights environment so that GSP benefits can be restored.

This is another blow to an industry that is beginning to experience the wider impacts from the recent tragedies in the country. In particular, orders from key American and European buyers to Bangladesh garment manufacturers are said to have fallen after the Rana Plaza factory collapse.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) director Fazlul Hoque said the overall drop in garment orders is around 10% during this spring/summer compared to last year, although unnamed industry sources in local media have claimed the drop is 30-35%.

US: Obama suspends Bangladesh trade privileges

Meanwhile, Laos, which has its sights set on more than doubling its clothing exports by 2015, is facing serious problems finding and retaining workers. While the small landlocked South East Asian nation may not initially appeal to international buyers due to its lack of local textile materials and poorly educated workforce, its GSP access to Europe is making it increasingly attractive. Many of the 100 or so garment exporters in Laos say they could expand considerably if only they could recruit and retain enough workers.

Sub-Saharan Africa is another region working to develop its clothing industry. It too faces a number of serious challenges, particularly around factories' foreign ownership. Large proportions of the clothing industries in Lesotho and Swaziland are mainly Taiwanese-owned, with the remainder of the industry owned by foreigners.

The continuation of much of this investment relies largely on the US's African Growth Opportunity Act (AGOA), which is set to end in 2015. If AGOA is not renewed in 2015 a large chunk of the industry will relocate elsewhere. Even if it is renewed, uncertainty about renewal and lead-time requirements will also encourage some to leave.

Nike recorded a jump in fourth quarter net profit, driven by higher sales and improved margins. The company said fourth quarter profit jumped 22% to US$668m, while revenue increased 7% to $6.7bn. The sportswear giant said it recorded gains across all product types and in every geography except Western Europe and Greater China.

India: Premature crowing over Dhaka's textile sector problems   [ top ]

BUSINESS STANDARD, Indivjal Dhasmana, July 5, 2013
There is a lot of recent cheer in Indian textile industry about being able to take advantage of Bangladesh's various recent setbacks in the sector.

Bangladesh's huge advantage in costs, particularly in wages paid for this labour intensive sector, had led to the bulk of the developed world's major brands and retailers having outsourced orders to its garment factories, which have surged in numbers to more than 5,000.

However, a series of catastrophes has led to much adverse publicity on labour standards there; the latest was the Rana Plaza collapse in a Dhaka suburb on April 24, killing a little over 1,000 workers. It evoked worldwide condemnation; a number of leading brands said they were withdrawing or reworking the arrangement with Bangladesh factories.

And, last week US President Barack Obama all duty free trade access benefits to the US markets from that nation.

Coming after the cheery textile output and export data for April and May, this has had Indian industry enthused, says Ajay Kumar, economist with the Confederation of Indian Textile Industry, "We are much into publicising the building collapse in bangladesh." Adds Ajay Sahai, director-general of the federation of Indian export organisations:"If the US and the European Union really impose sanctions against Bangladesh, the place vacated could be captured by India." Not by China, he added, as that country was moving out of textiles and into exploring higher value items such as electronics.

The March and April data came as quite a contrast to the lacklustre figures of the earlier 12-odd months.

In March, the output of wearing apparel was 159 per cent, against a fall of 59 per cent in March 2012. Textile production rose 3.3 per cent in the month, against 2.2 per cent in march a year before. garment export rose 12 per cent and overall textile export by 15.7 per cent. In April, wearing apparel production rose 87 per cent , against a 10 per cent contraction in april 2012. textile production, overall, rose five per cent, compared to three per cent a year before. Garment export rose 8.6 per cent and the entire textile sector saw export grow 6.6 per cent.

The explanation for this change, after a dull performance through the 2012-13 financial year through February, is not clear.However, it is clearly unrelated to the after math of the Rana Plaza collapse, which had taken place in April. The US suspension of trade benefit access for bangladesh would raise duties on an array of its export there.

On garments, the US takes 25 per cent of our outbound shipments and the EU 40 per cent; the latter imposes around none per cent tax on textile import from us and zero on bangladesh. Not only is there no move from the US to cut access to Bangladesh; among the top 10 garment items imported by the US, Bangladesh has evolved into knitted garments, too, to both the EU and the US.

Moreover, even if one excludes the US' as differential rates, India still has a 10-20 per cent cost disadvantage in terms of unit cost of output against bangladesh. If one includes the tariff, there's a 20-30 per cent advantage for our neighbour.

In India, labour cost is going up, high interests are raising cost of working capital, labour laws are sticky, power cost is increasing and the industry is not getting up on scales, explained Kumar.

For instance, Gokaldas Exports Ltd is one of the largest garment exporters of India. It has a plethora of small units in and around Bangalore because of labour laws concern, instead of having a few large units, kumar said.

The 85-billion dollar Indian textile industry (including domestic and exports) is surviving because of raw materials.

"We are surviving due to domestic-produced cotton yarn produced by modernised spinning industry and also due to abundant availability of man-made fibre based staple fibres and filaments," Kumar explained.

Reliance Industries Ltd is the world's largest synthetic staple, fibre and filament producer, having the world's five per cent capacity. Then, Indo Rama is bringing viscous manufacturing in India, he said.

On the other hand, Bangladesh imports yarn from India, and also cotton, fabrics from India and China. It still supplies finished products like garments to world market cheaper than India and China.

India: As margins of apparel makers rise, buyers seek discounts   [ top ]

BUSINESS LINE, Amit Mitra, July 5, 2013
Hyderabad July 5: The smiles that lit up the Indian apparel export industry during the last few weeks when the rupee slid against the dollar, is now beginning to fade.

Overseas buyers are now increasingly insisting on a reduction in prices or discount, as they see the margins of Indian exporters rallying in the wake of the rupee slide. Margins for the domestic apparel exporters have risen by about five to seven per cent in recent weeks.

“Now our buyers are asking for a discount. They say that we can pass on a Rs 1-2 per dollar benefit in the current scenario,” a senior office-bearer of the Apparel Export Promotion Council, said.


The council is, however, optimistic that India’s apparel exports would grow by 15 per cent this fiscal. Last fiscal, there was a drop to $12.7 billion from $13.4 billion due to the global economic slowdown.

“In the last two months, we have seen a 10 per cent growth over the corresponding months of the last fiscal. While the US markets began to pick up, the rupee depreciation also helped push up exports,” A. Sakthivel, Chairman of the council, told Business Line. However, shortage of skilled labour is posing a serious challenge to the industry. The demand for skilled workers is estimated to increase by two million from the existing pool of 12.4 million in the next four years.

Taking up this challenge, the Apparel Training and Design Centre, an apex body under the council, is set to train 2.50 lakh people in the current Plan period. Last fiscal, it trained 60,000 people in various skills including fashion design, apparel making, export merchandising and computer aided design. “We plan to expand our network of training centres from the present 177 to 250 in the next four years,” Darlie Koshy, CEO of the centre, said.

He said those completing the centre’s courses, which range from four weeks to six months, were getting an entry level salary of between Rs 8,000 and Rs 12,000 a month in the apparel industry.

India: Bhiwandi garment factory collapse: Death toll climbs to six   [ top ]

DECCAN TRIBUNE, July 5, 2013
The death toll in the Bhiwandi garment factory collapse has risen to six with the recovery of three more bodies, police said today.

While two bodies were recovered late last night from the debris of the two-storey building housing the garment factory, one more body was found during clearance work this morning, they said.

The BIG Garments factory, located in Arihant Compound campus having many godowns, had collapsed in Kalher village near the powerloom town of Bhiwandi yesterday in which so far six persons have been killed and 24 others injured.

Out of the three more bodies recovered, two have been identified as that of Mohamad Mansoor (22) and Miraj Shaikh (30), both workers employed with the BIG Garment factory.

The Narpoli police have registered an offence under section 304 (culpable homicide not amounting to murder) of IPC against six persons in connection with the building crash, Narpoli police inspector D B Patil said.

The Dedhia brothers, who owned the factory, the architect and builder have been named in the FIR, Patil said.

However, as of now, no arrest has been made in connection with the mishap.

Around 12 fire engines and scores of personnel of civil defence and home guard carried out relief and rescue operations. A team of National Disaster Response Force (NDRF) also visited the spot.

The work of clearance of debris will continue today, district disaster control room sources said. Incessant rains in the area are blamed for the collapse, though there is no official confirmation about it.

Top officials including district collector P Velrasu, Bhiwandi Nizampur City Municipal Corporation (BNMC) commissioner Achyut Hange, Thane police commissioner K P Raghuvanshi visited the site yesterday and supervised the rescue operations.

This is the third major building crash in the district in the recent past. In April this year, 74 people lost their lives in Maharashtra's worst building collapse at Shilphata in Mumbra area. Last month, 10 people died when a three-storey building collapsed, also in the Mumbra township of Thane district.

India: Falling rupee, flawed policy   [ top ]

BUSINESS LINE, Ritesh Kumar Singh & Prerna Sharma, July 5, 2013
If slowdown in household consumption and protracted global recovery were not enough, Indian businesses (a large many of them have partially or substantially unhedged forex exposure) will now have to deal with the reality of a weakened rupee that finally breached the psychological mark of 60 to a dollar on June 26. And there is no guarantee that it will not go down further — after all, there is not much change in India’s macroeconomic fundamentals.

Since the start of the sub-prime crisis in 2007-08, central banks (US Federal Reserve, in particular) had injected $12 trillion, that is roughly 16 per cent of the world’s GDP — which primarily kept emerging economies such as India and others afloat in the post-crisis period. The recent global sell-off of stocks, bonds, currencies and commodities post the Fed’s hint at tightening of the lid that oozes out cheap money into the global financial system, is an indication of the things to come.

Reason for rupee fall

The fall of the rupee may have been triggered by the Fed’s announcement on tapering off its $85-billion-a-year asset purchase programme that led to a massive bond market outflows to the tune of $6.5 billion since mid-May. It is no coincidence that emerging economies with large current account deficit (CAD) such as India, Indonesia, South Africa, Brazil and Chile have witnessed the steepest fall in their currencies.

Obviously, the fundamental cause of weakening rupee lies in India’s poor macroeconomic management e.g. slowing growth, high inflation, and CAD that is increasingly being financed by volatile FII inflows, ECB and short-term trade credits. Not to mention the role of rising imports of coal and fertilisers, besides the usual suspects, namely, crude and edible oil, and gold.

The RBI’s leniency in approving ECB and FCCB ($140 billion in the last five years) to provide a supposedly cheap source of financing to India Inc has made matters worse. ECB now accounts for 31 per cent (up from 10.2 per cent in 1991) of India’s total external debt of $390 billion. Going forward, servicing of maturing ECB/FCCB is going to be a serious concern.

Impact of rupee fall

The major casualty will be India’s efforts at taming inflation, since the rupee price of imported goods such as coal, crude, edible oil and fertilisers will go up.

Since 60 per cent of India’s edible oil requirements are met by imports, a depreciating rupee will adversely affect margins of food processing firms. Increase in rupee cost of crude oil will increase the under-recoveries of oil marketing companies and, in turn, subsidy burden, thereby adding to India’s fiscal woes in the run-up to the general election.

Most Indian corporates keep up to 25 per cent of their forex exposure un-hedged. Net importing firms manufacturing consumer durables or electronics, and infrastructure companies that have heavily borrowed in foreign currencies will witness erosion of their margins.

Moreover, in such a scenario, the RBI may have to postpone rate cuts, which will disappoint India Inc. As a result, equity markets will get a cold reception from investors, further dampening the sentiment.

Ideally, rupee depreciation boosts a country’s net exports depending upon the demand elasticities of its exportables and importables.

Thus, firms in the net exporting sectors such as IT & ITES, pharmaceuticals, textiles and clothing should post better results. However, textile and IT sectors lack pricing power and may have to under-cut price in line with depreciating rupee.

Further, simultaneous depreciation of the currencies of other emerging markets (often competing in third country export markets) will erode the actual gain on India’s export competitiveness caused by the decline of rupee.

In FY 2012, the top 559 listed companies, excluding oil and gas and banks, imported goods and services worth $83 billion when their combined export was worth $57 billion. Thus, net importing firms will also lose from the declining rupee. However, weakened rupee will provide some relief to domestic manufacturers of items such as apparel as imported substitutes will become expensive.

Export as a natural hedge

Because of the currency fluctuations and import parity pricing of inputs, currency risk is a reality that businesses will have to deal with, whether they use domestically produced or imported inputs.

To deal with the adverse effect of currency volatility, a firm must go for hedging its forex exposure by getting into forward contracts or using the tools of currency futures to lock in its forex liability (or gain in case of exports). However, there is a cost to hedging, often in the 5-6 per cent range of the value of exposure. Export can, thus, be a natural hedge against declining rupee.

The way forward

Though a sharp decline in the rupee may have been triggered by the US Fed’s announcement, the remedial measures have to be indigenous, aimed at reducing trade deficit, the primary cause of the problem.

In the short-run, the RBI can intervene in the forex market to support the rupee.

However, determining the quantum and timing of intervention is not easy.

Besides, the central bank would like to preserve its forex reserves (around $290 billion, sufficient for seven months of imports) given the still high CAD and payment obligation with respect to maturing ECB/FCCB.

However, the following steps can help:

It’s time India took serious efforts to address the concerns raised by successive World Bank’s Ease of Doing Business reports in order to attract sufficient FDI inflows i.e. $100 billion/annum.

Looking at the actual inflows post the opening up of FDI in retail one can easily say that raising FDI caps in a few sectors will not help.

At $40 billion, India’s trade deficit with China stands at 2 per cent of its GDP.

India must engage with China to push its exports in the country. Making duty free import of garments from Bangladesh under SAFTA conditional on sourcing of inputs such as yarn or fabrics from India will push textile exports.

Expediting trade talks with highly protected markets of Pakistan and Latin American bloc Mercosur will boost India’s exports from day one.

Checking coal import by ramping up domestic production and removing export duties on iron ore will give quick result.

Dematerialising investment in gold will reduce its import. Economic pricing of fertiliser (urea) and petro products will encourage their efficient use and lead to saving of foreign exchange.

India also needs to push export of IT services beyond the EU and the US.

More Taiwanese firms in China heading home   [ top ]

THE STRAITS TIMES, Lee Seok Hwai, July 8, 2013
A growing wave of Taiwanese companies that rode the tide of cheap manufacturing in China over the last three decades are returning home as costs on the mainland creep up. But they are hedging their bets by keeping most of their existing operations in China and relocating only partially or investing in new facilities - focused on research and development (R&D) or more sophisticated manufacturing - back in Taiwan, where wages have remained stagnant for the past decade because of an underperforming economy.

This way, say company executives and analysts, the Taiwanese businesses or Taishang can shift towards higher-end manufacturing and exports. At the same time, they remain entrenched in a vast market where consumption is slowly rising.

Among the "returnees" is Hotron Precision Electronic Industrial, which makes wires and cables for computers and other consumer electronic products. It hires around 1,500 workers at its two plants on China's east coast - one in Suzhou, Jiangsu province, and the other in Fuzhou, Fujian province - and registered NT$2 billion (US$66 million) in turnover last year.

The firm, which was founded in 1991 and moved to China just a few years later, plans to relocate the front-end, automated part of its operations to central or southern Taiwan. It proposes to build a plant worth some NT$600 million and hire about 250 workers.

"We've been thinking about this for the past two or three years," the company's president, Lu I-hsuan, told The Straits Times. "Costs in China's coastal provinces have been rising too fast and will keep going up in the foreseeable future."

Lu reckoned that basic pay has been going up by 20 per cent per year since 2008. Moving to China's less-developed west - as some Taiwanese manufacturers like Foxconn have done - would incur higher transport costs.

"Overall, the costs wouldn't be much lower than if we move back to Taiwan," said Lu, adding that the firm also dismissed other options like Brazil and South-east Asia, wary of political instability and that workers there would not be as hardworking as Taiwanese.

Between 2007 and last year, overseas-based Taiwanese companies like Hotron pledged a total investment of NT$210.3 billion in Taiwan, rising from NT$14 billion in 2007 to NT$51.9 billion last year. More than 70 per cent of this was from mainland-based firms, according to the Ministry of Economic Affairs and analysts.

And an eight-month-old government scheme offering higher foreign labour quota, special loans and assistance to lure large-scale Taishang home has netted promised investments of NT$182.6 billion and about 28,000 jobs.

The figures do not include smaller investments that the government does not track or those by firms listed on Taiwan's bourse but make their wares in China.

Liu Meng-chun, director of the centre for economic forecasting at the Chung-hua Institute for Economic Research in Taipei, said mainland-based Taishang, besides wrangling with higher production costs, have to contend with a rising yuan which makes their exports more expensive.

Moving home will help them build cross-strait supply chains and reduce their exposure to rising costs. Having part of their operations in Taiwan will also improve the quality and image of their products for exports both internationally and to China.

But Liu noted: "The growth of consumption in China is an opportunity for Taishang."

He added, however, that they need to evolve. "By partially returning to Taiwan, they can add as much as 10 per cent to the value of their exports through better quality, packaging and so on. That amount is a big deal for industries like electronics, where the profit margin is only 3 per cent," he said.

"That would help them open up higher-end overseas markets and increase their appeal to mainland consumers as well."

That is the main advantage of moving back to the island for badminton racket-maker Flex Pro. It plans to bring its R&D and some contract-manufacturing operations back to Taiwan after having been away for 20 years.

Manager Chen Feng-hsing said the main advantage of moving home is the better quality and image of "Made in Taiwan" products, which command a 20 per cent price premium over "Made in China" ones for Flex Pro.

Flex Pro - the eponymous brand that the company bought from a British firm - is the No. 3 badminton brand in China, with its rackets selling for as much as NT$6,000 or more. It also exports to Malaysia, South Korea, Vietnam and Singapore.

The company opened a flagship store in the central Taiwanese city of Taichung in January and hopes to have 30 shops eventually. It plans to increase its staff strength in Taiwan from six to 100.

If Taishang did not come back, they could be "doomed", said Dr Liu. That would be bad news to China too, as it would mean massive layoffs.

Indeed, that is what has happened to many Taishang in the traditional manufacturing industry, making shoes and textiles in factories they built in southern China in the era of cheap labour and land. About one-third of these factories have closed down, while another 30 per cent are struggling, according to a report by Taiwan's National Security Bureau last year, three decades after Taishang began heading to the mainland in search of a pot of gold.