Latest news with #capitalflight
Arab News
6 days ago
- Business
- Arab News
Pakistan textile union warns of capital flight to UAE, urges industrial policies to retain investment
KARACHI: Pakistan is facing the flight of capital, with local industrialists shifting their factories to investor-friendly Middle Eastern countries like the United Arab Emirates due to the lack of favorable industrialization policies at home, Kamran Arshad, chairman of the All Pakistan Textile Mills Association (APTMA), said on Tuesday. APTMA represents more than 200 textile millers, which employ the country's largest industrial workforce of more than 40 million people and account for half of the nation's total exports. Its top official made the remark during an interview with Arab News just a week ahead of the country's federal budget that is scheduled to be announced on June 10. 'Pakistani investors are now the second or third largest investors in places like Dubai,' he said during the conversation. 'Yes, there has been a flight of capital,' he continued, adding 'had there been curbs and checks and balances on the flight of capital and favorable industrialization policies, the capital would have remained within Pakistan and it would have gone into agriculture and industry.' Pakistan's government is trying to turn around the country's debt-ridden economy by curtailing imports and increasing exports with the help of the International Monetary Fund's (IMF) loan program. The government has emphasized its commitment to creating a more business-friendly environment in recent years, identifying textiles as a central driver in achieving a $60 billion export target by 2029 under its newly unveiled five-year economic framework. Overall, the country's exports rose six percent to $27 billion this year through April, but its textile exports declined more than 13 percent between FY22 and FY24 after hitting a record $19.3 billion in FY22. Arshad maintained this was mainly due to the Export Facilitation Scheme (EFS) introduced last year that did not work well for the sector. Originally envisaged to streamline and incentivize exports by allowing exporters duty- and tax-free access to inputs used in the production of export goods, the scheme benefited importers over local input producers by putting yarn and all varieties of fabric on the EFS. By removing the sales tax exemption from domestically produced inputs like cottonseed and yarn while keeping imported equivalents tax-free, the scheme made local sourcing less competitive for Pakistani manufacturers. 'We fully expect that the government would be considerate and they would honor our request, our demand to remove yarn and fabric of all sorts from the EFS scheme and to create a level playing field,' the APTMA chief said. Separately, at a news conference, he said that while hundreds of local industries had already closed, others were running at partial capacity. 'More than 120 spinning mills and over 800 ginning factories stand closed at the moment,' he said. NO BUYER FOR US COTTON Arshad said the government may not find buyers for the additional cotton it is expected to import from the US if the heavily taxed spinning and ginning factories continue to shut down at the current pace. Pakistan and the US last week began negotiating their 'reciprocal' trade tariffs, with Islamabad aiming to bridge its $3 billion trade surplus with Washington by buying more cotton and soybean to avoid the imposition of 29 percent tariffs on its exports to the US. 'Washington has indicated availability of up to 1.5 million bales for export to Pakistan,' the APTMA chairman told reporters at a press briefing. In the ongoing trade talks, he said one of the offers the Americans were expected to make was the doubling or tripling of cotton exports to Pakistan, which uses cotton as a raw material for its textile industry that fetched $16.7 billion in exports last year. The US is the biggest buyer of Pakistan's exports, mostly textiles, which were valued at $5.44 billion last year through June, according to State Bank of Pakistan data. US Charge d'Affaires Natalie A. Baker last month met Pakistan's commerce minister, Jam Kamal Khan, and cited enhanced cooperation in the cotton sector as a key area for mutual growth, given Pakistan's textile industry's demand for high-quality cotton and the US ability to meet that demand. 'Who will buy this US cotton,' said Arshad, 'while more than 120 spinning mills and 800 ginning factories have already shut down across the country.' He noted the industry was already dealing with the carryover stocks of as much as 800,000 cotton bales from last year while the next crop was about to land. Spinning mills consume most of Pakistan's cotton output, which is falling and halved this year to 7.1 million bales after reaching a record 15 million bales in FY15, according to Pakistan Central Cotton Committee data. Pakistan's annual cotton consumption is about 15 million bales, but a poor crop made it the biggest importer of US raw cotton in FY23, when the dollar-strapped country had to spend billions on importing more than 4 million cotton bales, each weighing 170 kilograms. Arshad said for Pakistan to absorb an increased amount of US cotton, a viable and operational spinning industry was essential. 'Without restoring competitiveness for domestic spinners, additional cotton imports will not materialize,' he added. Pakistan's finance adviser Khurram Schehzad declined to comment on issues related to the textile sector 'before budget,' while finance ministry spokesperson Qamar Sarwar Abbasi did not respond to questions.
Arab News
28-05-2025
- Business
- Arab News
Builders say without tax cuts in budget, capital flight to Gulf, Western real estate to continue
KARACHI: The flight of capital from Pakistan to the UAE, Saudi Arabia, the UK and other investor-friendly nations could rise to $30 billion in the next five years if the government failed to rationalize taxes on the construction industry in the FY26 budget next month, builders and developers said this week. The outflow of capital from Pakistan is driven by factors like high transaction taxes, economic uncertainty, and the perception of a more favorable tax environment and higher returns in international markets. This trend is particularly pronounced in the UAE, where Pakistani investors have made significant investments in real estate. Pakistan's tax policy on real estate has been criticized for being high compared to regional and international benchmarks while countries like the UAE offer lower tax rates and more attractive returns on real estate investments. Political and economic instability in Pakistan have also discouraged investment and led to capital flight as investors seek safer, more stable markets. Pakistan's construction industry, with its 10 million skilled and unskilled employees, is the second biggest employer after agriculture but its contribution to the gross domestic product has declined more than six percent to 2.6 percent in the last four years. 'Unfortunately, due to the prevailing economic conditions in Pakistan, a lot of builders and developers have already transferred their money out of Pakistan and are constructing projects in UAE, Saudi Arabia and other countries,' Mohammad Hassan Bakhshi, chairman Association of Builders and Developers of Pakistan (ABAD), told Arab News in an interview in Karachi. In Pakistan, housing is a heavily-taxed industry, with taxes ranging from as much as 40 percent property transfer tax to 60 percent levy on builders and developers earning more than Rs 150 billion ($532 million). These taxes are 'too high,' the ABAD chairman said, suggesting that the property transfer tax be reduced to five or six percent. By 2022, Pakistanis had invested $12 billion in the UAE, which was expected to increase to $25 billion this year and $30 billion by 2030, said Bakhshi, citing data from the Federal Board of Revenue, the state tax collector. 'Big builders and developers of Pakistan have already shifted or are in process of shifting their capital, their investment,' and entrepreneurship skills to Saudi Arabia, Dubai, the US and UK, the ABAD chief added. Pakistan's construction industry has Rs 90 trillion ($319 billion) cash capitalization, 10 times bigger than Pakistan Stock Exchange's Rs 10 trillion ($35 billion). The size of Pakistan's total budget for FY26 is expected to be Rs 17 trillion, according to local media reports. 'OPTIMISTIC' Pakistan, the world's fifth most populous nation, is facing a 12 million housing shortage that industry stakeholders say can be turned into an opportunity by the government to create economic activity and spur growth. Arshad Mehmood Awan, an Islamabad-based real estate professional and CEO of Homy Properties, said the government could reduce the shortage of residential units by launching affordable housing projects and making bank loans accessible online in the new budget. 'Regarding housing finance, we are expecting the government to devise a strategy, a plan that would enable the common man to easily avail housing finance from banks,' Awan told Arab News. Arif Habib, the chairman of Arif Habib Group, said he was 'optimistic' about the new budget, saying premier Shehbaz Sharif had formed a task force to develop proposals for the housing market. The government, he said, had decided to withdraw excise duty and was considering reducing some advanced taxes as well. 'Then the most important aspect of this real estate market is the mortgage financing availability,' Habib told Arab News in an interview, saying the government's task force was recommending proposals to encourage mortgage financing given that inflation had eased to a record low. 'In the past, because of the high inflation, people didn't have enough disposable income to buy real estate,' Habib said. 'But now I believe, with the positive sentiment in the country, the Pakistani diaspora would also be attracted to the Pakistani market because they prefer to buy houses here for their families and for their future. So I believe after the budget, this [real estate] sector will also be active.' More than half of the 10 million overseas Pakistanis who are expected to remit a record $38 billion this year wanted to invest in the country's real estate sector, ABAD's Bakhshi added.
