Industrial closure – how prudent?

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As Pakistan entered its 11th day of industrial lockdown on Wed April 01, 2020, (including 3 days of 23rd’s long weekend) the question being asked by all stakeholders is that does the government really have an industrial plan amidst the duration of the COVID-19 pandemic? Industrial lockdowns are always very tricky to handle and if called incorrectly can invariably lead to permanent industrial closures or can result in far greater damage, other than merely industrial in nature. Meaning, resultant colossal financial losses that can in-turn end up: eroding any previously held industrial competitive advantage; making plants permanently redundant as cash flow constraints make it out rightly difficult to restart engines; making it (in some cases) impossible to regroup the scattered human resource; and last but not least, killing the very will of an entrepreneur to once again take a business risk amidst a generally unfriendly business environment. And it is in this very context that one is a bit confused that, good intentions aside, what exactly prompted this government to take such an irrational decision of shutting down the wheel of industry/manufacturing in Pakistan for almost 17 days? Pakistan has its own peculiar set of problems and simply aping the West in any type of policymaking or carving a copy-paste emergency response mechanism can be rather foolhardy. Neither do we have the kind of deep pockets that developed western economies do nor their demography – affluence across a narrow and organised population base – that makes it relatively easy for them to manage their small populations. Here in Pakistan, the challenge instead is to feed a country with a bulge of more than 220 million people where almost 30 percent live below the poverty line, more than 65% are very young at 35 years or under, nearly 3 million enter the job market annually, and public social safety nets are grossly inadequate, to put it mildly. An industrial closure that accounts for approximately 42% of GDP and 75% of employment is just not an option!

However, a rather more disturbing aspect of the current industrial closure in Pakistan is that such an extreme step or option, has thus far been avoided even by the so called most developed nations of the world, despite their financial muscle and organizational strength. In fact, contrary to closures, are their effort to keep their industries operational whereby the respective governments of the developed countries are going out of their way to facilitate businesses to stay operational while of course undertaking measures to at the same time keep them safe. For example, in most of the European Union the industrial production continues to take place, albeit with renewed safety protocols, which by now are in any case common knowledge and (like the other IFC principles of Corporate Governance) are there for everyone to follow: a) Only factory workers to be permitted and visitors of any sort are to be strictly forbidden entry, b) Strict temperature and hygiene compliances at the points of entry and exit, c) Masks & Gloves, d) Working from home for management staff, where possible, e) Daily a two hourly cleanliness drill, f) Daily Floor and Machine disinfecting and e) Coordination with nearby hospital(s) for any emergencies. If you are producing in Europe, the government will help you manage all the following operating requirements: transport, hygiene, medical care and any professional healthcare related expertise.

Similarly, in other industrial nations that are serious about economic sustainability, employment, cash flows, supply chain, poverty and food security while enjoying a sound coordination with their manufacturing operations, the policies come across as being no different. For example, Indonesia (a country with a rather high population), Thailand, Malaysia, South Korea, Vietnam and Myanmar have all adopted a similar industrial approach during the COVID-19 period. India our neighbour, that started with a 21-day closure (announced about 4 days after our industrial lockdown) was soon to realise that things will begin to tumble economically unless the wheels of the industry are kept running (a 21-day closure cost for India being estimated at nearly $120 billion). Naturally, it has now quickly changed its stance to allow key manufacturing with oversight and by organising industrial goods’ movement during the night time only (8PM onwards to 5AM). Prompted by the Indian steel makers, the government under a special law has now also devised a list of “Essential Industries” that will be allowed to maintain operations during the country’s 21-day lockdown. Remember, that the output and work hours for some industries are going to be curtailed in any case, as both domestic and global consumption (in-turn demand) takes a nosedive.

The basic assumption in not opting to shut down manufacturing is that the private sector is always more efficient than the public sector and therefore, partnering the private sector in keeping operations (manufacturing) running, while as best as possible managing the medical fall outs, does in fact get to be a win-win for everyone. And why exactly does it get to be a win-win? Because, by allowing production under the compliance guidelines not only is the government ensuring that the well-being of the workers and the working environment’s maintenance is effectively transferred into far more capable and efficient hands than the government itself, but also (in the process) it saves the government a lot of expense. However, for such an arrangement to succeed, the key is always going to be to keep a balanced and honest perspective on the optimal outcome. In essence, like all other sensible governments around the globe do, the Pakistani government will also need to treat this arrangement in the true spirit of a private-public partnership. Meaning, the government will have to keep on facilitating where required; understand that fatalities are bound to happen and need to be taken in that stride (just as the cases in homes or hospitals) in order to avoid any type of witch-hunting or blame game or extortion – Pakistan’s industrial oversight bureaucracy, as we know, is famous for such exploitation and corruption! Yet another argument that also ultimately leads to the same outcome or arrives at the same decision, albeit after enduring much more pain, is embedded in a rhetorical question: Whereas closure is always the easy part, what exactly constitutes the government’s plan for re-opening these industrial premises after the lapse of 15 to 17 days? After all, the dynamics, the work environment inside the factories, the requirements on working cum precautionary protocols and the inherent risk of resuming operations, are all more or less going to largely remain the same? So, what happens then?

And for this reason alone, unless the government can quickly and clearly share its intentions with stakeholders on promptly re-opening all stalled operations, the panic and uncertainty in the markets and people will continue to mount. Already we are seeing this phenomenon manifest itself in shape of crumbling values of stocks, currency and real estate – meaning, for all practical purposes, people’s capital, lifelong savings and net worth stand considerably eroded, thereby denting a futures’ perception, something which at least in the short-term will continue to negatively impact investment, employment generation and the Pak economy per se. A 15-day closure roughly translates into a $20 billion erosion of economic activity and $1 billion hit on exports – something that a country like ours can ill afford. The fallouts do not merely end at this, since any unnecessary closures also run the risk of creating artificial shortages, which God forbid if they happen, can invariably lead to civil unrest and chaos. Again, something that could be disastrous for a country like Pakistan where law and order and security have always been our visible challenges.

Finally, the thing is that this government needs professional help for undertaking sound industrial management in the country, as at present it either does not have a competent team of industrial-management experts in its ranks or the persons in its team are simply incompetent and do not truly understand the modern tools of industrial management. Now I am not a medical expert and am just a normal citizen who as much as like anyone else, is afraid for his loved ones, for his neighbours and for the people everywhere, and neither do I claim to have every variable of the current pandemic covered or thought through, but I am very certain that we need to broaden the debate. As we struggle daily to come to terms with our hellish choices, the reality is that we either take a calculated risk with the people’s exposure to the corona virus while doing our utmost to protect those who are most vulnerable, or we shut down our industries for months without even being sure on what these closures are really going to achieve for us, while ironically, knowing for sure that they will in the process kill many of our people by other fallouts, like hunger, abject poverty, depression, un-employment, etc., kill our economy and may be also kill our future. It is about time that Pakistan is put back to work!

Source:  The Nation

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