LAHORE: Volatile exchange rate, rupee depreciation, inflation and high freight charges are big challenges for all the businesses, especially for the foam industry, which heavily relies on imported raw material, said Sheikh Muhammad Ibrahim, chief executive officer of Cannon Foam Industries.
“Uncertainty due to the volatile exchange rate is harmful for all the businesses. The depreciation of the local currency, inflation and high freight charges in the post-Covid-19 scenario has enhanced the landing cost of imported raw material. The prevailing situation is really tough for the foam industry having 100 per cent reliance on imported raw material,” he said, while talking to BOL News.
Ibrahim suggested devising a doable monetary policy and its uniform implementation for giving some breathing space to regular tax paying enterprises.
Unchecked movement of products from tax exempted areas has worsened the situation for regular tax paying companies operating in other parts of the country, he said.
“Many companies are misusing the tax exemptions for former Fata, Pata and AJ&K. They are manufacturing foam products there and supplying the same in areas where taxes are applicable. There is a need to withdraw tax exemptions in specific areas to provide a level-playing field to all the players.”
“The other option is setting up check-posts at entry and exit points and devising a proper track and trace mechanism to stop illegal movement of products,” Ibrahim said, who has twice served as the Executive Committee member of the Lahore Chamber of Commerce and Industry.
This humble and down to earth businessman has graduated from the Forman Christian College, a Chartered University.
Set up with the seed money of Rs12.5 million that also included working capital of Rs2.5 million almost 25 years ago, Cannon is now a multibillion rupee enterprise dealing in foam, spring mattresses and furniture.
Starting the business with the financial help of his father, Ibrahim established a reliable brand, with negligible number of claims. After the traditional foam brand got good market share, he successfully launched spring mattresses and furniture.
With a passion to help the poor, he has set up a quality institution to provide low-cost education facilities up to the secondary level.
Besides regularly arranging free eye camps, he is providing funds to a dialysis centre. He is also providing ration to more than 50 employees every month.
Following are the excerpts of an informal discussion with him.
What was your first business venture?
After graduation, my father helped me in starting my own business. Of Rs12.5 million, I spent Rs10 million on the purchase of land, setting up a factory and importing machinery. I started manufacturing and marketing of foam mattresses with the working capital of Rs2.5 million. I always focused on quality and customer care. The hard work, commitment and honesty led to an unprecedented success of the brand. Now, Cannon Foam is the third largest selling brand in the country with an annual turnover of around Rs4.5 billion. Spring mattress and furniture business is also progressing well.
What is your biggest achievement?
I am a self-made man who managed to establish a reliable brand with hard work, dedication and focus on quality. Confidence of customers is an asset for me. Our products have negligible complaints and claims for return.
What inspires you to join business politics?
LCCI’s former vice-president Nasir Saeed encouraged me to join business politics to help the community. I wanted to play the role of an educator and a facilitator for my fellow colleagues.
What are the challenges being faced by the foam industry? Possible way forward?
All the raw material used in the foam manufacturing is imported from China, Singapore and Europe. Global inflation, rupee depreciation against the dollar and high freight charges has increased the landing cost of imported raw material. As such, input cost has increased considerably in the post-Covid-19 scenario. Inflation has also affected the buying capacity of the consumers.
The government should take measures to check the volatile exchange rate and control the inflation. The exemptions from tax-free areas should be withdrawn, or levies must be imposed on products moving out of those areas.
How does Cannon fulfil corporate social responsibility?
I have been a member of the Lions Clubs International since 1990. This experience helped me fulfil corporate social responsibility. I am funding a school to provide affordable education up to matriculation. Facilitating the treatment of the deserving patients has always been my priority. I am providing funds to run a dialysis centre, besides arranging free eye camps. I am also providing a monthly ration to 50 employees.
How can we bridge the trade deficit?
There is a need to take short- and long-term measures to bridge the ever-increasing trade deficit. As the first step, the government should discourage unnecessary imports, especially luxury items such as cars. At the same time it should encourage local manufacturing to reduce the reliance on imports. Our main focus is the textile sector, there is a need to encourage all sectors to explore their full potential, especially information technology, engineering and agriculture.
An agrarian economy such as Pakistan is relying on import of oilseeds to fulfil the domestic needs. Crop diversification and use of technology is the need of the hour.
The government should encourage industrialisation and reduce the input cost of export-oriented industries. Diversification of products, value addition and exploring new export destinations are key to progress.
Your take on the prime minister’s relief package for the industry?
I think it is too late, as the business community has already parked surplus money in the real estate. The rates of land in the industrial estates have already doubled. Infrastructure development cost is much higher than the machinery. The package will fail to yield desired results unless the government takes practical measures for reducing the cost of land and infrastructure development.
How will an interest rate hike affect businesses?
An increase in the markup rate has enhanced the borrowing cost of enterprises. Cash-strapped Small and Medium Enterprises (SMEs) and the cottage industry rely on short-term loans for managing day-to-day affairs. The State Bank of Pakistan should revise the interest rate and bring it at par with the regional countries such as India, China, Sri Lanka and Bangladesh.
How inflation has affected businesses?
High energy costs and freight charges have badly affected all the businesses. The situation is really tough for the industries relying on imported raw materials. Inflation has also decreased the buying capacity of the consumers.
Your take on the volatile exchange rate and depreciation in the local currency?
Uncertainty due to a volatile exchange rate is harmful for the economy. Most of the export-oriented industries rely on imported raw materials. As such, the high landing cost of imported raw materials has enhanced the cost of doing business and rendered our products uncompetitive in the global market. We are facing difficulties due to global inflation and the rupee depreciation.
What can make the business environment easy and encouraging?
The pandemic has played havoc with the economy. Either the policymakers have no knowledge or they have least interest in improving the situation. The business environment is extremely tough for the new entrants. The existing players are fighting for their survival. The new entrants should be given proper guidance through one-window and tax exemptions. The government should ensure a stable rupee and give due attention to the SMEs and the cottage industry.
What is the future outlook of the overall business environment in Pakistan?
I am not optimistic about the future of business unless the government introduces a workable monetary policy and provides an enabling atmosphere to the SMEs and cottage industries. The government should give confidence to the business community and ensure stability of the exchange rate at least for a couple of years.