Specialised textile mills, which supply one-third of woven fabric required for the export-oriented garment sector, have plunged into deep trouble as they are finding it tough to stay competitive in the market in the face of liquidity crisis and high production costs.
In this situation, the Export Promotion Bureau (EPB) has proposed that the government come forward to bail them out with special assistance.
Apart from working as a backward linkage of apparel makers, the specialised textile sector also directly exports woven fabrics to different countries. The sector raked in $131 million in export earnings in FY21 and $116 million in FY20.
In a report titled “Reasons behind a fall in exports of major products and recommendations to remove barriers” recently forwarded to the commerce ministry, the EPB has also suggested providing policy support and increasing cash incentives for major forex earning sectors such as plastics, furniture, live and frozen fish, vegetables and fruits to help boost their exports.
Before preparing the report, EPB Vice-Chairman AHM Ahsan had a meeting with businesses from export-oriented sectors.
The demand for woven fabrics manufactured by local specialised textile mills has declined because of imports of such fabrics under the bond facility. Cash crunch, rising prices of machinery and an obligation to set up factories on ground floors of buildings have put this industry in a tight corner, the EPB said.
The EPB has recommended special support for the sector in the interest of maintaining uninterrupted supply of raw materials to the country’s readymade garment industry and enhancing its capacity as a backward linkage industry.
Exports of woven garments fetched $14,496 million in FY21, which was 37% of the country’s total export earnings. Raw materials meant for one-third or $4,832 million worth of woven garments come from the specialised textile sector, while the rest are imported from abroad.
The major portion of the government provided-stimulus funds amounting to Tk10,500 crore to pay salaries of workers in the export-oriented industries went to apparel factories.
Besides, the readymade garment sector received significant amounts of loans from the government’s Tk40,000 crore stimulus package for the pandemic-hit industries and service sector. But a large part of the specialised textile sector and the apparel accessories industry did not get any stimulus support.
Syed Shamim Reza, president of the Bangladesh Specialised Textile Mills and Power Loom Industries Association, told The Business Standard that a large number of specialised textile mills are becoming sick. A big portion of the sector could not get government stimulus loans owing to loan default.
The resulting liquidity crisis has forced the mills to stop production. Moreover, the recent abnormal hike of yarn prices in the country’s market has added to their woes, he added.
Fabrics from the specialised textile mills cannot be sold in the domestic market too as those imported by garment factories under the bond facility are sold in the open market, he also said.
The misuse of the bond facility continues although they have been repeatedly requesting the National Board of Revenue to step in to stop such malpractice, Shamim said.
First Vice President of BKMEA Mohammad Hatem told TBS, “We import yarn from India at $3.22 per kg, but local spinning mills are not willing to sell the same yarn at no less than $4.50.”
Stating that specialised textile mills cannot sell fabrics with yarn at such a high price, Hatem said, “It is possible to import fabrics from China at a much lower price. So, a surge in yarn price in the local market will not only affect knitwear exports, but also put specialised textile mills at risk.”
A large boost in cash incentives suggested
According to the EPB, 95% of Bangladesh’s export earnings come from eight sectors such as readymade garments, leather and leather products and frozen food. A decline in export earnings in these sectors has had a negative impact on the total export growth.
In FY20, exports posted a negative growth because of the pandemic. In FY21, exports of live fish, shrimps, crabs, vegetables, cement, paper and paper products and terry towels dropped further.
In the pandemic, woven garments saw a decline in exports because of falling demand for such products in the global market although knitwear exports registered a rise, according to the EPB.
The EPB said exports of knitwear items might face a setback mainly because of yarn price hike and very high container shipping costs.
Exports of readymade garments grew by more than 12% in the last fiscal year, but fell short of the target by around 8%.
The export of PET bottle flakes is losing competitiveness in the international market because of declining export prices of such items, a hike in freight charges and congestion at transhipment ports, the EPB report says.
Local manufacturers add almost 100% value to PET flakes and many people are employed in this sector. So, the EPB proposed increasing a cash incentive for exports of such products to 20% from the existing 10%.
PET flake exporters say although they previously exported PET flakes only to India and China, new markets for PET flakes have been created in the United States, Canada, Vietnam, UAE, Turkey, Russia, Poland, Malaysia and Thailand.
Orders from these countries have also started coming in, but prices have come down, he added.
Double cash incentive for shrimp export proposed
On the other hand, Bangladesh’s frozen and live fish and shrimp exports have not yet returned to normal although the pandemic situation has come under control in the US, the European Union and developing countries in Asia.
The EPB believes that exports of these products are still in the negative territory as demand for luxury food has declined and many orders have been cancelled because of the Covid-induced global economic downturn.
Suggesting that the cash incentive be doubled for exports of live and frozen fish, including shrimp, from the existing 10%, the EPB said the government should increase credit support to farmers for medium-term shrimp production and assist in setting up semi-intensive farms.
Proposing to double the cash incentive for shrimp exports, including frozen and live fish, from 10%, the agency said it would increase credit assistance to farmers for medium-term shrimp production and government support for setting up semi-intensive farms, as well as allow vannamei shrimp farming for a long time.
The crab and eel sector has also been hit hard by the pandemic. Though its contribution is not so big to the overall export earnings, the government needs to take an initiative for the cultivation of crabs and eels while maintaining natural balance and to set up processing factories because of a huge demand for such exports. Besides, to ensure uninterrupted exports, it is important to keep cargo flights running and provide loan assistance to entrepreneurs, the EPB said.
Airfreight hike hurting vegetable export
The EPB also said despite a huge potential, exports of vegetables and fruits are not increasing owing to a hike in air freight costs and a lack of packing houses adjacent to airports.
Besides, a lack of accredited labs for detecting the presence of salmonella bacteria and heavy metal in betel leaf and vegetables and a rise in testing costs amid Covid-19 are also major reasons for a negative impact on such exports.
One of the main markets for Bangladeshi vegetables is the Middle East, including Saudi Arabia. The export of betel leaf continues only to Saudi Arabia and the country does not accept any lab report other than the nominated lab in Tejgaon, according to exporters.
Exports of potatoes, a potential item to Europe and Russia, have remained suspended for a long time.
To increase exports of vegetables and fruits, the EPB has recommended setting up of packing houses based on production areas, including in airport areas, and exporting vegetables through aircraft on priority basis and establishing accredited testing labs.
‘Tolerable’ duty on furniture raw material
The EPB feels that Bangladesh’s furniture cannot compete in the global market owing to a high duty on imported raw materials.
The agency said, “Getting the duty drawback is a very complex and time consuming process. As the furniture industry in Bangladesh has not been able to set up 100% export oriented plants, getting a bonded warehouse facility is uncertain for it.”
The EPB has suggested keeping duty on imported raw materials tolerable to boost furniture exports.
