When the local currency began sliding against the US dollar amid the depletion of foreign currency reserves, textile and readymade garment exporters were supposed to gain from the development as usually happens.
But the reality turned out to be different for them as they saw lower profits. Some even fell into the red in the July to September period of the 2022-23 financial year.
The taka depreciated by about 25 per cent against the dollar between February and September, driven by the Russia-Ukraine war.
A currency depreciation, if orderly and gradual, usually improves a nation’s export competitiveness, but exporters in Bangladesh say they could not make the most of the taka’s depreciation against the American greenback since they had to buy US dollars at a higher price while opening letters of credit to import raw materials needed to serve the global markets.
Of the 58 textile and readymade garment companies listed with the Dhaka Stock Exchange, 42 published their data properly. Of the 42, eight kept incurring losses in the three months to September while three firms fell into losses.
Ten companies witnessed lower profits and the rest logged higher profits, data compiled by Sandhani Asset Management showed.
Speaking to The Daily Star, Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association, said most of the textile and apparel manufacturers purchase raw materials from international markets and they had to pay higher prices while opening LCs.
“We have never seen such a huge gap between the selling and buying rates of the US dollar.”
“Though we benefited from the depreciation of the local currency, the gains were gobbled up by the huge difference in the buying and selling price of the American greenback.”
Firms received Tk 99 while selling their export proceeds to banks whereas they had to count around Tk 107 per USD while importing raw materials.
“As a result, the costs rose,” Khokon said, adding that the prices of raw materials surged in the global market at the beginning of the quarter before falling towards the end.
Insufficient energy supply also hurt the textile and garment sectors since they are heavily dependent on energy.
The sectors came under an energy crisis after the government stopped importing liquefied natural gas to stop the decline of the foreign currency reserves, resulting in recurrent power outages across the country.
“We did not get the supply of electricity for half of the day while there had not been adequate gas pressure,” Khokon said, warning that the earnings might see a deeper fall for the energy shortage in the ongoing quarter.
Malek Spinning, Maksons Spinning Mills, Matin Spinning Mills and Square Textiles are usually the top profit makers among the listed textile and RMG makers. But Matin Spinning Mills, Square Textiles and Maksons Spinning all posted lower profits in the first quarter of the current fiscal year.
The profits of Square Textiles fell around 17 per cent to Tk 37 crore, owing to higher expenses for the increased energy costs and fuel prices, the company said in its financial reports.
Since November 2021, the government has hiked the diesel price twice, sending it to Tk 109 per litre from Tk 65 to minimise the subsidy on petroleum products.
Matin Spinning’s profits dropped by 22 per cent to Tk 20 crore. The company blamed the increase in raw material prices and higher energy costs for the fall.
Maksons Spinning’s profit was down 5 per cent in July-September.
A top official of a garment manufacturer says the benefits of the taka’s sharp depreciation were eaten up by some banks since importers had to purchase raw materials at higher prices.
As per existing norms, the spread between the buying and selling rate of the US dollar is a maximum of Tk 1, but banks have hardly followed the rule since April after volatility hit the foreign currency market, fuelled by a sharp increase in import bills amid the severe fallout of the Russia-Ukraine war.
Some banks even sold a US dollar for up to Tk 108 to importers although they had purchased it at Tk 94 from exporters, sending the gap to as high as Tk 14, the official said.
“The gap between the buying and the selling rate of the dollars was huge. Whatever benefits we could manage to receive were cancelled out by the higher fuel and operating costs induced by the inflationary pressure.”
The export earnings of the listed companies were hit in the quarter due to the high inflation in the western economies. Exports dropped 6.25 per cent year-on-year to $3.9 billion in September, the first fall in 14 months.
Garment shipment, which accounts for about 85 per cent of national exports, went down by 7.52 per cent to $3.16 billion in the month, according to data from the Export Promotion Bureau.
The contraction came as European and American buyers continue to struggle amid higher consumer prices.
Inflation in the 19-member eurozone surged to 10 per cent in September, the highest on records. In the US, it was 8.2 per cent, hovering near the highest levels since the early 1980s.
