The Global apparel export growth is expected to dip in 2023 in line with the global slowdown followed by a rebound thereafter as the economic outlook for the major apparel markets is expected to remain subdued in the short run
Bangladesh apparel export is expected to reach $56 billion by the end of 2026 with a CAGR growth rate of 5.3% driven by expansion in the man-made fiber (MMF) segment, apparel order shift from China and market diversification, according to research by CAL Bangladesh.
The Global apparel export growth is expected to dip in 2023 in line with the global slowdown followed by a rebound thereafter as the economic outlook for the major apparel markets is expected to remain subdued in the short run.
According to the report titled Bangladesh Apparel Sector – “Rags First But Riches to Follow”, a slowdown in the major apparel markets will weigh down local apparel exports in 2023. Inflation will push wage rates higher, squeezing margins.
Moreover, the production costs will increase due to a gas tariff hike while energy shortage will hamper productivity.
However, the apparel export of Bangladesh has been comparatively resilient during global economic downturns, the research said.
In addition, a decline in cotton prices stemming from waning global cotton consumption to help ease price pressures and a steep correction in the freight rates will help reduce raw material import costs.
Apparel exporters with higher exposure to the European markets will experience a significant dip in revenue than those with higher exposure to the US markets as Europe proved weaker in averting the Ukraine war shocks, the CAL research stated.
Companies with high fixed-cost structures will experience a substantial reduction in their bottom line and companies with high debt exposure and high inventory, given a sharp decline in the cotton price, will struggle in 2023, the report added.
With dominance in cotton-based apparel, Bangladesh is increasingly focusing on man-made fibre (MMF) to ride on a stronger global growth outlook.
Migration of global fashion retailers’ order flow from China will drive export market share expansion for Bangladesh apparel.
CAL expects Bangladesh’s export market share in major non-traditional markets to increase to 10% in 2026 from the existing share of 8%.
Also, moving up the value chain through a gradual shift toward higher-margin products will facilitate enhanced top-line growth.
What does this mean for companies operating in the sector?
Companies investing in the MMF segment are likely to witness faster growth. Also, companies expanding their portfolios with higher-margin product categories will perform better mid-term.
Companies expanding into non-traditional markets will consolidate market share, foresee CAL analysts.
Graduation from LDC
The report also discusses the long-term impact of Bangladesh’s graduation from the Least Developed Countries (LDC) status on the apparel sector.
Preferential trade deals and strong backward linkage could ensure a smooth transition for the apparel sector toward the LDC graduation.
After the LDC graduation, 18% of the total export is likely to be affected in 2026, resulting in a significant increase in tariff rates.
Securing preferential trade agreements, focusing on sustainability and enhancing competitiveness would help to smoothen the transition path of LDC graduation.
Moreover, riding on sustainable reforms, CAL expects apparel selling prices to increase by 24% due to the improved industry image.
CAL Research expects well-established apparel exporters to consolidate their market share further.
Companies expanding their portfolio with higher margins will perform better while well-established companies will likely move lower-margin manufacturing to countries that still enjoy duty benefits.
With high local value addition, currency depreciation will benefit apparel exporters. However, multiple exchange rates will dent the benefit along with additional challenges arising from LC opening hurdles stemming from the declining dollar balance in the economy.
Industry insiders of the country also believe that 2023 is going to be challenging and they are optimistic regarding high-value products and exploring new markets.
Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), recently told Dhaka Tribune that they have to face many challenges in 2023.
“We’ve to move forward amid the challenges. We are currently producing value-added items and the exports to non-traditional markets have also increased,” he added.
Riding on nontraditional markets, MMF and high-value products, BGMEA already set a target of exporting apparel items worth $50 billion by 2023 and $100 billion by 2030.
